Buy Tulip Telecom; target Rs 200: Motilal Oswal

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Motilal Oswal is bullish on Tulip Telecom and has recommended buy rating on the stock with a target of Rs 200 in its July 30, 2011 research report.

"Tulip Telecom posted strong 1QFY12 results with PAT increasing 20.4% YoY to INR772m (against our estimate of INR693m). Revenue increased 24.5% YoY and 2.5% QoQ to INR6.54b (against our estimate of INR6.3b) led by strong performance in the fiber and wireless segments. EBITDA grew 30.4% YoY but declined 1% QoQ to INR1.85b (against our estimate of INR1.85b). EBITDA margin was up ~130bp YoY but down ~100bp QoQ at 28.3% (against our estimate of 27.5%). Consolidated net debt increased by 8% QoQ to INR16.5b mainly due to an increase in debtors from ~INR6.3b in 4QFY11 to ~INR7.1b in 1QFY12. The management explained that the increase was due to initial issues with ERP implementation in May 2011; Stabilization issues led to some challenges in tracking the aging of debtors. Capex for 1QFY12 was INR1.4b (capex/sales of 21%). Tulip's guidance is ~INR7b capex for FY12 including an estimated ~INR2.5b for the under-construction Bangalore data center."

"In 1QFY12 the data centre subsidiary posted EBITDA loss of INR14m (v/s INR9m loss in 4QFY11). Net debt/equity increased to 1.28x and net debt/EBITDA (annualized) to 2.2x. This is the fifth consecutive quarter of increase in leverage levels for Tulip. Key liquidity events could be (1) stake sale in data centre operations, (2) sale of 13% stake held in the BWA venture, and (3) capital raising at the parent level. The board approved the issuance of long term capital including warrants to the promoters up to 5% of issued capital. We are upgrading earnings by 5-7% driven by 2-3% EBITDA upgrade. The stock trades at FY12 P/E of 7.5x and EV/EBITDA of 5.1x. Maintain Buy with a revised target price of INR 200 (INR210 earlier) based on DCF (~5x FY13E EV/EBITDA)," says Motilal Oswal research report.

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To read the full report click on the attachment

Attachments : TulipTelecom_Motilal_110811.pdf