Buy Tulip Telecom; target of Rs 218: Emkay

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Buy Tulip Telecom; target of Rs 218: Emkay

Emkay Global Financial Services is bullish on Tulip Telecom and has recommended buy rating on the stock with a target of Rs 218 in its November 8, 2011 research report.

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RELATED NEWS Buy Everest Industries; target of Rs 272: SKP Securities Buy Taj GVK Hotels; target of Rs 121: Angel Broking Buy Ashok Leyland; target of Rs 33: LKP ALSO READ See previous views by Emkay Global Financial Services See what other Experts & Brokerages are saying about Tulip Telecom See messages about Tulip Telecom Tulip Telecom BSE | NSE 29/05/12 Are Mutual Funds betting on Tulip Telecom?

Emkay Global Financial Services is bullish on Tulip Telecom and has recommended buy rating on the stock with a target of Rs 218 in its November 8, 2011 research report.

"Tulip Telecom, consolidated revenue for the quarter stood at Rs7.0bn with growth of 20.1% yoy, in-line with our estimate (our estimate of Rs7.1bn). Revenue growth was driven by strong order growth in high bandwidth fiber led data connectivity along with wireless business segment. EBIDTA grew by 24.4% yoy to Rs2.0bn with margins at 28.9% improvement of 100bps yoy, led by low bandwidth cost due to bulk purchases and lower cost per subscriber on the back of economies of scale. PAT grew 11.6% yoy to Rs870mn (our estimate of Rs865mn). However, due high interest rates and continuously increasing debt on book, interest cost increased 82.0% yoy and 8.2% qoq."

"Fibre segment is enabling higher wallet share per customer driven by expanded product and service offerings. Data connectivity business contributed 62% to the total revenue of Q2FY12. Revenue contribution from managed services was at 32%. 83% (v/s 80% in last quarter) of new order inflow continued on the fibre segment. We believe, as the contribution from the managed services to total revenue is increasing, it would reduce the dependency on the fibre segment. The net-debt on the books further increased to Rs18.9bn at the end of Q2FY12 v/s 16.5bn in Q1FY12 and Rs14.3bn in Q4FY11. The increase has been primarily on account of ongoing expansion in both NLD and Data centre segment The company incurred capex of Rs1.45bn and generated cash profit of Rs1.37bn in Q2FY12. Capex guidance for FY12E maintained at Rs4.5bn."

"Debt on the books is continuously increasing and stretching the balance sheet. D/E of 1.37 for FY12E and net debt Rs16.2bn remains the key concern for the stock. While, stake sale in Data centre and divestment of Qualcomm investment could lead to deleveraging of balance sheet and remains key trigger for the stock. Nevertheless, on the back of higher realization on fibre network and economies of scale would further lead to strong operational performance, going forward. We cut our EPS est. (fully diluted post dilution on FCCB) by 2.7%/2.2% for FY12E/13E to Rs25.1/26.9, purely on account of increase in interest cost. At CMP of Rs150, Tulip trades at attractive valuations of 5.6x P/E and 3.4x EV/EBIDTA for FY13E. We retain BUY rating with target price Rs 218," says Emkay Global Financial Services research report.

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