Buy Tulip Telecom - Motilal Oswal

Tulip Telecom (TTSL IN; Mkt Cap USD0.6b, CMP Rs177, Buy)

Tulip Telecom's 3QFY11 operating performance was 1-2% below estimates. Revenue increased 20.2% YoY and 2.9% QoQ to Rs6.02b (est of Rs6.09b).

EBITDA grew 27.1% YoY and 5% QoQ to Rs1.72b (est of Rs1.76b). PAT increased by 19.1% YoY and 4.7% QoQ to Rs817m (vs est of Rs861m).

Tulip incurred net capex of ~Rs1.39b during 3QFY11 and a cumulative net capex of Rs3.8b for 9mE Dec-10 vs FY11 guidance of Rs4.5-4.75b.

Fiber constituted 30% of 3Q revenue. While fiber currently constitutes 40% of total order input, 70% of fresh orders are being made on fiber.

Net debt increased by Rs812m QoQ (~7% QoQ) to Rs12.4b. Net debt/equity and Net debt/annualised EBITDA unchanged at 1.1x and 1.8x respectively.

We are factoring in EBITDA decline of 3% in FY12 and 2.5% in FY13 estimates. We are downgrading our earnings estimates by ~5% for FY12/13E. We expect an EPS CAGR of ~16% over FY11-13E. The stock trades at 7.2x FY12 EPS of Rs24.7 (~4.1x EV/EBITDA) and 6.7x FY13 EPS of Rs26.2 (3.1x EV/EBITDA). Maintain Buy with a revised target price of Rs240.

Source : Equity Bulls

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