>TULIP TELECOM (ICICI DIRECT)

On a consolidated basis, Tulip Telecom reported its Q4FY10 results, which were below our expectations. The topline stood at Rs 530.7 crore against our expectation of Rs 557.4 crore. Revenues grew 13.0% and 5.9% YoY and QoQ, respectively. Revenue growth can be attributed to higher realisation from the optic fibre network. The EBITDA was up 54.1% YoY and 14.4% QoQ to Rs 154.4 crore as compared Rs 135.0 crore in Q4FY10. The EBITDA margin at 29.1% improved 768 bps YoY and 216 bps QoQ. PAT stood at Rs 79.5 crore (I-direct estimate of Rs
69.4 crore). PAT was aided by a change in the depreciation policy.

■ Highlights for the quarter
The company reported its best ever EBITDA margin of 29.1%. It was backed by the decrease in stock in trade by Rs 27.0 crore. The company has revised its depreciation policy considering the
company's changing asset profile (ownership of a vast fibre infrastructure), which has aided the PAT during the quarter. The company won an order worth US$13 million for a three-year
period from a partner in Saudi Arabia in the managed services segment. The revenue from the same has started accruing. The company has also proposed a final dividend, subject to approval of shareholders, of 80%, which is Rs 8 per share. Tulip announced a stock split of equity shares of Rs 10 each to five equity shares of Rs 2 each.

Valuation
At the current market price of Rs 940, the stock is trading at 11.5x FY11E diluted EPS of Rs 81.9 and 8.7x FY12E diluted EPS of Rs 107.7. We have valued the stock at 10x FY12E EPS and arrived at a target price of Rs 1077. Due to the recent run up in the stock, we are downgrading our rating on the stock from STRONG BUY to BUY.

To read the full report: TULIP TELECOM