Reliance Communications
Reco Price: Rs 101,
Target Price: Rs 110
Reliance Communication’s (RCom’s) traffic decline of 3 per cent QoQ was much below industry peers’ 5-8 per cent QoQ growth. Discontinuation of free/PCO mins would have added to the woes but are unlikely to be the only reason. This highlights the challenges facing RCom in reviving traffic growth without enjoying the flexibility to cut tariffs anymore. Standard Chartered has cut FY11-13 Ebitda by 2.5-6.2 per cent and EPS by 5-20 per cent to factor in lower minutes growth assumptions. Standard Chartered estimate Mar-11 net debt at Rs 32700 crore (Rs 31200 crore earlier) on the back of higher capex and slight deterioration in working capital in the last quarter. The earnings cut results in cut in price target to Rs110 from Rs144. Upside risk from a strategic sale is balanced by potential downside from evolving “spectrum allocation & pricing” framework, which could constrain business model. Maintain in-line.
—Standard Chartered Equity Research
Tulip Telecom
Reco Price: Rs 168,
Target Price: Rs 210
Tulip recently acquired a data-centre facility for Rs230 crore. The company has guided to Ebitda losses of Rs 50 crore in the first year due to the same. Analysts estimate ramp-up in utilisation to be backended, with the company touching the 60 per cent level over a period of three years. Q3 Ebitda at Rs 170 crore (up 3 per cent qoq) beat expectations as Ebitda margins held on, continuing to reap benefits of scale economies. Tulip has witnessed a margin improvement of 700bps since its fiber launch 7 quarters back. Net profit at Rs81 crore (up 5 per cent qoq) also came in ahead. Citigroup has adjusted FY12 Ebitda/EPS down 3/16 per cent to account for Ebitda losses and higher interest outgo on the data-centre acquisition. Operationally, business continues to sustain momentum reflected in FY11-13 Ebitda growing at a CAGR of 18 per cent. Maintain buy.
—Citigroup
Great Eastern Shipping
Reco Price: Rs 280,
Target Price: Rs 410
Great Eastern Shipping’s (GE Shipping) Q3FY11 result was below expectations. Q3 revenues of Rs 556 crore, down 21.3 per cent YoY, were impacted by lower operating days and freight rates. This was mainly due to the 30.7 per cent YoY decline in shipping revenues to Rs 434 crore. Offshore revenues remained mixed with a 19.9 per cent YoY growth to Rs 209 crore. Income from sale of ships (Rs 55 crore) and lower than expected depreciation helped increase profitability. Net profit was up 24.5 per cent YoY to Rs117 crore. The expected capex in Greatship (India), the offshore subsidiary, is likely to drive revenues despite the company withdrawing from its IPO. Maintain buy.
—Centrum Broking
Allied Digital Services
Current market price: Rs 78,
Fair value: Rs 155
An income tax team, as a part of its routine survey, had visited the official premises of Allied Digital Services (ADSL) to check its books of accounts on concern of expenditure manipulation. According to the management, this survey, misconstrued as ‘raid’, concluded the same day with no prima facie evidence and no documents seized. Company further re-assured of minimal impact of the IT Survey on its financials. The Q3 FY11 results were disappointing with revenues falling 10.5 per cent and operating margins faltering by 540 bps qoq. The revenues were weak due to continued transformation of solutions business. Very low traction from key deals (Lenovo, Microsoft) and seasonally weak quarter kept services flat. Margin was down materially mainly due to Rs 8 crore one-time bad debts write-off. The core business of IMS/MSS is intact with the recent JV with e-Cop being a case in point. Company also indicated of no further write-offs in the foreseeable future. Maintain buy.
—IIFL
