Stock Views on Tulip Telecom, DABUR, Tata Steel

CITIGROUP on Tata Steel

Citigroup upgrades Tata Steel to `Buy' on reduced concerns on Chinese oversupply, better demand in Europe/UK and inexpensive valuations. It has underperformed the Sensex by 15% in the past year. While the uncertain steel outlook and fund-raising could be a possible overhang in the next 3-6 months, Tata Steel's businesses have limited downside risk and with a stronger balance sheet, it should outperform over 12-18 months. Despite raising PAT by 11-19%, Citigroup is still at the low end of the consensus and rolls forward to FY12E and raises the target price to 740 as it increases the value of the domestic business to 7.5x and international business to 5x to reflect greater resilience in steel. At the target price, the stock would trade at an EV/EBITDA of 6.8x and P/E of 10.9x. 100% captive iron ore and 50% captive coking coal allow the Indian business to earn relatively high EBITDA margins and EBITDA/t of $330-370 in FY12-13E. Steel prices seem to have bottomed out with restocking and a recovery in the construction market being triggers.

JM FINANCIALS on DABUR

Dabur announced the acquisition of Namaste, a US-based ethnic haircare group, for $100 million. Dabur expects the transaction to be completed by the end of CY2010 subject to regulatory approvals in the US. This is the second overseas acquisition by Dabur after Hobi Kozmetik. Dabur is looking at funding the cost of the current acquisition through dollar-denominated debt, which carries a sub-5% interest cost. To recall, Dabur's net cash position stands at 200 crore as in September '10. As per the first-cut estimate, the acquisition is likely to be net EPS accretive to Dabur's consolidated financials in FY12E. While JM Financials estimates the present acquisition to be EPS accretive, the concerns on sub-par growth in the core domestic personal care business remains. Further, growth in Fem has been especially disappointing in recent past with a mere 8-12% sales growth in the second year of acquisition.

JP MORGAN  on Tulip Telecom

JP Morgan reiterates the `Overweight' rating on Tulip Telecom (TTSL). TTSL reported a better-than-expected Q2 result, with revenue beating consensus by 3%/4% and EBITDA margin by 30bp/20bp ahead. An increased contribution from fibre is driving solid topline growth and EBITDA margin expansion. Tulip stated that the contribution from fibre to the topline continues to grow. Tulip highlighted that its intra-city fibre extends to over 6,000 km with a last mile presence in over 300 cities. Its total client base now stands at 1,800 across 2,000 locations, up from over 1,600 clients across 1,700 locations in Q1. The Punjab State Power Corporation selected Tulip Telecom to supply, install and commission MPLS VPN and internet connectivity across towns for its R-APDRP scheme. This project is valued at 37.95 crore taking the total value of the four RAPDRP projects to over 200 crore.