Stock Views on PETRONET LNG, TULIP TELECOM, MONNET ISPAT

UBS INVESTMENT on MONNET ISPAT

UBS maintains the `Buy' rating on Monnet Ispat with a price target of 730. Monnet Ispat is an integrated steel and power company; it has access to captive coalmines that provides it the cost advantage over its competitors. Monnet is expanding its steel capacity from 0.8 mtpa to 1.5 mtpa; the production is to start in phases starting June 2011. It is also expanding its power capacity from 150 MW to 230 MW by April 2011, and further by the addition of a 1050-MW power plant that is expected to commission in March 2013. The company has acquired land and approvals required for the expansions and has ordered equipment as well. The company has three captive coal mines: The mines in Angul district will fire the 1050-MW plant. UBS estimates operating cash costs to be 0.7 per unit of power produced. The low cost of power drives high RoE for the project. The company has also raised private equity funding for Monnet Power-it has raised 275 crore for the 12.5% stake in Monnet Power.

HSBC on TULIP TELECOM

HSBC recommends `Overweight' rating on Tulip with a target price of 235. Tulip has acquired 100% share of SADA IT Parks for a consideration of 230 crore to strengthen its data centre capabilities ten-fold. The acquisition will be funded through cash and internal accruals. The data centre is spread across an area of about 0.9 m sq. feet in Bangalore. The acquisition has been done with total investments estimated at $200 million over the next three years. The company plans to spend 60% of the investments within the next year, of which $50 million has already been spent, implying incremental capex of about $70 million over the next 12 months. To finance the incremental investments, management indicated the possibility of a strategic partner at the SPV level and suggested the company would maintain net debt/equity at 1.25x. However, in a steady state, the data centres should impact margins positively and this will be driven by the pace at which capacity utilisation picks up. Moreover, the offerings should allow the company to create stickiness as the contract period on average is about three years.

CITIGROUP on PETRONET LNG

Citigroup reiterates the `Buy' rating on Petronet LNG. PLNG reported a PAT of 171 crore, up 105% y-o-y and 30% q-o-q and ahead of consensus estimates. Profits were boosted by a sharp increase in re-gas volumes to 111 TBTU. Citigroup raises the target price to 150 from 135 on higher near-term volume forecasts. The company bought about five spot cargoes in Q3 vs. about two in Q2 and provided regassification services for another about four. Better-than-expected volumes and pricing power were the main drivers of the excellent results reported by the company. PLNG will continue to benefit from limited availability of domestic gas in the near term, with KG gas production having reportedly declined from about 58-59 mmscmd earlier to about 52-53 mmscmd currently and the continued lack of clarity on its ramp-up timelines. This makes PLNG the best-placed gas stock in the near term.