Sell Tata Communications, target of Rs 360: IIFL

IIFL has recommended a sell rating on Tata Communications with a target price of Rs 360 in its February 24, 2009 research report. “Tata Communications (TCOM) declared consolidated results for 3QFY09 revenues in line with our estimates at Rs 26.1 billion, up 5.3% QoQ, primarily led by 10.3% QoQ growth in the data segment. EBITDA rose by 42.8% QoQ to Rs 1.1 billion as a result of: a) growth in the high-margin data business; b) rupee’s depreciation against major currencies (56% of TCOM’s business comes from outside India); and c) TCOM partly retaining benefits of the Rs 0.50 per minute ADC on incoming ILD calls for a few months. ADC charges were removed from 1st October 2008 but the company continued to enjoy a 3-month window before adjusting the tariffs and passing the benefit to end-users.”

“The company’s net debt to EBITDA is at 3.6x and its debt is likely to increase in FY10 as it raises funds for a USD1.5 billion capex outlay in FY10/11. Interest costs grew by 110% QoQ and as per our estimates TCOM will be able to unlock USD 90 million pre-tax from its stake sales in TTSL. These factors will put pressure on earnings. Sell with a target price of Rs 360,” says IIFL’s research report.

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