Nomura remains neutral on Tulip Telecom

Nomura has maintained Neutral rating on Tulip Telecom Limited after the company missed the deadline for FCCB redemption with a target price of Rs.90.

The company had recently notified to stock exchange about its inability to meet the August 26 maturity deadline for redeeming its FCCB and now plans to complete this exercise by September 10. The company has not received approval from investors for extending the deadline. Nomura feels that the investors could choose not to wait and take legal recourse.

Of the total $140 mn required to redeem its existing FCCBs, there is a funding shortfall of $20 mn. The company had tied up $80 mn in debt and $50 mn through issue of fresh FCCBs. The company also received $40 mn as proceeds from sale of stake in its JV with Qualcomm, but it seems this has been deployed for working capital. The company is also not in discussion with existing FCCB holders for a restructuring or rollover.

The target price of Rs.90 is based on DCF valuation for the core business using a WACC of 12.3% and terminal growth of 2%, and it includes 50% of the impled value for the DC business based on preliminary estimates. The cashflows are discounted back to 2017F. This leads to DCF valuation of Rs.129. To account for uncertain timings of various events including FCCB redemption etc, Nomura has applied a 30% discount to arrive at final target price of Rs.90.

Source : Equity Bulls

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