Citigroup reiterates `Sell’ rating on Tata Communications

Tata Communications

RESEARCH: CITIGROUP

RATING: SELL

CMP: RS 478

Citigroup reiterates `Sell��� rating on Tata Communications with a target price of Rs 425. The price target is based on: (i) Core business valued in September 2009E at Rs 210 (ii) NAV of land raised to Rs 165 and (iii) TCOM���s 10% stake in Tata Teleservices (TTSL) reduces to Rs50/sh.

While TCOM���s international business is delivering, Citigroup maintains the `Sell��� rating given its rich valuations with a FY10E target EV/EBITDA of 7.1x and relatively high leverage with FY10E net debt/EBITDA of 3.5x (ex-WiMax spectrum bidding).

Meanwhile, execution remains on track with TGN-Eurasia coming onstream. As a result, Citigroup estimates FY09E-12 E EBITDA to grow at a CAGR of 21%. Citigroup values Tata Communications��� land holdings at a 30% discount to NAV.

Faster-than-expected monetisation of land and sale of the remaining TTSL stake are the upside risks, while aggressive WiMax bids, and high competition in the wholesale business, will likely constrain valuations.