We are revising our estimates and target for Tulip IT Services in order toincorporate the higher-than-expected demand for its wireless IP/VPNcorporate data services (CDS) as well as a shift in our valuation method.We have upgraded our FY07 and FY08 EPS estimates to Rs 28.4 and Rs40.2 from Rs 22.3 and Rs 29.5 respectively. We reaffirm our BUYrecommendation with a revised March ’07 target of Rs 383, which is 12%lower than our previous target of Rs 437. This revision is mainly becausewe have switched from a P/E-based valuation model to the DCF methodwhich we feel is more appropriate given the recurring nature of revenuesfrom Tulip’s high-margin CDS business. In our opinion, the company’scurrent valuations do not factor in the high growth and profitability of itsCDS business and the expected growth in coming quarters.
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