Tulip Telecom

Investors with a two-year perspective can buy the shares of Tulip Telecom, an enterprise data connectivity player, given the strong growth prospects and the company's expanding margins. At Rs 895, the share trades at 10 times its likely 2009-10 per share earnings. Between 2006 and 2009, Tulip's revenues rose at a compounded annual rate of 47 per cent while net profit grew by 72 per cent. The company has seen its revenues grow by 30 per cent in the first half of this fiscal over last year to Rs 933.9 crore, while net profit expanded by 32 per cent to Rs 126.8 crore.
The profit expansion would have been much higher but for increased depreciation on the back of completion of projects, and higher provisioning for taxes in the light of the new minimum alternative tax regime.
An increased focus on high-margin enterprise data connectivity business, a slew of new deal wins and revenues to be received from completed projects and increase in annuity based revenues are key earnings drivers. Tulip offers wireless last-mile (virtual private network) connectivity for corporates from its ‘point of presence' in that city. This is a key advantage not easily matched by competitors. The company also has a system integration division, which is a hardware intensive low-margin business. The company has over 1,500 clients across over 1,400 locations in India, both of which have increased substantially over the last one year.
The enterprise data connectivity business has grown from 69.5 per cent levels last year to over 85 per cent currently. This augurs well for the company as it ensures higher margins for the company. It has also witnessed growth in recurring revenues from clients, in addition to installation charges, which is indicative of revenue visibility of the company as well as its execution capabilities. The company has also been active in the Government State-wide area network (SWAN) deals, having won several such deals. SWAN in West Bengal has been completed and revenues are set to flow in from the next quarter. Assam and Madhya Pradesh networks are under implementation.
Tulip has also won a array of deals from new clients such as TCS, Etisalat, AT&T and from banks and insurance companies. As the company has a wide network across India, opportunities, in the form of new telecom players wanting to lease circuits could be a key revenue generator for the company.
Competition from integrated telecom players such as Bharti Airtel and Reliance Communications who are seeking to expand their non-mobile businesses could create pricing pressures in the data connectivity business.
via BL