Strong business momentum, attractive valuations
Plugging the last-mile infrastructure gap in most locations of India and dominating the IP-VPN end of
the enterprise data market, Tulip has built itself up as a one-stop networking shop through an entry
into managed services and successful bidding for four SWAN (state-wide area network) projects. We
raise our earnings estimate for FY11 by 5%, in view of strong traction in its expansion into the fibrebased
higher-value enterprise data connectivity business. The stock is attractively valued at 7.2x
FY11ii EPS, in our view, given its earnings CAGR of 25.2% over FY10-13ii. BUY for 52% upside.
Enterprise data connectivity, the strong suite: Tulip’s wireless-based low-capital-cost model of
providing nearly off-the-shelf enterprise connectivity in locations not well-serviced by competitors (either
because of choice of technology or small ticket-size) has enabled rapid growth, while maintaining lucrative
margins. This should enable the connectivity business to register revenue CAGR of ~26.3% over FY10-13ii.
New initiatives would help: The company has laid down about 6,000km of fibre, operating a network across
50 cities, with initial presence in CBDs of 250 cities, where presence is likely to be strengthened. The company
has received FCC licence 214, enabling its US-based connectivity businesses. It has set up six points of presence
(two in US, one in London, one in Singapore and two in India) for Rs150m, as gateways for ILD services.
Traction in managed services, value-added partnerships: Following the US$13m order from Saudi
Arabia, Tulip was awarded another Rs250m order in the managed-services space for operating the Gujarat
SWAN over 3-5 years. The company has bought a 13% stake in Qualcomm’s BWA venture for Rs1.4bn; this
division won a slot of 20MHz TDD spectrum in the key telecom circles of Delhi, Mumbai, Haryana and Kerala.
We believe this partnership would be key to Tulip’s future, as corporate clients’ needs become increasingly
intensive and critical.
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