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Tulip Telecom |
In-line results, Retain BUY |
BUY
CMP: Rs 178 Target Price: Rs 240
n Q2FY11 EBIDTA grew 28.5% to Rs1.6bn and APAT grew 35.3% yoy to Rs781mn, in line with estimate
n Better than expected revenue growth of 19% to Rs5.9bn along with EBIDTA margin expansion of 200bps yoy drives profit growth
n Net-debt rises to Rs11.6bn v/s Rs9.6bn in Q1FY11 primarily due to Qualcomm investment (Rs1.4bn)
n Retain estimates, BUY rating and target price Rs240. Valuations at FY12E EV/EBIDTA of 4.1x & P/E 6.9x, attractive
Profits meet estimates on strong revenue growth
Q2FY11 net sales increased by 19.1% YoY to Rs 5.85bn (ahead of our estimate of
Rs5.6bn) led by strong growth in fiber led data connectivity revenues. EBIDTA
increased by 28.5% YoY to Rs 1.6bn (in-line with estimate) with margins expanding by
200bps yoy to 27.9%. Margin expansion boosted APAT growth of 35.3% yoy to
Rs781mn, in line with estimate. Forex gain of Rs110mn has not been accounted in the
P&L and has been directly adjusted in gross block, similar to Q1FY11.
Fiber based data connectivity business continues to drive revenue
growth
While the pace of wireless IP VPN business growth has moderated, the fiber based data
connectivity revenues continued to register strong growth during the quarter. While the
revenue break-up is not available, we believe that fiber revenue contribution have
increased from ~25% in Q1FY11 to ~35% in Q2FY11. In the earnings call, management
indicated of being on track to achieve 2/3rd of revenues from fiber over next 18 months.
Net-debt rises to Rs11.6bn mainly on Qualcomm investment
The net-debt on the books increased from Rs9.6bn in Q1FY11 to Rs11.6bn in Q2FY11.
The increase has been primarily due to the investment of Rs1.4bn in Qualcomm for
13% stake. While Tulip generated cash profit of Rs1.2bn, it incurred capex of Rs1.25bn
and working capital increased by 500mn during the quarter.
Capex guidance at Rs4.5bn for FY11 and Rs4bn for FY12
Having spent Rs2.4bn capex in 1HFY11, the management indicated of capex of
Rs4.5bn for FY11, in-line with our assumption. With peak capex behind, the
management also indicated for a capex of Rs4bn for FY12, which would result in FCF
generation by the company considering our estimate of Rs6.2bn of cash profit for
FY12E. We believe that continued high capex and increasing debt on the balance sheet
has been key concern on the stock, which would get addressed as Tulip would begin
generating free cash from FY12 onwards.
Valuations attractive - BUY with target Rs240
Considering in-line results and continued strong growth momentum, we retain our EPS
estimate (fully diluted post dilution on FCCB) of Rs21.1 and Rs25.9 for FY11E and
FY12E respectively. At CMP of Rs178, Tulip trades at extremely attractive valuations of
6.9x P/E and 4.1x EV/EBIDTA for FY12E. We retain BUY rating with target price Rs240.
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