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Tulip is a leading player in the Indian enterprise data segment focused on providing
connectivity to corporates, SMEs and government verticals. Tulip has an outstanding
track record, having scaled up to a dominant ~30% market share in the largest and
fastest growing VPN segment within five years.
Key investment arguments
Tulip's 'one-stop-shop' approach has warranted adding capabilities like managed
services, which fortify its data connectivity business, and downsizing the legacy
lowmargin network integration business. Recent fiber rollout for last mile should
enable Tulip to tap high bandwidth connects, complementing its strong foothold in
wireless.
31% earning CAGR:
While competition in the wireless data space is expected to increase, we believe that
Tulip's fiber strategy (expects 70% of revenue from fiber in the next two years) would
de-risk it from high competition from BWA winners like RIL. Almost 600 out of Tulip's
~1,600 clients are already using its services on fiber
Valuation and view:
Tulip has been growing and gaining market share vs larger rivals like Bharti, BSNL,
RCom and Tata Comm primarily due to
1. niche business model
2. higher uptime/service level, and
3. Asset light strategy.
We expect 31% earnings CAGR over FY10-12E driven by 29% EBITDA CAGR. At CMP of
Rs898, the stock trades at a FY12 P/E of 6x and EV/EBITDA of 3x; maintain Buy with a
DCF-based target price of Rs. 250.
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