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Tulip Telecom
Strong 2QFY11 performance buoyed by revenue traction
Results largely in line with estimates. Tulip’s 2QFY11 revenue
was 5% ahead of our estimate, due to strong growth in both, the
wireless and the fibre-optics businesses. EBITDA (+29% yoy)
came 3% above our estimate. Net profit was exactly in line with
our estimate, but ~6% higher than consensus (Bloomberg).
Revenue traction is encouraging. Tulip’s revenue rose 11%
qoq, after being flat in 1QFY11. The company attributes the
revenue traction to new clients acquired in both, the highbandwidth/
fibre-optics and the legacy wireless MPS VPN
businesses. The strong revenue growth in 1HFY11 (19% yoy) and
new contracts (APDRP, SWAN bandwidth) improves Tulip’s
revenue visibility in our view.
Capex and net debt. Tulip incurred capex of `1.1bn/`2bn
during 2QFY11/1HFY11, which is broadly in line with the fullyear
guidance of `4.5bn-5bn, and our FY11 forecast of `4.5bn.
Capex in 2QFY11 was broadly equal to cash profits in the quarter.
Net debt, however, increased by `2bn qoq to `10.7bn (implying
1.8x net debt/EBITDA, manageable in our view), largely due to
the `1.4bn invested in Qualcomm’s broadband venture and the
increase in working capital.
Our view. Following Tulip’s healthy 2QFY11 results, we expect
the share price to firm up. In the last six months the stock has
underperformed large-cap telcos and, as a result, trades at a
excessive valuation discount, 30% on FY11e EV/EBITDA.
Management will host a conference call on 15th Nov (Monday) at
14:30 IST to discuss 2QFY11 results.
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