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Tulip Telecom Limited
Overweight
TULP.BO, TTSL IN
Data centre acquisition positive for diversification
Tulip Telecom (TTSL) has announced the acquisition of a 900K sq ft data
centre facility in South India via its wholly owned subsidiary company
Tulip Data Center Services. We are encouraged to see Tulip diversify its
revenue base to enterprise services in addition to connectivity and we are
positive on the prospects of growth in demand for data centres. We note
that TTSL's leverage may increase slightly as a result of this transaction
but also believe that external funding options are via both debt and equity.
• Details of the deal: Tulip Telecom via its wholly owned subsidiary
Tulip Data Centre Pvt Ltd has acquired 100% shares of SADA IT Parks
Pvt Ltd. SADA is a Special Purpose Vehicle that owns the Data Center
facility in Bengaluru, with total space of 900K sq. ft. The new facility
will be set up with an investment of INR 9bn (~INR 20m) over 3 years.
This is comprised of an INR 2.3bn upfront payment for SADA, INR
3.6bn of external funding (debt and equity) in the subsidiary and INR
2.7bn from internal accruals of the subsidiary. Tulip is considering
bringing in a partner at the subsidiary level for the equity part.
• Ready to use within 6 months, can add ~26-27% to top-line and 4pp
on margin in 3 years: This is the company’s 5th data centre - it already
has one each in Delhi and Bengaluru and two in Mumbai. Once
operational, Tulip expects the facility to be the largest in India and third
largest in the world. The facility is expected to be ready for use within 6
months. In 3 years, at peak utilization, the potential revenue is INR 10bn
with an EBITDA margin of 50%. On our estimate of INR 37.7bn for
FY14 revenue, this represents a 26-27% uplift, while on margin it is
4.1pp.
• Data centre: We are positive on the prospects of data centre growth in
India and expect demand to be driven by growth in wireless data usage,
the advent of cloud computing, digitalization of government projects,
enterprise data growth and more. We note that our recent visit to Bharti’s
data centre facilities in Bangalore indicated that of the 30,000 sq ft of
non-captive space, 90-95% was sold while 60% was occupied and there
was demand for more space. We also note that City Telecom in Hong
Kong is inviting content owners into its own data centers at cost in order
to drive demand for higher speed packages. The Data Center demand in
India currently stands at 3.7 million sq. ft. which is expected double in
the next 3 years to ~7 million sq. ft.
• Tulip Telecom will host a conference call at 1:30pm (India time) today.
Dial in details: +91 22 3065 0122 (India), 1 866 746 2133 (US), 0808
101 1573 (UK), 800 101 2045 (Singapore), 800 964 448 (Hong Kong).
We will come back with more after the call.
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