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Tulip Telecom – Expect Confirmation of
Better H2 Growth
We’re looking for 6.2% Q/Q growth in revenue in Q3FY11 (to Dec-10) to INR
6.2bn. This implies 24% Y/Y growth, an acceleration from the 19% seen in H1,
based on our expectations of a better seasonality in H2. We forecast 28.5% EBITDA
margin, a 60bp increase.
We will also be watching for a continued increase in contribution from fibre, which
was 30-35% in Q2 (up from 25% in Q1). The company targets the business
contribution from fibre to stand at two-thirds by end-2012.
Tulip Telecom
Our Dec-11 price target is INR230. We value Tulip’s core business at INR220 based
on a full DCF analysis (WACC of 13% and terminal growth rate of 3%). We add
INR10/share for TTSL’s 13% stake in the BWA JV with Qualcomm valued at
INR1,400.
We highlight the following downside risks to our ratings and price target: [1] Earlier
or deeper competition from BWA winners like Reliance Industries in last mile
enterprise connectivity and/or increasing competition from traditional players like
Tata Communications, BSNL, Bharti, Reliance Communications, [2] Tulip having to
pay license fee for using the 3.3GHz band (currently unlicensed), [3] Continued
caution on spend by enterprises.
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