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Tulip Telecom Limited
Overweight; TULP.BO, TTSL IN
Improving revenue and margin trends; fibre contribution increases
Tulip Telecom (TTSL) reported an improvement in revenue growth trends as
well as a margin expansion in Q3 (to Dec-2010) even though Q3 revenue was
2%/3% below consensus/JPMe. We believe fibre contributed was in excess of
~40%+ in Q3, up from 30% in Q2. This is encouraging both for top-line
growth and margin expansion going forward and lends confidence that the
company is on track to achieve 2/3rd business contribution from fibre in
FY12. We continue to like Tulip Telecom and note that as TTSL’s fiber
network expands, we believe it is well placed for growth, driven by a 5x
increase of its addressable markets, change in mix toward high-margin
business, and diversification of its revenue base. We expect some near term
pressure as its data centre business ramps up.
• Q3 revenue was INR 6.03bn (+3% Q/Q, +20% Y/Y), 3% below JPMe of
INR 6.22bn and 2% below cons of INR 6.15bn. While a miss vs. estimates
is noted, we are encouraged to see that Tulip has delivered an improvement
in the Y/Y growth trend with Q1 at 18.6%, Q2 at 19.2% and Q3 at 20.3%.
• Consolidated EBITDA margin was 28.5% (+55bp Q/Q), in-line with
JPMe of 28.5% and consensus estimate of 28.4%. Margin expanded 55bp
Q/Q after expanding 90bp in Q2. Absolute EBITDA of INR 1.72bnbn was
3%/2% below JPMe/cons of INR 1.77/1.75 bn. Management highlighted a
shift in revenue mix (higher fibre contribution), purchasing efficiencies and
economies of scale as drivers of EBITDA improvement.
• Net profit was INR 816mn (+5% Q/Q) but 8%/3% below above JPMe/cons
of INR 883mn/INR 838mn. Q3 EPS was INR 5.02 (+5% Q/Q, +26% Y/Y).
• 9 month FY11 capex at 83% of FY guidance: We believe that capex
spend in 9 months FY11 is ~INR 3.7bn, 83% of the midpoint of the INR 4-
5bn guidance for the year. Q3 capex was INR 1.4bn, 23% of sales. We
continue to expect capex efficiencies in FY12.
• TTSL reported total debt of INR 14.4bn up from INR 13.8bn in Q2 and net
debt too increased to INR 12.4bn from INR 11.9bn. Debt/equity remained
stable at 1.25x while debt/EBITDA increased slightly from 2.06 to 2.10.
• New managers in place: Tulip announced management team changes with
a new CEO of Tulip Data Centre Services – Mr. A S Rajgopal, a new CFO –
Mr. Rahul Ahuja, and a new Chief Services Officer, Mr. Jitendra Israni.
• Tulip acquired 900K sq. ft. data centre facility in South India: The
company announced the acquisition of a 900K sq ft data centre facility in
South India via its wholly owned subsidiary company Tulip Data Center
Services, in mid-Jan, 2011. 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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tulip Telecom Limited
Overweight; TULP.BO, TTSL IN
Improving revenue and margin trends; fibre contribution increases
Tulip Telecom (TTSL) reported an improvement in revenue growth trends as
well as a margin expansion in Q3 (to Dec-2010) even though Q3 revenue was
2%/3% below consensus/JPMe. We believe fibre contributed was in excess of
~40%+ in Q3, up from 30% in Q2. This is encouraging both for top-line
growth and margin expansion going forward and lends confidence that the
company is on track to achieve 2/3rd business contribution from fibre in
FY12. We continue to like Tulip Telecom and note that as TTSL’s fiber
network expands, we believe it is well placed for growth, driven by a 5x
increase of its addressable markets, change in mix toward high-margin
business, and diversification of its revenue base. We expect some near term
pressure as its data centre business ramps up.
• Q3 revenue was INR 6.03bn (+3% Q/Q, +20% Y/Y), 3% below JPMe of
INR 6.22bn and 2% below cons of INR 6.15bn. While a miss vs. estimates
is noted, we are encouraged to see that Tulip has delivered an improvement
in the Y/Y growth trend with Q1 at 18.6%, Q2 at 19.2% and Q3 at 20.3%.
• Consolidated EBITDA margin was 28.5% (+55bp Q/Q), in-line with
JPMe of 28.5% and consensus estimate of 28.4%. Margin expanded 55bp
Q/Q after expanding 90bp in Q2. Absolute EBITDA of INR 1.72bnbn was
3%/2% below JPMe/cons of INR 1.77/1.75 bn. Management highlighted a
shift in revenue mix (higher fibre contribution), purchasing efficiencies and
economies of scale as drivers of EBITDA improvement.
• Net profit was INR 816mn (+5% Q/Q) but 8%/3% below above JPMe/cons
of INR 883mn/INR 838mn. Q3 EPS was INR 5.02 (+5% Q/Q, +26% Y/Y).
• 9 month FY11 capex at 83% of FY guidance: We believe that capex
spend in 9 months FY11 is ~INR 3.7bn, 83% of the midpoint of the INR 4-
5bn guidance for the year. Q3 capex was INR 1.4bn, 23% of sales. We
continue to expect capex efficiencies in FY12.
• TTSL reported total debt of INR 14.4bn up from INR 13.8bn in Q2 and net
debt too increased to INR 12.4bn from INR 11.9bn. Debt/equity remained
stable at 1.25x while debt/EBITDA increased slightly from 2.06 to 2.10.
• New managers in place: Tulip announced management team changes with
a new CEO of Tulip Data Centre Services – Mr. A S Rajgopal, a new CFO –
Mr. Rahul Ahuja, and a new Chief Services Officer, Mr. Jitendra Israni.
• Tulip acquired 900K sq. ft. data centre facility in South India: The
company announced the acquisition of a 900K sq ft data centre facility in
South India via its wholly owned subsidiary company Tulip Data Center
Services, in mid-Jan, 2011. 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.
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