Tulip Telecom -- Robust and in line 3QFY11 results; Anand Rathi

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Tulip Telecom
Robust and in line 3QFY11 results
Tulip’s 3QFY11 results were broadly in line with consensus
(Bloomberg) as well as our estimates. We maintain our positive
stance on the company on the back of the healthy results.
 Tulip saw strong operating performance in 3Q, driven by
client acquisitions. Revenues were up 20% yoy (1.5% below our
estimate), and EBITDA was up 27% (2% below our estimate).
EBITDA margin increased 150bps due to stable costs.
Depreciation, interest expenses and taxes were broadly in line with
our estimates. PAT stood at `816m vs. our estimate of `852m
(consensus: `821m). PAT growth (42% yoy) was amplified by the
change in the depreciation policy in 4QFY10.

 Capex and balance sheet. Tulip incurred capex of `1.4bn/ `3.6bn
in 3QFY11/9MFY11, which is largely in line with its full-year
guidance of `4.5-5bn and our FY11 forecast of `4.5bn. The 9MFY11
capex was broadly equal to cash profits; however, increase in net debt
during the same period was `2.4bn (ex `1.4bn investment in
Qualcomm Indian BWA subsidiary), suggesting an increase in
working capital. We have modeled `2bn increase in net working
capital for FY11e. Tulip’s Board of Directors have approved grant of
2.7m stock options (2% of current outstanding shares) under ESOP.
 Maintain positive stance. Tulip is on track to meet
consensus/our EBITDA and PAT FY11 estimates. The stock
currently trades at 9.2x FY11e earnings, which is attractive, given
profit CAGR of 24% over FY11e-13e.