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Tulip Telecom Limited
Overweight
TULP.BO, TTSL IN
Another good quarter with positive indications for
FY12; reiterate Overweight
• Business strength continues: Tulip Telecom in 4Q delivered sustained
revenue growth (+20% Y/Y) and expanding margins once again (+80bp
Q/Q) as the contribution from fiber ramped up nicely to 80% of new
orders. With incremental revenue streams (R-APDRP projects,
International connectivity, data centre) expected to kick in, we expect
these trends to continue, and we forecast 23% revenue growth and 1pp
margin expansion to 29.2%. Management expects the 20% revenue
growth rate of FY11 to continue in FY12, which we view as slightly
conservative.
• Watching debt and leverage: TTSL saw debt increase by Rs3.3B Q/Q
and leverage (debt/EBITDA) increase to 2.7x (from 2.1x). While this
was due to the well flagged data center investment the company made,
we would be encouraged to see an indication of effort/steps taken to
bring down leverage and debt, which will be a key focus in FY12,
according to management.
• Forecast changes: We reduce our FY12/FY13 revenue estimates by
2.9%/3.4% but increase our margin estimates by 0.9/1.0pp on account of
the beat in 4Q, resulting in no change in our absolute EBITDA estimates
of Rs8.4/Rs10.7B. However, higher interest costs drive a Rs2.5/Rs2.4
reduction is our FY12/13 EPS estimates to Rs20/28.
• New Mar-12 PT of Rs230 (40% upside): As a result of our estimate
changes and rolling forward our timeframe from Dec-11 to Mar-12, our
PT falls slightly to Rs230. Announcements of clients or an investor for
the data centre business should be key positive catalysts. The core
business continues to show improvement in both revenue growth and
margin expansion. TTSL trades at 8.2x FY12E P/E, a 12% discount to its
three-year average, and at 5.1x FY12E EV/EBITDA, a 21% discount.
Key risks: stiffer-than-expected price competition in TTSL’s core
business, and a slower-than-expected ramp-up of its data center business.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tulip Telecom Limited
Overweight
TULP.BO, TTSL IN
Another good quarter with positive indications for
FY12; reiterate Overweight
• Business strength continues: Tulip Telecom in 4Q delivered sustained
revenue growth (+20% Y/Y) and expanding margins once again (+80bp
Q/Q) as the contribution from fiber ramped up nicely to 80% of new
orders. With incremental revenue streams (R-APDRP projects,
International connectivity, data centre) expected to kick in, we expect
these trends to continue, and we forecast 23% revenue growth and 1pp
margin expansion to 29.2%. Management expects the 20% revenue
growth rate of FY11 to continue in FY12, which we view as slightly
conservative.
• Watching debt and leverage: TTSL saw debt increase by Rs3.3B Q/Q
and leverage (debt/EBITDA) increase to 2.7x (from 2.1x). While this
was due to the well flagged data center investment the company made,
we would be encouraged to see an indication of effort/steps taken to
bring down leverage and debt, which will be a key focus in FY12,
according to management.
• Forecast changes: We reduce our FY12/FY13 revenue estimates by
2.9%/3.4% but increase our margin estimates by 0.9/1.0pp on account of
the beat in 4Q, resulting in no change in our absolute EBITDA estimates
of Rs8.4/Rs10.7B. However, higher interest costs drive a Rs2.5/Rs2.4
reduction is our FY12/13 EPS estimates to Rs20/28.
• New Mar-12 PT of Rs230 (40% upside): As a result of our estimate
changes and rolling forward our timeframe from Dec-11 to Mar-12, our
PT falls slightly to Rs230. Announcements of clients or an investor for
the data centre business should be key positive catalysts. The core
business continues to show improvement in both revenue growth and
margin expansion. TTSL trades at 8.2x FY12E P/E, a 12% discount to its
three-year average, and at 5.1x FY12E EV/EBITDA, a 21% discount.
Key risks: stiffer-than-expected price competition in TTSL’s core
business, and a slower-than-expected ramp-up of its data center business.
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