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Tulip Telecom (TULP.BO; Rs165.45; 1M)
Takeaways from Mumbai - Tulip Telecom presented at the Citi Investor
Conference in Mumbai. Below are the key takeaways.
What’s new - Management disclosed its on-ground intra-city fiber network to be
~15000km, having incurred a capex of Rs12-13bn in the last two years. Peak of
capex intensity however is behind us as it doesn’t expect to meaningfully expand
beyond the existing 300 cities. The payback period is typically 3-4 years (across
cities) and it expects EBITDA margins to expand 70-75bps in each of the next
two years arising from scale benefits. Average bandwidth prices have fallen
~15% annually in the past though there seems to be some let-up in the
competitive intensity in the last two quarters.
Wireless connectivity: Still registering decent growth - The wireless data
connectivity business margins are currently >20% with bulk of the top-line growth
coming from Government contracts (read APDRP). The company has also
recently been awarded a contract by the State Bank of India (along with Bharti) to
connect its 19,000 branches. Meanwhile it believes there is little risk of pricing of
the unlicensed spectrum bands (2.8/3.3GHz) it is currently using by the
Government in context of the current 2G spectrum controversy.
Data centre ramp-up on track - The first phase of the data centre (~25k sq ft;
total of 430k total capacity) is likely to be completed by the third week of August
at a cost of Rs18,000/sq ft. PAT losses in the first year are likely to be ~US$6m
with BE in FY13E. Longer term, the company expects top line of ~US$200m (at
90-95% capacity utilization; rental of Rs20k/sq ft). Meanwhile the stake sale (up
to 30%) should be finalized in the next six weeks.
Maintain Buy - The company has started to benefit from fiber in terms of scale
economies and higher profitability. Revenues from the data centre (ramp-up in
18-24 months), should help improve the company's revenue visibility. The stock
is trading at ~9x FY12E PER, relatively cheap looking given the medium-term
growth potential. Disruptive pricing from new competition in data connectivity and
slower ramp-up in data centre revenues are the key downside risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tulip Telecom (TULP.BO; Rs165.45; 1M)
Takeaways from Mumbai - Tulip Telecom presented at the Citi Investor
Conference in Mumbai. Below are the key takeaways.
What’s new - Management disclosed its on-ground intra-city fiber network to be
~15000km, having incurred a capex of Rs12-13bn in the last two years. Peak of
capex intensity however is behind us as it doesn’t expect to meaningfully expand
beyond the existing 300 cities. The payback period is typically 3-4 years (across
cities) and it expects EBITDA margins to expand 70-75bps in each of the next
two years arising from scale benefits. Average bandwidth prices have fallen
~15% annually in the past though there seems to be some let-up in the
competitive intensity in the last two quarters.
Wireless connectivity: Still registering decent growth - The wireless data
connectivity business margins are currently >20% with bulk of the top-line growth
coming from Government contracts (read APDRP). The company has also
recently been awarded a contract by the State Bank of India (along with Bharti) to
connect its 19,000 branches. Meanwhile it believes there is little risk of pricing of
the unlicensed spectrum bands (2.8/3.3GHz) it is currently using by the
Government in context of the current 2G spectrum controversy.
Data centre ramp-up on track - The first phase of the data centre (~25k sq ft;
total of 430k total capacity) is likely to be completed by the third week of August
at a cost of Rs18,000/sq ft. PAT losses in the first year are likely to be ~US$6m
with BE in FY13E. Longer term, the company expects top line of ~US$200m (at
90-95% capacity utilization; rental of Rs20k/sq ft). Meanwhile the stake sale (up
to 30%) should be finalized in the next six weeks.
Maintain Buy - The company has started to benefit from fiber in terms of scale
economies and higher profitability. Revenues from the data centre (ramp-up in
18-24 months), should help improve the company's revenue visibility. The stock
is trading at ~9x FY12E PER, relatively cheap looking given the medium-term
growth potential. Disruptive pricing from new competition in data connectivity and
slower ramp-up in data centre revenues are the key downside risks.
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