Stock Review: Tulip Telecom

 

 

At Rs 182, Stock Trades At Nearly 10 Times Its Earnings For The Trailing 12 Months

 

THE stock of enterprise data connectivity provider Tulip Telecom has underperformed the broader market in the past six months. It earned 5% returns during the period against the 8% gain in the benchmark Sensex. The company's decent performance in the June 2010 quarter may support the stock going ahead.

   Tulip's consolidated revenue rose nearly 20% to Rs 525 crore in the June 2010 quarter. This was on account of the growth registered in high bandwidth fibre services and wireless business segment. Over the past 18 months, the company has extended its intra-city fibre network to over 6,000 kms to provide an end-toend data connectivity solution to its customers across cities. Also, with the fibre rollout, the company has enhanced its customer base to more than 600 and witnessed stronger engagements with the existing clients.

   Improved contribution from the fibre business and progressing wireless segment aided an expansion of 250 basis points (bps) in the operating margin at 27% on a year-on-year basis. The significant shrinkage in the other income was coupled with an extraordinary increase in the tax expense, which almost doubled to Rs 20 crore during the June 2010 quarter against the year ago. This led to a somewhat restrained increase of 9% in the bottomline to Rs 64 crore.

   Going ahead, the company plans to improve operating efficiency by focusing on revenue maximisation per customer, thereby improving on the net profit numbers. During the quarter, it has witnessed several order wins and licence grants. It has also entered into strategic tie-ups such as partnership with Qualcomm for Broadband Wireless Access (BWA) venture. This will enhance the company's service offerings and its reach in the enterprise data service market.

   At the current market price of Rs 182, the stock trades at nearly 10 times its earnings for the trailing 12 months. Given the extended fibre rollout, increased wireless demand and anticipated improvement in the margins, the company is expected to register an augmented performance in coming quarters.