Buy Tulip Telecom; target of Rs 215: ULJK Securities

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Buy Tulip Telecom; target of Rs 215: ULJK Securities

ULJK Securities is bullish on Tulip Telecom and has recommended buy rating on the stock with a target of Rs 215 in its June 16, 2011 research report.

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ULJK Securities is bullish on Tulip Telecom and has recommended buy rating on the stock with a target of Rs 215 in its June 16, 2011 research report.

"Tulip Telecom, the market for Enterprise Data Connectivity is expected to witness a CAGR of 11.5% over FY10-15 to reach Rs 10,628 Crs driven by connectivity needs of customer segments in BFSI, Retail, Manufacturing, IT/ITES & Government. The inherent advantages of 3rd party data centers like lower capex requirement, economies of scale, enhanced security will cause it to have a CAGR of 29% taking its share to around 23% of the overall data center space from the current share of 19% of the Rs 7700 Cr data center market. The market for data centers in India is expected at around $1.8 billion, of which around 19% is serviced by third party data centers. Tulip's 5th data center in Bengaluru acquired for Rs 230 crores, having a capacity of 9 lakh sq ft, will be India's largest & World's third largest single site data center once it is functional. The total spend on this  will be Rs 900 Crs in making the facility fully functional & the company expects to garner around Rs 950 Crs at peak utilization to be achieved in next 4 years."

"Tulip has an extensive last mile network coverage spanning over 2000 cities. The company has a policy of leasing bulk bandwidth for intercity coverage from players having country wide optical fibre network. While for intra city connectivity, has used a backbone of fibre & wireless. Over the years, Tulip has laid fibre in 300 cities based on actual demand. This enables better returns on investments through efficient utilization of  assets. With its optical fibre cable network spanning 300 cities along with the world's third largest data center, Tulip has increased its addressable market size from Rs 1400 Crs to Rs 14000 Crs. Tulip is providing enterprise data connectivity to around 2000 companies across industries and is a market leader under MPLS/IP VPN with a share of 30.6%. In overall Enterprise Data Services, Tulip is the 4th largest player with 12.9% market share."

"With a increased bouquet of service offerings, Tulip has been able to acquire new clients as well as deepen the relationships with existing clients. As a result, the revenues have grown at a CAGR of 35.8% during FY2006-11. The company has been increasing its focus on Enterprise Data Connectivity & Managed Services having higher margins than legacy Network Integration. At CMP of Rs 157, Tulip is trading at 6.1x FY12E EPS of Rs 25.8 & at 4.6x EV/EBITDA. We value the company at 8x PE over FY12E EPS of Rs 25.8 thus arriving at a price of Rs 206. In addition to this, financial stake in Qualcomm entitles the shareholders to Rs 9 even if divested at the original value of Rs 140 Crs. Thus altogether, we expect the fair value of each share of Tulip Telecom to be Rs 215 which offers a potential upside of 37%," says ULJK Securities research report.

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To read the full report click on the attachment