Tulip Telecom: Buy

IP VPN segment, the growth driver

e-governance deals promise volumes

Pricing pressure from competition, a threat

A healthy revenue mix, technical advantages and continuing engagements with high-value clientele give Tulip an edge in the domestic market.

Investments with a one-two year horizon can be considered in the stock of Tulip Telecom, a strong player in the domestic data connectivity and network integration space.

At Rs 855, the share trades at 11 times its likely 2008-09 earnings. Though Tulip has strictly no comparable peers, it faces competition in some of its segments of operation from hardware and system integration players. With margins expanding, owing to a healthy revenue mix, the company appears well-poised to tap potential opportunities. Tulip’s revenues over the past three years have grown at a compounded annual rate of 53.5 per cent to Rs 1,239.4 crore while net profits have grown at 137.9 per cent to Rs 187.2 crore.

The company broadly has two sets of operations — network integration and corporate network and data services. The latter includes the fast growing IP VPN (internet protocol virtual private network) service that connects branches of companies, banks and many other data transfer-intensive organisations. This enables secure transmission of data, voice and video for companies, enabling Tulip to add several blue-chip companies across several industries to its client base. Strong technical advantages in its segment of operations, continuing engagements with high-value clientele with big technology spends and bright prospects for new business segments give Tulip an edge in the domestic market.




Attempts by fully integrated telecom players such as Bharti Airtel or Reliance Communications to increase their presence in the enterprise VPN space and to possibly offer wireless last mile connectivity may pose competition to Tulip. In hardware-intensive deals, the company faces competition from players such as CMC, HCL Infosystems and Wipro Infotech, creating pricing pressures on deals.

Source: Hindu Business Line