Tulip Telecom: 'Enterprising growth' – BUY
CMP Rs161, Target Rs213, Upside 32.6%
We spoke with Tulip Telecom CFO to get a better understanding of its Bangalore data centre (DC). Overall ~Rs9.3bn (~40% of Tulip Mcap) would be spent on the 0.9mn sq ft data centre in Bangalore over 3 years including Rs2.3bn upfront investment made by Tulip in previous fiscal.
We peg the DCF-based equity value of Bangalore DC at ~US$200mn, which is in line with the value derived from the reported up to 30% dilution of DC subsidiary. Bangalore DC would report losses of just under US$10mn in FY12, its first year of operation but turn cash break-even in FY13 at 35% utilization. We refrain from adding the Bangalore DC value to our TP given the back-ended nature of revenues/profit. With a strong standing in data centre segment, Tulip would benefit from the estimated 12.5% cagr for third party data centres. Core MPLS VPN growth momentum should continue its robust showing. Reiterate BUY with a 9-mth TP of Rs213.
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