BWI: Brickwork Ratings Assigns “BWR AA-” for Tulip Telecom Limited’s Long Term Debt Issue of INR 100 crores or INR 1 billion

Press release from Business Wire India
Source: Brickwork Ratings
Friday, September 25, 2009 10:32 AM IST (05:02 AM GMT)
Editors: General: Consumer interest, Economy; Business: Advertising, PR & marketing, Banking & financial services, Business services, Financial Analyst, Information technology, Stock exchanges, Telecommunications; Technology
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Brickwork Ratings Assigns "BWR AA-" for Tulip Telecom Limited's Long Term Debt Issue of INR 100 crores or INR 1 billion
Long Term Debt Issue: BWR AA- ; Outlook : Stable

Bangalore, Karnataka, India, Friday, September 25, 2009 -- (Business Wire India) -- Brickwork Ratings has assigned BWR AA- (Pronounced BWR Double A Minus) for Tulip Telecom Ltd.'s ("TULIP" or "the Company") proposed Long Term Issue of INR 100 crores or INR 1 billion. Brickwork Ratings' 'BWR AA-' stands for an instrument that is considered to offer HIGH credit quality in terms of timely servicing of principal and interest obligations. The rating factored leading position of company in MPLS/VPN based enterprise data communication segment, strong growth in MPLS/VPN market, experienced management with good execution capabilities, strategic moves being made by the company to accelerate growth, pressure in network integration business from other players, threat to its wireless business from bigger telecom players who are bidding for Wi-max spectrum which is expected to be auctioned by the government in near future.

PERFORMANCE OF BUSINESS OPERATIONS

TULIP operates in two main business segments viz. network integration, enterprise network/data services while it has added a new business segment namely Managed Services. In FY09, Enterprise & Carrier Data segment generated around 70 per cent of the total revenues followed by Network Integration segment which contributed 28.26 per cent and balance by other segment.

During the financial year FY09, the Network Integration segment generated revenues of Rs 464.3 crores as compared to Rs 558.93 crores in FY08, a decline of about 17%. The Company does not find this segment to be attractive due to low margin nature of this business and also possible exposure to currency fluctuation.

The Enterprise Network/ Data Service segment has been growing at a very healthy rate with enterprise network/data revenues growing almost 74% as companies are increasingly using networking and Information Technology to keep up with their business expansion. Consequently, the share of this segment in overall revenues has gone up from 53% in FY08 to almost 70% in FY09. The segment revenues increased from Rs 657.5 crores in FY08 to Rs 1,144 crores in FY09.

FINANCIAL PERFORMANCE

TULIP has posted good growth in total business. On a standalone basis, Income from operations increased 32 % to Rs 1,608 crores in FY09 as compared to Rs 1,216 crores in FY08. Increase in revenues reflects an increase in income from Corporate Network/Data Services. Company's profit from operations increased 44% to Rs 294 crores in FY09 as compared to Rs 204 crores in FY08. The profit before tax for FY09 was Rs 282 crores as compared to Rs 201 crores during FY08 while the net profit stood at Rs 249.57 crores in FY09 as compared to Rs 187.27 crores in FY08. The increase in net profit reflects higher other income that includes saving on account of repurchase and cancellation of FCCBs.

The company's PBITDA stood at Rs 335.5 crores as on 31st March, 2009. PBITDA increased by 36.4% from FY08 figure of Rs 245.63 crores. On stand alone basis in FY08, the total debt was Rs 893 crores which increased to Rs 1,122 crores in FY09. The increase in debt was largely due to the company's capital expenditure and optic fiber rollout plans in the major business districts of the country. A substantial portion of the debt consisted of Foreign Currency Convertible Bonds (FCCBs) that amounted to Rs 608.3 crores as on 31st March, 2009. The company had derivative contracts for hedging exposure to FCCBs. The losses on account of foreign currency fluctuation amounted to Rs. 61 crores for the year ended 31st March, 2009. At the same time, the Company had earned substantial benefits due to buyback of a portion of their FCCBs at a discount.

OUTLOOK

Currently, the network integration business has been impacted by competition from other players. The enterprise network/data segment is also likely to face competition from bigger telecom companies that are bidding for Wi-max spectrum that is expected to be auctioned by the government in the near future.

However, TULIP's business mix is shifting towards enterprise network/data business which is expected to drive future growth of its operations. Indian wireless and enterprise data service market is poised for strong growth due to low penetration in rural and SME sector as well as increasing demand from services sectors. The Company is quite well positioned to take advantage of the same. With certain strategic initiatives being taken by the management to lead its growth, TULIP is expected to further improve upon its overall performance and margins. Keeping these in view, BWR has assigned "Stable" outlook to its rating.

Copyright ©, 2009, Brickwork Ratings.

Brickwork Ratings has assigned the rating based on the information obtained from issuer and other reliable sources, which are deemed to be accurate. Brickwork has taken considerable steps to avoid any data distortion; however, it does not examine the precision or completeness of the information obtained. And hence, the information in this report is presented "as is" without any express or implied warranty of any kind. Brickwork does not make any representation in respect to the truth or accuracy of any such information. The rating assigned by Brickwork should be treated as an opinion rather than a recommendation to buy, sell or hold the rated instrument and BWR shall not be liable for any losses incurred by users from any use of this report or its contents.


CONTACT DETAILS
Milind Diwakar - Lead Analyst Contact, Brickwork Ratings, 1-860-425-2742, milind.d@brickworkratings.com
Jubin Pandey - Co-Analyst Contact, Brickwork Ratings, 1-860-425-2742, jubin.p@brickworkratings.com
Anitha G, Media Contact, Brickwork Ratings, 1-860-425-2742, media@brickworkratings.com
Ramaswamy Annam, Director - Business Development, Relationship Contact, Brickwork Ratings, 1-860-425-2742, ramaswamy@brickworkratings.com
Rajender Walia, Director - Business Development, Relationship Contact, Brickwork Ratings, 1-860-425-2742, rajender.walia@brickworkratings.com

KEYWORDS
CONSUMER, ECONOMY, MARKETING, BANKING, BUSINESS SERVICES, Financial Analyst, IT, STOCK EXCHANGES, TELECOMMUNICATIONS, TECHNOLOGY

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