next »

[mehak1]

Tulip IT Services recorded strong results for Q3FY08 with a top line of Rs 333.13 crore (28.9% y-o-y growth and 50% q-o-q growth). Bottom line was Rs 54.09 crore (97% y-o-y growth and 37.08% q-o-q increase). The robust results were on the back of higher-than-expected revenue growth in IP/VPN. EBIDTA margin grew 71 bps and PAT marfgin were up 189 bps as the company get tax benefits in IP/VPN business.

Positive surprise from IP/VPN--

The IP/VPN segment continued to post healthy numbers on back of higher-than-expected connects (93,711 against our estimates of 91,800) and a surprise 23.7% increase in ARPU from old customers that resulted in a top-line growth of 38.9% from this vertical. It also contributed more than 55% to total top-line, which helped in margin expansion of more than 71 bps. Going forward, we expect demand for wireless connectivity to remain robust. However, there might be some pressure on the ARPU as newer customers might require lesser bandwidth and
competition catching up soon.

Network integration to grow at a steady rate--

The legacy business of network integration grew 18.3% q-o-q and 6.7% y-o-y. These numbers are expected to increase in Q4 due to seasonality in the business. We also expect revenues from SWAN to accrue from Q1FY09 as Haryana is ready to be handed over to the state government and work is on for West Bengal and Assam. New business of data centres is expect to complement network integration business and could contribute significantly only post Q2FY09 as occupancy levels increase to above 30% (needed to breakeven).

Valuation--

Tulip continued to show robust numbers and strong growth in the IP/VPN segment. On back of higher-than expected connect and the surprise increase in ARPU, we are upgrading our estimates for both FY08 and FY09. A SOTP valuation gives us a target price of Rs 1,230.

Report card--

PE ratio           29.74    01/02/08
EPS (Rs)          32.61    Mar, 07
Sales (Rs crore)      333.08   Dec, 07
Face Value (Rs)          10   
Net profit margin (%) 11.82    Mar, 07
Last dividend (%)   20      17/07/07
Return on average equity 35.68    Mar, 07