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30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
Company CMP Target Risk
Nutek 0.85 42.65 High
Tulip Telecom 90.40 422.10 Moderate
Bharti Airtel 330 1005.8 Low
Telecom Industry
TELECOM LANDSCAPE IN 2012-14
India has emerged as one of the youngest and
fastest growing economies in the world today.
One of the sectors that has shown the signs of
profitability and contributed significantly to the
country’s economy is the telecom industry.
In fact, the Indian telecom market has gained
recognition as one of the most lucrative markets
globally.
In 2012, the total Telecom Subscriber base is
expected to reach approximately 950 million and
the internet subscriber base is expected to rise to
approximately 60 million.
After auction on 3G & WIMAX in 2009, initially
they concentrate on top 20 cities in India. Based
on this, 3G subscriber base could reach 30 – 35
million by 2012.
The entry of MVNO’s will help achieve growth
faster by targeting niche customer segments.
The Telecom Industry in India has witnessed a
phenomenal and manifold growth over the recent
years and it contributes nearly 2% to India’s GDP.
The launch of 3G services will drive data
revenues. India’s data revolution is going to be
fuelled by 3G and WiMax.
Risk & Return Matrix
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
BSE CODE 533015
NSE CODE NUTEK
Market Cap (Rs Cr) 14.06
52 week High/Low (Rs) 13.35/0.70
Lat. Face Value 5
Lat. EPS (TTM) 0.08
Lat. Book value (Rs) 32.78
Lat. P/E Ratio 11.38
NUTEK INDIA CMP:0.85 TGT: 42.65
INVESTMENT ARGUMENTS
Nutek is a Telecom Infrastructure services
company providing rollout solutions for
wireless and fixed telecom networks.
During the FY2011, NUTEK witnesses a
change in revenue mix where in the revenue
contribution from FTK services declined while
the contribution from other service verticals (TI,
TIS and O&M). However, owing to intense
competition in the sector and the resultant low
call rates, margins at all the verticals in the
Telecom value chain are under pressure.
NUTEK plans to foray into power sector in a
major way, ranging from owing raw material
assets to setting up power generating capacities,
and has made an acquisition to tie up its
backend raw material supply notably the coal
assets.
NUTEK recently acquire 45% equity in Gulf
Corporation, a company having coal mines in
Indonesia, for USD 45 Million through its Hong
Kong subsidiary. Company is actively looking
to acquire both existing downstream projects in
the conventional power generation space as well
as foray into non-conventional power generation
area which appears to be lucrative proposition in
the long run.
NUTEK Company is eyeing to enter into the
lucrative defence sector in India. With Army
recently announcing investments of over
Rs.40000 crores for its Private Communication
Network, the defence sector looks attractive
.NUTEK has set-up a branch office in Nepal to
capture the opportunities offered by the under-
developed Telecom market in Nepal.
Valuation outlook
With the positive change in revenue mix
of NUTEK from FTK services to TI, TIS and O & M the
growth in NUTEK would be expected as high. Based on
DCF valuation model NUTEK occupies the 1st place
among Telecom Service Providers in India with subject to
increase in value per share in 2014(e). The estimated
value of NUTEK is 42.64 rupees per share.
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
Fair Value 6588.27
Value Per share 42.64
WACC Calculation
Cost of equity
Rf 8%
Beta 0.572471694
Rm 22.00%
Rm-Rf 14.00%
Cost of equity 16.01%
Total equity 5215
Cost of debt 282.72%
Tax rate 30.00%
Total debt 10.3
Enterprise value 5,225.30
WACC 16.37%
FREE CASH FLOW(Rs in
MILLIONS) 2012(e) 2013(e) 2014(e)
EBITDA 622.71 684.98 753.48
Net Income 186.81 205.49 226.04
Interest 46.70325 51.373575 56.5109325
1-tax rate 0.70 0.70 0.70
Interest * (1-tax rate) 32.69 35.96 39.56
Add: Depreciation 18.68 20.55 22.60
Less : Fixed Capital Investment 42.00 42.00 42.00
Less :Working Capital
Investment -540.80 -540.80 -540.80
FREE CASH FLOW TO FIRM 736.99 760.81 787.01
NET BORROWING 0.00 0.00 0.00
Interest * (1-tax rate) 32.69 35.96 39.56
FREE CASH FLOW TO
EQUITY 704.29 724.84 747.45
SWOT Analysis
DCF Valuation
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
2008 2009 2010 2011 2012 e 2013 e 2014 e
TOTAL INCOME 951.6 1803.1 1943 2830.5 3113.55 3424.905 3767.396
YOY % 89.48% 7.76% 45.68% 10.00% 10.00% 10.00%
EBITDA 484.5 717.1 652.2 643.5 622.71 684.981 753.4791
% of sales 50.91% 39.77% 33.57% 22.73% 20.00% 20.00% 20.00%
depreciation 8.8 11.9 16.3 18.1 18.6813 20.54943 22.60437
% of sales 0.92% 0.66% 0.84% 0.64% 0.60% 0.60% 0.60%
EBIT 302.8 215.3 267.5 313.3 373.626 410.9886 452.0875
% of sales 31.82% 11.94% 13.77% 11.07% 12.00% 12.00% 12.00%
TAX 107.9 111.1 60.2 87.9 93.4065 102.74715 113.0219
% of sales 11.34% 6.16% 3.10% 3.11% 3.00% 3.00% 3.00%
Profit after tax 194.5 175.3 182.7 193.1 186.813 205.4943 226.0437
YoY -10.95% 4.05% 5.39% 20.10% 3.72%
% of sales 20.44% 9.72% 9.40% 6.82% 6.00% 6.00% 6.00%
Tax expenses 107.9 111.1 60.2 87.9 93.4065 102.74715 113.0219
% of sales 11.34% 6.16% 3.10% 3.11% 3.00% 3.00% 3.00%
Interest expenses 8.5 8.6 28.3 41.6 46.70325 51.373575 56.51093
% of sales 0.89% 0.48% 1.46% 1.47% 1.50% 1.50% 1.50%
Income Statement (Rs in Millions)
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
BSE CODE 532691
NSE CODE TULIP
Market Cap (Rs Cr) 1405.78
52 week High/Low (Rs) 173.80/92.40
Lat. Face Value 2.00
Lat. EPS (TTM) 22.95
Lat. Book value (Rs) 83.90
Lat. P/E Ratio 4.22
TULIP TELECOM CMP: 90.40 TGT: 422.11
Incorporated in 1990 Tulip Telecom Ltd has
emerged as India’s leading Enterprise Data
Connectivity ( EDC) player.
By having the rapid growth in telecom sector,
EDC market was Rs 62 billion (FY10) and with
increasing demand for data connectivity from
private and government sector it is anticipated to
expand to Rs 130 billion by FY16(e) at a CAGR
of 12%
With the greater demand in IT infrastructure,
TTL is identifying opportunities in this segment
by providing end-to-end IT Infrastructure
solutions covering managed security, unified
communication and colocation & data canters to
its customers. TTL currently enjoys a leadership
position in fastest growing MPLS/VPN services
with 30.6% market share
Reliance emerges as the single player having
Pan-India license for 4G network. But, we
believe, Reliance for that matter may like to
partner with TTL or government allows for more
competition to break the monopoly of Reliance
in the emerging scenario, any other player apart
from reliance may utilize the fiber network
service of TTL for speedy roll-out of 4G
services. This scenario can prove to be a big
boon to TTL.
Valuation Outlook
TTL, a leading player in EDC space, is
slowly moving to enterprise data services space by and
has huge opportunity on its hands. Using DCF valuation
we found that TTL occupies 2nd
place with subject to the
increase in market price per share in 2014(e). The
estimated value of TTK is 422.11 rupees per share.
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
FREE CASH FLOW(Rs in
MILLIONS) 2012(e) 2013(e) 2014(e)
EBITDA 9028.03 10833.64 13000.37
Net Income 3916.50 4699.80 5639.76
Interest -705.32 -846.38 -1015.65
1-Tax Rate 0.70 0.70 0.70
Interest * 1-Tax Rate -493.72 -592.46 -710.96
Add: Depreciation 2398.07 2877.69 3453.22
Less : Fixed Capital Investment 8964.32 8964.00 8964.00
Less : Working Capital Investment -1916.17 -1916.00 -1916.00
Free cash Flow of Firm -1227.30 -62.98 1334.02
Interest * 1-tax rate -493.72 -592.46 -710.96
Net Borrowing 0.00 0.00 0.00
FCFE -733.58 529.49 2044.98
DISOUNT FACTOR 0.96 0.88 0.81
Present value of free cash flow -703.24 466.47 1655.68
Fair value (Rs in MILLIONS) 61206.10
Value Per Share 422.11
WACC Calculation
Cost of Equity
Rf 8%
Beta 0.642055461
Rm 21.50%
Rm-Rf 13.50%
Cost of Equity 16.67%
Total equity 12125
Cost of Debt 3.56%
Tax Rate 30.00%
Total Debt 15061
Enterprise Value
27,186.00
WACC 8.81%
Figure 3.19
Business Segments
SWOT Analysis
DCF Valuation
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
2008 2009 2010 2011 2012 E 2013 E 2014 E
Revenue 12189.8 16144 19664 23510.5 28212.6 33855.12 40626.14
YoY % 32.44% 21.80% 19.56% 20.00% 20.00% 20.00%
EBITDA 2776.9 3851.9 5857.5 7355 9028.03 10833.64 13000.37
22.78% 23.86% 29.79% 31.28% 32.00% 32.00% 32.00%
Depreciation 418.1 414.4 1353 1717 2398.07 2877.69 3453.22
3.43% 2.57% 6.88% 7.30% 8.50% 8.50% 8.50%
EBIT 2038 2952.6 3901.8 4916.9 6629.96 7955.95 9547.14
16.72% 18.29% 19.84% 20.91% 21.00% 21.00% 21.00%
Profit after tax 1871.2 2497.8 2304.4 3053.3 3916.50 4699.80 5639.76
YoY % 25.09% -8.39% 24.53% 20.10%
% of sales 15.35% 15.47% 11.72% 12.99% 13.88% 13.88% 13.88%
Tax expenses 139.5 330.4 899.4 1000 847.66 1017.20 1220.64
1.14% 2.05% 4.57% 4.25% 3.00% 3.00% 3.00%
Interest expenses -171 -327 -638 -766 -705.32 -846.38 -1015.65
-1.40% -2.03% -3.24% -3.26% -2.50% -2.50% -2.50%
Income Statement (In Millions Rupee)
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
BSE CODE 532454
NSE CODE BHARTIARTL
Market Cap (Rs Cr) 125052.67
52 week High/Low
(Rs) 447.82/316.00
Lat. Face Value 2.85
Lat. EPS (TTM) 15.78
Lat. Book value (Rs) 115.42
Lat. P/E Ratio 20.87
BHARTI AIRTEL CMP: 330 TGT: 1005.8
Bharti Airtel Limited, together
with its subsidiaries, provides
telecommunication services in India, south
Asia, and Africa. Its Mobile Services
segment offers GSM mobile services; and
post-paid, pre-paid, roaming, Internet.
As regard the Africa operations,
looking forward into FY 2011-12, the
Company will be focusing on
strengthening its business model across all
the 16 countries of operation. It will also
be leveraging the opportunities that 3G,
data, MNP and Airtel money presents.
In future BHARTI AIRTEL
entering into rural market and with the
As a market leader in the Indian Telecom space,
Bharti Airtel’s outlook is promising and is in line
with future growth potential of the sector.
Emerging markets of Sri Lanka and Bangladesh
and newer product family of Digital TV will
continue to be the focus areas and Airtel will
continue to build its integrated solutions created for
enterprise and small & medium business.
As regard the Africa operations, looking forward
into FY 2011-12, the Company will be focusing on
strengthening its business model across all the 16
countries of operation. It will also be leveraging the
opportunities that 3G, data, MNP and Airtel money
presents. Exploited fully, these opportunities have
the potential to make Airtel truly unique to both
current and prospective customers in the market.
The growing demand of digital content, especially
High Definition (HD) content, will further
accelerate the growth of digital TV services. Digital
Media Exchange (DMX), coupled with Teleport
Services, will get content aggregation capabilities
to the market, thereby opening new avenues for a
telecom service provider in digital signage and
digital cinema content delivery domains
With technologies like cloud computing and grid
computing gaining momentum, the Indian Data
Centre Services are on the rise and is emerging as a
long-term growth opportunity. Cloud based
services such as Software as a Service (SaaS),
Platform as a Service (PaaS) offer new
opportunities for small and medium businesses.
Valuation Outlook
BHARTI AIRTEL concentrating into rural
market and with the advantage of new technologies like 3G,
BWA and VAS, it will gain moderate profit and huge
subscribers as well. Based on DCF model we found that
BHARTI AIRTEL occupies 3rd
place among Telecom
Service Providers in India with respect to value per
share in 2014(e) The estimated value of BHARTI
AIRTEL is 1005.8 rupees per share.
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
TOTAL NO OF
EQUITY SHARES 3797.5
DISOUNT FACTOR 0.95 0.85 0.77
PRESENT VALUE OF
FREE CASH FLOW -77751 161280.9 180503.5
Enterprise value 3819523.3
Value per share 1005.8
WACC
CALCULATION
COST OF EQUITY
RF 9%
BETA 0.89489424
RM 22.00%
RM-RF 13.11%
COST OF EQUITY 20.62%
TOTAL EQUITY 516231
0.12
COST OF DEBT 2.68%
TAX RATE 30.00%
TOTAL DEBT 532298
ENTERPRISE VALUE 1,048,529.00
WACC 11.11%
FREE CASH FLOW 2012 2013 2014
EBITDA 205161.84 235936.12 271326.53
EBIT 76925.87 88464.75 101734.46
NET PROFIT 41032.37 31458.15 27132.65
INTEREST -24313.21 -27960.19 -32154.22
1-TAX RATE 0.70 0.70 0.70
INTEREST * 1- TAXRATE -17019.25 -19572.13 -22507.95
ADD: DEPRECIATION 55014.21 335422.51 385735.89
LESS : CAPEX 176461.00 176461.00 176461.00
LESS : WCINV 1540.20 1540.00 1540.00
FREE CASH FLOW TO
FIRM -98973.87 169307.53 212359.59
INTEREST -24313.21 -27960.19 -32154.22
INT*1-TAX RATE -17019.25 -19572.13 -22507.95
NET BORROWING 0.00 0.00 0.00
FCFE -81954.62 188879.66 234867.54
SWAT Analysis
DCF Valuation
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
2008 2009 2010 2011 2012 E 2013 E 2014 E
TOTAL INCOME 270249.3 369615.5 418472 594672 683872.8 786453.72 904421.78
36.77% 13.22% 42.11% 15.00% 15.00% 15.00%
EBITDA 117037.4 154664.2 224228 307065 205161.84 235936.116 271326.53
43.31% 41.84% 53.58% 51.64% 30.00% 30.00% 30.00%
DEPRECIATION 0 0 62832 102066 55014.20847 335422.5116 385735.89
0.00% 0.00% 15.01% 17.16% 8.04% 42.65% 42.65%
TAX 8378.1 6614.6 13453 17790 18970.77345 21816.38947 25088.848
3.10% 1.79% 3.21% 2.99% 2.77% 2.77% 2.77%
PAT 67008 84699.1 89768 60467 41032.368 31458.1488 27132.653
YoY 20.89% 5.65% -48.46% 20.10%
% of sales 24.79% 22.92% 21.45% 10.17% 6.00% 4.00% 3.00%
TAX EXPENSES 8378.1 6614.6 13453 17790 18970.77345 21816.38947 25088.848
3.10% 1.79% 3.21% 2.99% 2.77% 2.77% 2.77%
INTEREST EXPENSES -4053 -27617.9 -7626 -20378 -24313.20937 -27960.19078 -32154.22
-1.50% -7.47% -1.82% -3.43% -3.56% -3.56% -3.56%
Income Statement (Rs in Millions)
30th Mar 2012
Investment Thoughts ADDRESSING THE NEEDS OF INDIVIDUAL INVESTORS AND PLANTING THE SEEDS FOR A SECURE FUTURE.
Research Manager: Vijayababu M
Email: vijayababum@ambalalshares.com
Disclaimer
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based on the information which is believed to be precise and we are not responsible for the results of the positions taken
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