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Sunday, October 05, 2008
Tulip Telecom Ltd
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.
Key Business Advantages
Wireless last mile connectivity: Tulip offers wireless last-mile connectivity for its VPN services. ‘Last mile’ here refers to the connectivity between the company’s point of presence in any city to the client’s premises in that city.
This removes the dependence on wired leased lines that is usually resorted to by other players such as Sify. It also enables quicker implementation and deployment of VPN services.
MPLS based backbone: The company has built a multi-protocol label switching (MPLS) technology-based backbone network. This technology is regarded as being easily scalable in architecture and superior to traditional ATM or Frame Relay-based technologies. The MPLS VPN of Tulip is offered in around 1,200 cities across the country giving it an edge over competitors.
Business Drivers
Changing revenue-mix: Tulip has managed to win a large client base in the IP VPN segment, including PSU banks such as Punjab National Bank, ADAG group companies, Bajaj Allianz, France Telecom and Idea Cellular among others. Most of these companies are data-intensive and would require secure VPNs to communicate between branches.
The company’s present focus on PSU banks assumes significance at a time when a number of PSU banks are adopting core banking facilities across the country. Such services will also cater to the CRM and ERP requirements of companies.
Tulip with its presence and execution capabilities appears well-placed to cater to these opportunities. This creates a sustainable revenue stream for the company. The IP VPN business, which has been growing rapidly, accounts for well over 50 per cent of the revenues. It is also a higher margin service compared to network integration, which explains the company’s expanding overall margins over the past few years.
The IP VPN market is estimated to be Rs 3,343 crore in size by 2013, growing from the current Rs 1,200 crore levels, according to a report by Frost & Sullivan. Tulip is estimated to have a market share of 28 per cent in this segment. Further, the domestic enterprise data market is estimated to be Rs 13,393 crore by 2013. Tulip, with its strong existing client relationships, appears well-placed to gain from the opportunity.
Government SWAN deals and budget cues: The company has been able to secure a host of government deals in IT infrastructure and implementation. These include state-wide area network (SWAN) deals of the governments of Haryana, Assam and West Bengal and, more recently, Madhya Pradesh. These are e-governance deals to enable offering of government-to-citizen services, and range between Rs 50 and Rs 95 crore. With both the Union and Railway Budgets setting higher outlays towards IT, order flows from this segment may increase for Tulip. Defence, another sector with increased allocation, also offers opportunities for Tulip to cross-sell its IP VPN capabilities.
Data centres and remote infrastructure management: Tulip also hosts and fully manages data centres on behalf of companies. This is an emerging area as it allows companies to outsource critical IT infrastructure. Tulip offers this service in the form of co-location with the client as well as on a fully managed service basis. This becomes important for small and medium enterprises adopting IT for the first time and wanting to minimise cost. This opens up a wide potential client base for the company.
Though this is a nascent area for Tulip, this model has the potential to create a sustainable revenue stream for the company over a longer period.
The company has also started WiMAX deployments recently and would look to leverage on its backbone network and wireless last mile network. With bidding for spectrum and Wimax services set to take off soon, this is another area that holds potential for Tulip.
Risks
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.
Saturday, October 04, 2008
Warren Buffet - Interview
If you haven't already checked it out - Warren Buffet gave a interview on Oct 1 2008 where he talks about the US Economy and on investing
Check out here
Don't miss it!
Nomura to acquire Lehman Bros` Indian BPO unit
Nomura Holdings is planning to acquire Lehman Brothers Holding's Indian back-office operations, including its information technology (IT) operations, Japan's Nikkei business daily said. The Nikkei reported that Nomura, Japan's biggest securities firm, would pay several billion yen to acquire the Mumbai-based operations, which employs more than 2,000 employees. Nomura has already accepted about 3,000 workers from Lehman Brothers' Asia-Pacific units and some 2,500 employees from Europe and the Middle-East, the Nikkei newspaper said. Lehman Brothers' Indian back-office operations, based in the financial hub of Mumbai, handles trading settlement duties as well as IT research and development.
Hum abhi bhi hain na - ICICI
ICICI Bank said that it was aware that rumours were being repeatedly circulated in certain centres regarding the financial strength of the bank. It stated that these rumours were baseless and malicious. The bank reiterated that ICICI Bank has a very strong capital position, having proactively raised Rs200bn (about US$5bn) in June 2007, almost doubling its capital base. It has a networth of over Rs470bn (over US$10bn) and a capital adequacy ratio of 13.4% as at June 30, as against the regulatory requirement of 9%. This reflects the healthy capital position and comfortable level of leverage. ICICI Bank also said that it's banking and non-banking subsidiaries are also well-capitalised.
ICICI Bank also clarified that 98% of ICICI Bank UK Plc's non-India investment book of US$3.5bn is rated investment grade and above. Only about 18% of ICICI Bank UK's non-India investment book is exposure to the US. ICICI Bank UK has zero exposure to US sub prime credit, whether directly or through credit derivatives such as CDO/CLN/CDS. In addition, ICICI Bank UK holds cash equivalent instruments of US$1.1bn. There is no exposure to US banks in this category. ICICI Bank UK has a total balance sheet size of US$8.5bn and has zero NPLs on the balance portfolio of US$3.9bn. As on the last balance sheet date of June 30, ICICI Bank UK had a capital adequacy ratio of 17.4%.
Current a/c deficit jumps on higher oil imports
India's current account deficit climbed in the first quarter of the current fiscal year as a widening trade gap, fueled by increased oil imports, offset higher net invisible surplus, the Reserve Bank of India (RBI) said. Current account deficit in the quarter ended June stood at US $ 10.7bn versus US $ 6.3bn in Q1 of 2007-08, data released by the central bank showed. The capital account had a surplus of US$12.96bn in the quarter ended June as against US$17.5bn in the same quarter a year earlier. As a result, the BoP surplus for the Apr-June quarter fell to US$2.2bn from US$11.2bn in the year-ago period.
Net FDI flows were higher at US$10.1bn in Q1 FY09 as against US$2.7bn in Q1 FY08. Portfolio investment witnessed large net outflows (US$4.2bn) in Q1 FY09 compared to net inflows of US$7.5bn in the same quarter last year. Net ECB inflows to India amounted to US$1.3bn in Q1 FY09 as against US$6.9bn in the corresponding quarter of last year. This constituted 11.8% of net capital flows as against 40.3% last year. Net accretion to foreign exchange reserves on a BoP basis (i.e., excluding valuation) was US$2.2bn in Q1 FY09 versus US$11.2bn in the first quarter last year.
Inflation slips below 12%
Inflation, based on the wholesale price index (WPI) fell below 12% for the first time in the last 13 weeks, as prices either declined or remained stable for most product groups. The annual inflation, calculated on a point-to-point basis, declined to 11.99% in the week ended September 20 as against 12.14% in the previous week, the Commerce & Industry Ministry said in a statement. The annual rate of inflation stood at 3.51% as on September 22, 2007. The market had expected inflation to dip slightly to around 12.1%. The WPI for all commodities stood nearly static at 241 versus 241.1 in the previous week.
The index for the 'primary articles' group declined by 0.2% to 251.3. The annual point-to-point inflation for the group declined to 11.29% compared to 11.56% reported last week. The index for the 'fuel & power' group remained unchanged at its previous week's level of 375.3. The rate of inflation for this group declined to 16.52% from 16.66% in the previous week. The index for the 'manufactured products' group rose by 0.1% to 207.5. Rate of inflation for this group declined to 10.55% from 10.61% in the previous week. Inflation of 30 essential commodities increased to 7.70% as on the week ending September 20 from 7.58% reported in the earlier week.
Rupee declines to new 5-year low
The Indian rupee slumped to the lowest since mid-2003 as stocks slid, adding to speculation that investors will take more money out of the nation's equity market. The local currency completed its eighth weekly loss, the longest drop since December 2005, on signs that the US economy is headed for a recession that may hurt global growth. The rupee also fell after the RBI said the current-account deficit widened to a record in the three months to June 30. The rupee fell 1% to 47.0850 per dollar, the lowest since June 2003, at 5 p.m. to close on Friday in Mumbai. The currency lost 1.15% this week.
The benchmark BSE Sensex slipped over 4% during the week due to concerns over the health of the US economy amid the raging financial crisis. The index has lost 38.3% this year after advancing 47% in 2007. The MSCI Asia Pacific Index declined 2.1%, taking its loss this week to 7.7%, the most since Aug. 2007. Overseas investors have sold Indian equities worth a record US$9.2bn more than they bought this year, the report stated. India's current account gap, the amount by which imports exceed exports, remittances and other income, increased to US$10.7bn in the April-June period from US$1.04bn in the previous quarter, according to the RBI data.
Understanding ULIPS
When it comes to Ulips, it appears that there are no shades of grey: you either love them or hate them. To put it in black and white, the industry and potential purchasers love them, and most of the people who have them tend to hate them. Accusations of mis-selling and hard-selling are hurled at the industry. Most investors admit that they don't understand how it works, but they keep buying Ulips more than any other insurance product. Hence, all kinds of records are being broken: there is an unprecedented growth in the number of Ulips sold and in the collection of premiums. All of this serves to boost the cause of privatisation. This is why we decided to make Ulips the subject of the first Money Today Round Table, held in Mumbai last month.
Since a number of investors (existing and prospective) purchase Ulips without knowing much about them, we felt it was the job of a magazine like ours to give them more information. But what are the industry stakeholders insurance firms, distributors and advisers doing about it? Surprisingly, many of them, who participated in the discussion, admitted that there was rampant mis-selling. But in the same breath they added that the system had become corrupted and they were only the byproducts of the system . They felt that the consumers didn't wish to be (seriously) involved at the time that they bought a financial product.
When we prodded the experts, they admitted that agents push potential buyers to opt for Ulips instead of other insurance products that might suit the latter better. Even the product manufacturers were blamed for not being able to realise the opaqueness in the manner in which they operated. An additional complication arose since it is extremely difficult to compare different Ulip products. Many said that even the insurance regulator might be unable to solve the basic problems that the industry faces today.
As a part of the Round Table, we invited six industry representatives to brainstorm and discuss where the Ulips were headed, and the problems that confront the industry at present.
Indo-US nuke pact clears last hurdle
After three years of torturous and controversial journey, the Indo-US civil nuclear co-operation deal is finally expected to see the light of day when President George W. Bush signs on the dotted line or over the weekend. US Secretary of State, Condoleezza Rice is scheduled to arrive in New Delhi on Saturday to sign the inter-governmental instruments that will operationalise the landmark agreement. The final legislation is titled "United States-India Nuclear Cooperation Approval and Nonproliferation Enhancement Act".
On Wednesday, the US Senate approved the deal with an overwhelmingly majority, while also shooting down two killer amendments. The agreement, entered into between Prime Minister Dr. Manmohan Singh and President Bush in 2005, secured 86 votes while 13 Senators voted against it. The US-India Agreement for Cooperation Concerning Peaceful Uses of Nuclear Energy (123 Agreement) got bi-partisan support after the killer amendments, moved by two Democratic Senators, were turned down.
Democrat Barack Obama and Republican John McCain also voted for the bill, as did Democratic Vice-Presidential candidate Joe Biden. The legislation was already cleared by the House of Representatives. The bill still contains provisions that would ensure cessation of US nuclear cooperation in case New Delhi conducts a nuclear test.
Rice wrote to Senate majority leader Harry Reid, that a nuclear test by India would result in the most serious consequences, including automatic cut-off of cooperation as well as a number of other sanctions. She expressed hope that India would continue to abide by its unilateral moratorium on further nuclear tests.
However, India said that the country still retains the right to conduct a nuclear test, while others have a right to react to such an incident. "India has the right to test, others have the right to react," External Affairs Minister Pranab Mukherjee said.
Weekly Newsletter - Oct 4 2008
Even as the Bush government is banking on the Congress to bail itself out, the market here will turn its focus on quarterly results. Most players will be closely analysing India Inc's report card to gauge the impact from the worsening macro factors, besides the global financial crisis. At the same time though, they will keep one eye on the happenings in the global markets given the enormity of the financial mess. One factor could swing the pendulum in favour of the bulls is the dip in inflation, which has fallen below 12% after a long time. Whether the same prompts the RBI to ease the monetary policy remains to be seen. Meanwhile, the rupee continues to be under pressure, which is adding to the worries for the FIIs. Also, a weak currency makes imports costlier, resulting in a higher trade gap and thus affecting the overall Balance of Payment situation. So, the movements in currency and commodity markets will also have a bearing on the market sentiment.
Among the stocks Tata Motors would be in focus as the company has formally withdrawn from Singur. Next week will also be a truncated one as Thursday will be a holiday on account of Dasera. Infosys will come out with its earnings on Friday. At the time of writing this, markets in the US and Europe were quite buoyant ahead of the much-awaited House vote. Last time around, the House sprang a surprise by rejecting the measure. This time though, the bill has been modified and a few provisions have been included in it to quell some of the opposition to the bill. It remains to be seen, however, if the bill gets cleared or not. And, even if it does, there are concerns about how effective it will be in reducing the pain in the financial system. Any favourable news on this front will have only a temporary impact on the market. Given that there are hardly any positives to drive the indices higher, we expect the market to remain sideways with a negative bias.
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