Thursday, February 9, 2012

Tulip Telecom Sold by Macquarie Bank, Q3 Results Down

By Special Correspondent

Tulip Telecom Ltd (BSE: 532691, NSE: TULIP) yesterday had  significant sells of 15.76 lakh shares by the FII, Macquarie Bank Ltd, amounting to 1.09% of the total shares in the company. 
Offloads by Macquarie Bank occurred both in NSE & BSE, with 8.40 lakh shares sold in NSE, and 7.36 lakh shares offloaded in BSE. Notably, there were no identifiable institutional buyers or promoters, as counterparties to the sale, which means that the massive sell was picked up by the wider market in both the exchanges.

Promoters of Tulip Telecom already hold a nearly 70% stake, which is relatively high by Indian standards.

Tulip Telecom Ltd is an India based data telecom service provider, as well as IT solutions provider focused on IP based and infrastructural solutions. Tulip Telecom’s niche area of leadership is Virtual Private Networks (VPN) using Multiprotocol Label Switching (MPLS). Recently, Tulip had commissioned what it claims to be India’s largest and world’s third largest single-location data center, in Bangalore. Named, Tulip Data City, the new data center has been designed and built with the help of IBM.

Macquarie Bank Ltd, is part of the Australian financial services major Macquarie Group, which  is a leading provider of banking, financial, advisory, investment and funds management services. Macquarie Group Ltd is publicly listed (ASX:MQG), and is Australia’s largest investment bank as well as largest M&A advisor. In Indian capital markets, Macquarie Bank Ltd is one of the 14 FII accounts and sub-accounts of the Macquarie Group.

Tulip Telecom Ltd has had an impressive fundamental performance over the past five fiscals, with both consolidated revenues and profits tripling from FY’07 to FY’11. Tulip had also maintained its consolidated net profit margin (NPM) during this period, and even bettered it slightly, which now stands at 13%. However, in the current fiscal, Tulip’s growth has become sluggish with revenues stagnant and net profits seesawing on a QoQ basis.

Macquarie Bank seems to have taken its sell cue from Tulip’s Q1 & Q2, as well as an estimate of Q3 results. Tulip published its Q3 results late yesterday after market hours, which seems to confirm Macquarie’s logic. Tulip registered a net profit of Rs. 77.25 crore, which is down both sequentially as well as year-on-year. NPM for the quarter stands at 11.25%, down from FY’11’s 13%. 

Due to these recent pressures on fundamental performance, the scrip had participated in the massive market correction in calendar year 2011, and Tulip Telecom had fallen by 45%, despite ruling high till October-November. Tulip had fallen from its 52-Week High of Rs. 181.00 in BSE on February 15th 2011, to a 52-Week Low of Rs. 99.50 on 29th December.

Macquarie’s sell is disturbing for the Tulip counter as the FII didn’t even wait for a relief rally before selling massively. This might be due to many reasons like they already being in profit, and the scrip’s failure to participate meaningfully in the recent market rally. It is also disturbing that no other FIIs or DIIs came forward to buy the Macquarie sell, even at these relatively low levels.

As per the Q3 SHP, Macquarie held 36.53 lakh shares or 2.52%, of which 15.76 lakh shares or 1.09% was sold off yesterday, which hints at only a partial exit strategy.

Macquarie seems to be cutting its risk, as it had recently become clear that the Tulip subsidiary that owns the new data center will have to raise significant funds for implementing the full plan. Yesterday, Tulip had disclosed that this subsidiary, Tulip Data Centre Pvt. Ltd., had raised Rs. 250 crore in mezzanine funding from an undisclosed investor. Including this, Tulip has tied up Rs. 500 crore in debt and mezzanine funds. It had earlier invested Rs. 230 crore in this Rs. 900 crore project. That leaves another Rs. 170 crore to be raised, which Tulip plans from internal accruals.

At the same time, the data center is expected to reach peak output only by 2015, three years from now.  

Returns from another major project, the 1200 km long National Long Distance fibre optic cable between Mumbai and Chennai is expected to take two years. The project is said to be on schedule, to be completed by this fiscal end.

It remains to be seen how other large institutional investors in Tulip Telecom react to the significant sell by Macquarie. These decisions will decide the future of the Tulip scrip, as the stock has significant institutional participation of over 20%, dominated by FIIs. Major institutional investors in the scrip include ICICI Prudential, Copthall, Government of Singapore, CLSA, Merrill Lynch, and Franklin Templeton. 

Despite the sell by Macquarie, Tulip had closed yesterday’s trade in green, up by 2.69% in BSE, and today Tulip opened down, but is now up by 0.68% in BSE and 1.41% in NSE.

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