Tulip Telecom: bucking trends

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At a time when all the bigwigs were getting plundered and the markets are in the grip of fear, Tulip Telecom stock has been showing positive movement. The share price on Wednesday closed at Rs 785, up by 5.33%, and the reasons for this are not far to seek. The company is a leading data services provider and its product portfolio includes network integration and data services. The company will be focussing on the domestic market. This, analysts reckon, insulate it to a slowdown in the US.

Moreover, the government’s efforts to spruce up the IT infrastructure will create more opportunities for the company. Tulip has already allocated Rs 800 crore towards the improvement of inter-state connectivity by developing a state wide area network (SWAN) in 20 states and has already received four contracts worth Rs 270.7 crore.

With the launch of managed services portfolio including video and data centre services, the company will become an end-to-end service provider and this will be an improvement in its operating margins. Already, the operating margins grew from 16.2% levels in FY07 to 22.1%. However, it is these margins that will be attracting competition from the larger telecom players. Companies like Reliance Communications, Bharti Airtel and BSNL are already in the data connectivity business and with their sheer muscle power dominate the scenario, impacting Tulip’s expected margin growth. Also, entering into the SWAN business will challenge the management’s ability to manage its working capital as the payment schedules of the government sector are different from that of the private and entail long credit extension periods.

However, at the moment, the simple contrarian business model gets Tulip the necessary attention on the bourses.