NU TEK Indian Ltd comes into the market with an initial public offering of 45 lakh shares prices within a price band of Rs170-192 per share. Increasing their share capital by approximately 30%, Nu Tek hopes to raise somewhere between Rs 76.5 to 86.4 crore in an attempt to keep up with the rapidly growing telecommunication industry.

Industry and business overview

India is currently the second largest wireless network in the world, only after China. And, still it is a sector which is expected to grow at over 26% for the coming few years. The telecom industry is expected to touch Rs 3,44,921 crore by 2012 with almost 650 million subscribers. Considering the number of telephone connections hit 308.52 million in April 2008, the industry looks very promising to say the least.

Nu Tek is a telecom infrastructure services provider, which offers infrastructure rollout solutions for both mobile and telecommunication networks. They offer services to telecommunication equipment manufacturers, telecom operators, as well as third party infrastructure leasing companies in installing and maintaining telecom network equipment and infrastructure. They undertake turnkey projects; provide management expertise for infrastructure creation and installation for telecom sites, which include passive infrastructure like towers, telecom shelters, backup power DG sets and battery banks, electrical infrastructure and earthing stations. Also, active infrastructure like Base Transceiver Station (BTS), microwave, optic fibre, Base Station Controller (BSC), Mobile Switching Centres (MSC), IN (intelligent networks), value added services (VAS), transmission equipment like STM?s, WIMAX and future ready 3G nodes. The company also provides technical support services in high-end telecom segments, such as radio frequency, transmission planning and QOS amongst others. The business model basically works in three ways. The first is to get direct orders of installation and maintenance of telecom infrastructure and equipment from telecom operators. Secondly, they get orders from telecom equipment manufacturers who are engaged by telecom operators and lastly via telecom infrastructure leasing companies for the creation of telecom infrastructure.

Issue objectives and concerns

The main objective of this issue is to raise funds for capital expenditure, overseas acquisitions, augmenting long-term working capital requirement and general corporate purposes. The company has allocated Rs 23.5 crore for capital expenditure, Rs 21 crore for overseas acquisitions and Rs 44 crore for augmenting long-term working capital resources. The capital expenditure is needed to purchase equipment, vehicles, laptops amongst other gadgets they require for fulfilling their growing order book.

The working capital required by the fund is going to be partly met by internal accruals of Rs 38 crore. This is particularly essential for this growing company, as a substantial portion of their income is still outstanding as debt, and hence their operating cash flow has been in negative territory for the past few years.

However, this is understandable in the case of a growing company; also, most of Nu Tek?s clients are reputable telecom companies like Nokia, BSNL, etc. The company is still in the process of identifying a company, which is complimentary to its US requirements. They have already entered an agreement with o3 Capital LLC, an investment bank, to act as their financial advisor in identifying target firms for acquisition.

The company?s major revenues arise from their top 5 clients, who account for 57.57% of their total revenues. These include ZTE, Ericsson, Dishnet, Motorola and Tata Teleservices. Most of the firm?s clients are well established companies and should there occur a fallout with any of them, it would effect the business. While the income from operations as well as operating expenses has experienced growth, in 2007 this growth rate was lesser than it has been in 2006 and 2008. Such a fluctuation may also affect the share price of the company. Since the company requires large working capital funds and has high operating expenses, the company has had negative cash flows in recent fiscal years.

Number talk

Both, the telecom industry as well as Nu Tek have shown remarkable growth in the past few years and all indicators point at them continuing this way at least for the next 4 to 5 years before they may stabilise. The company income has grown by over 400% in the last 5 years and touched Rs 96 crore in the last fiscal.

On the other hand, the company?s profit too has shown a jump of almost 640% in the last five fiscals, ending 2007-08 with a PAT of Rs 21.2 crore. Considering the company is still in its growth stages their fundamentals look strong, a good sign for future investors. On the basis of last years PAT the company has an EPS of Rs 8.11 post issue with a P/E of 20.94(x) and 23.65(y) at the lower and higher price bands respectively.

The industry average P/E is 15 and in the context the company is not far behind, given these figures are based on the prior years profits. Nu Tek is an upcoming company within the telecom industry, it specialises in telecom infrastructure and as long as the telecom industry continues to soar, things should look good.