Tulip Telecom will focus on subsidiary stake sale, cut debt-equity

Tulip Telecom, a listed data solutions company, would sell up to 30% stake in the data centre subsidiary over the next two months. The company expects to raise around Rs 270 crore through this stake sale. According to Sanjay Jain, CEO, Tulip Telecom, the company plans to utilise the money to strengthen the parent company’s balance sheet. Tulip has a debt-equity ratio of 1.4. Jain said that the company is planning to working towards bringing it down.

[caption id=“attachment_9003” align=“alignleft” width=“380” caption=“Tulip Telecom has hired Rahul Ahuja, a former corporate banker.Getty Images”]  [/caption]

Tulip Telecom has also hired Rahul Ahuja, a former corporate banker, as chief financial officer. Jain said Ahuja would work towards managing financial resources and bring down the cost of borrowing. The average cost of borrowing for Tulip Telecom is 9.9%, up from 8.6% last year due to an increasing trend in interest rates. “We have managed to improve the quality of the book as short-term debt accounts for 11% of our loans. This was 24% last year,” Jain added.

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Tulip is not planning to make any new acquisitions now.

Tulip bought a Bangalore-based data centre business for Rs 230 crore in January 2011. Japanese investment bank Nomura is working on the mandate to find a financial or a strategic partner. Jain said that the company is looking for a strategic or a financial partner in the step-down subsidiary that owns the data centre. When asked about the preference, Jain said that a strategic partner could bring customers to the company. He said a financial partner has investments in similar businesses and are resourceful too. “We are looking at both options,” he said in an interview with Firstpost.

The data centre opportunity is likely to be a revenue and profit kicker over the next six months. In the fourth year of operation, the company expects the data centre to top Rs 1,000 crore in revenue with operating profit of Rs 450 crore, Jain said. Currently valuations of such data centres are 11 times the operating profit. “Value unlocking is possible only three years from now,” he said.

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In a conference call in January 2011, the company said that the Indian data center market was estimated to be around $2 billion with the third party data center estimated to be around 25% to 30% of this. The third party Data Center space in 2009 was around 20 lakh sqft and is estimated to grow at a compounded annual growth rate of more than 30% and reach around 88 lakh sqft by 2014.

Tulip share price rose about 1% on Thursday while the broader BSE 500 index fell 1.2%. The company reported revenue of Rs 2,351 crore for the year ended March 2011.