Acquiring Tulip Telecommunication
Why to acquire Tulip Telecom
Tulip is India s biggest VPN (Virtual Private Network) connectivity provider, and 5th largest player in NI (Network Integration) space. The strength of Tulip s VPN franchise is based on: (1) Network reach; (2) Pure wireless focus; (3) First mover advantage; (4) One-stop shop provider of Connectivity solution plus NI services; (5) High customer satisfaction levels Government segment potentially represents annual revenue opportunity of at least Rs40bn in the medium-to-long term (3-5 years) for providers of data connectivity Bharti caters to high bandwidth needs of enterprise customers in major cities whereas Tulip is a leader in provision of small bandwidth connectivity of 16 kbps to 256 kbps to large and medium enterprises.
Legal and Regulatory requirement
Mergers of telecom licences are allowed in the same service area. A telecom company can sell equity to another company only after 3 years from getting a license. Merged telecom companies should not command more than 40% market share. No merger and acquisition activity to be allowed if the no of operators in a service area fall below 4. No investor with 10% stake in an existing telecom company will be allowed to merge or acquire another telecom company. Telecom towers firms will now be able to raise funds from non-banking finance companies or NBFCs with the RBI granting "infrastructure status" to loans extended by NBFCs to these companies. This will allow NBFCs that lend to tower companies to raise tax-free bonds, borrow from overseas through the external commercial route, raise long-term finance from banks and issue long-term debentures to insurance companies. RBI has included 'telecom towers' also as an infrastructure facility for availing credit facilities. In telecom sector, earlier, loans given to service providers alone were treated as infrastructure loans.
Why to acquire Tulip Telecom
1. To become the leader in Enterprise Data Market with increase in Market share from 17% to 30%. 2. Telecom infrastructure, including telecom towers and the fiber network, is expected to witness a CAGR of 20 % till 2015E to reach 571,000 towers by 2015. 3. Telecom infrastructure is expected to continue growing due to Rural areas, Upcoming 3G services, The expanding Internet market and An increase in the number of operators with pan-India operations. 4. To increase the market share in MPLS VPN from 10% to 50%.
Valuation of TULIP TELECOM LTD.
Valuation Method PE multiple EV Book Value Multiple DCF Total Value Per share value (Offer) Weight 0.1 0.1 0.4 0.4 1 Value in Rs. Mln 3212.695389 1350.513225 1261.519659 2256.196351 8080.924624 Rs. 278.65
Modes of Funding
Sr no Mode of Funding 1 Cash Rs. Mln 3000
Unsecured Loan-Bank Loan:From a consortium of banks led by Standard Chartered Bank, Barclays Bank & SBI @ 14.75%
3080
Secured Loan-By Issuing Debentures:(11.70%, Non- convertible Redeemable debentures of Rs 10,000 each)
2000
Share Holding Pattern
Share Holding Pattern Promoter and Promoter Group Institutions Non Institutions Total Mar-2010No Of shares 68.96% 21.26% 9.78% 100.00% 19998400 6165400 2836200 29000000
Bharti will have an open offer at Rs. 278 with premium of Rs. 103 per share.
