Indian IPOs
>> Nu Tek India
Nu Tek India IPO Analysis
28 July 2008
Source: www.keynoteindia.net
Keynote Capitals set "Subscribe with a medium term view" recommendation on Nu Tek India Ltd. IPO.
Nu Tek India Ltd. IPO details:
Price Band: Rs. 170 - 192 per share
Issue open between: July 29 - August 1, 2008
Book Running Lead Managers: SPA, India Infoline
To List on: NSE and BSE
Market Cap post-listing: Rs. 3.3 billion or $78 million (based on the cap price)
Synopsis
- Nu Tek India Ltd. (NTIL) is a telecom infrastructure services provider and offers infrastructure rollout solutions for both mobile and fixed telecommunication networks. It has a 15 year track record of providing end-to-end telecom infrastructure solutions to telecom players.
- It installs and maintains Telecom Network Equipment and Infrastructure for telecommunications equipment manufacturers, telecom operators and third party infrastructure leasing companies. It has executed projects for Nokia, Ericsson, BSNL, ZTE Telecom India, Quipo Telecom Infrastructure, Essar Telecom Infrastructure, Tata Teleservices, Reliance Infocomm, MTNL and Delhi Metro Rail Corporation.
- The growth in the Indian telecom sector is largely attributable mainly to robust growth in cellular telephony. The sector’s growth will result in increased demand for equipment and cell sites going forward. While in March 2007, India had an estimated 100,000 towers, the requirement of cell towers is estimated at 330,000 nos. in FY10.
- Outsourcing is another buzzword in the telecom industry. In order to enjoy cost advantage and to focus on the core business, telecom operators outsources services such as network roll out. Activities such as operation and maintenance, network management and managed services are also outsourced by major telecom operators. The sector offers huge opportunities for players in the telecom infrastructure space.
- NTIL’s revenues and earnings grew at a CAGR of 42.4% and 59% respectively during FY04-08. EBITDA margin showed consistent improvement from 16% in FY04 to 33% in FY08. Consistent fall in employee costs (as % of sales) and SG&A costs (in absolute nos. and as % of sales) improved profitability. We however note a very erratic trend in the receivables collection period, up from 65 days sales in FY07 to 180 days and deteriorating working capital cycle (up from 85 days in FY05 to 302 days in FY08).
- The company is executing orders worth Rs136Cr. The company proposes capex of Rs23.6Cr, 87% of which is attributable to testing equipment and servers for network operating systems. The company plans to acquire a US-based company for which it has set aside Rs21Cr.
- The IPO is priced at 7.3x FY09E, 5x FY10E and 4.4x FY11E earnings. The high growth trajectory of the telecom industry will lead to huge opportunities for telecom infrastructure services providers in terms of increased outsourcing. However, we view with caution (i) the erratic trend in the company financials (ii) long working capital cycle (iii) challenges stemming from entry into complex overseas markets and (iv) huge negotiating power of the telecom industry, which may impact NTIL’s margins going forward. We recommend subscribing with a medium term view.
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