5 March 2012
The InSites
Tulip Data City: Asia's largest data center
Maintain Neutral with revised target price of INR100
Tulip Telecom
Takeaways from site visits
Spread over 900,000sf, Tulip Data City has the capacity to host ~12,000 racks
(600 racks x 20 plates) and would use peak power of ~100MW
Currently, one plate is operational and the management expects four more
plates to be operational in 2-3 months
Tulip Data City boasts power utilization effectiveness (PUE) of 1.5x v/s the global
average of ~2.2x
Based on management guidance, we estimate ROIC for the data center
operations to be ~21%
We recently visited Tulip Telecom's data center facility situated in Whitefield,
Bangalore. The following are the key highlights of our site visit:
About Tulip Data City
Tulip Data City (TDC), Asia's largest and the world's third largest data center, is spread
over 900,000sf and is located in Whitefield, Bangalore. The facility has four towers
with each tower containing seven floors. Of the seven floors, five floors (also referred
to as plates) constitute the data center space with the remaining two base floors
housing the facilities area. In effect, these towers will station 20 plates of data center.
Each plate measures 20,000-22,000sf, of which 13,000-14,000sf of the plate area is
actual server area, with raised flooring. TDC has the capacity to host ~12,000 racks (600
racks x 20 plates) and would use peak power of ~100MW. Currently, one plate is
operational and the management expects four more plates to be operational in 2-3
months.
The facility contains a network operating center with 1,500 camera feeds and an IT
management center. Currently, 40,000sf of the facility has been contracted. The first
floor also contains a seating capacity of 1,500 including the TDC office space and
Meet-Me rooms. The Meet-Me rooms are equipped with data connectivity from Bharti,
Reliance Communications and Tulip. The state-of-the-art architecture also ensures
that the data center operates at efficient levels. The Tulip Data City is likely to consume
80-100MW of power v/s 130-140MW used by similar data centers. To minimize the
consumption of power, the facility is equipped with day/night security cameras, which
make it possible to operate at minimal lighting conditions. Use of other energy sources
like photo voltaic, heat pumps and evaporative cooling enables Tulip to reduce
traditional power consumption.
Stock Info
Bloomberg
TTSL IN
Equity Shares (m)
145.0
52-Week Range (INR) 167/92
1,6,12 Rel. Perf. (%)-11/-37/-29
M.Cap. (INR b)
13.9
M.Cap. (USD b)
0.3
M.Cap. (USD m)
279
Tulip Telecom: Valuation summary
Year
End
3/11A
3/12E
3/13E
3/14E
Net Sales
(INR m)
23,511
27,467
31,899
38,211
PAT
(INR m)
3,064
3,172
2,681
3,198
EPS
(INR)
18.9
19.5
18.5
22.1
EPS
Gr. (%)
32.7
3.5
-5.3
19.3
P/E
(x)
5.1
4.9
5.2
4.4
P/BV
(X)
1.3
1.0
0.7
0.6
RoE
(%)
28.6
23.4
15.6
15.4
RoCE
(%)
14.0
11.7
9.3
9.7
EV/
Sales
1.2
1.3
1.2
1.1
EV/
EBITDA
4.2
4.7
4.5
4.0
Shobhit Khare
(Shobhit.Khare@MotilalOswal.com); Tel: +91 22 3982 5428

The InSites
Power utilization effectiveness (PUE) of 1.5x: A significant value proposition
The efficiency of a data center is measured in terms of its power utilization
effectiveness (PUE). The PUE is defined as the total power utilized by the data center
divided by the power utilized by the computer infrastructure within the center. While
the total power is inclusive of the lighting, cooling, and other equipment required for
the data center, power used by the server includes servers, networking equipment
and other storage systems.
PUE = Total power utilized by data center / Total power utilized by computer
infrastructure
Tulip Data City boasts of a PUE of 1.5x v/s the global average of ~2.2x. Most in-sourced
data centers operate at >3x PUE. The company believes TDC offers a significant value
proposition, given the cost savings led by lower PUC.
The economics per rack: ROIC of 20%+ based on management guidance
The company expects revenue per rack of ~INR0.8m (including bundled power). TDC
is likely to incur a cost of INR0.32m per rack towards power and INR0.16m per rack
towards other expenses, resulting in a steady state EBITDA per rack of INR0.32m (40%
EBITDA margin). The total investment outlay for data center is estimated at INR9.3b,
with an upfront acquisition cost of INR2.3b, INR5b to be raised through long-term
debt and mezzanine funding and the remaining through accruals. Apart from the
initial outlay of INR2.3b, the company has already invested INR1.6b in the data center.
Assuming 5% depreciation per year and 33% effective tax rate, we estimate ROIC for
the data center operations at ~21%.
Tulip Data City: ROIC of 20%+ based on management guidance
Total no. of racks
Expected revenue/rack
Expenses per rack
- Power
- Other expenses
Total Expenses per rack
EBITDA per rack
Upfront acquisition cost
Mezzanine funding
Long-term debt
Internal accruals
Total Capex
Capex/rack
EBITDA pay-back
Assuming 5% depreciation per year
EBIT
Tax rate
NOPLAT
Invested Capital per rack (incl working capital)
ROIC (%)
INR Million
12,000
0.80
0.32
0.16
0.48
0.32
2,300
2,500
2,500
2,000
9,300
0.78
2.4
0.28
33%
0.19
0.88
21.3%
5 March 2012
2

The InSites
Leverage levels remain elevated
During 9MFY12, Tulip Telecom added net debt of INR6.1b, including INR0.9b impact of
adverse exchange fluctuations on forex debt. 3QFY12 was the seventh consecutive
quarter of increase in net debt; reported net debt of INR21.4b does not include
redemption premium of INR2.1b on FCCB due in August 2012. While the company has
been considering various deleveraging options like monetization of stake in Qualcomm
JV, equity raising at parent/subsidiary level, etc, timing of these events remains
uncertain. The company has given a mandate to Barclays and SBI Caps for raising debt
for FCCB redemption of USD140m. It is looking for minority/majority equity partners
in the data center business to improve debt-equity ratio.
Cloud computing, outsourcing key drivers for data center business growth
The data center market is estimated to be USD670b by FY12. With the emergence of
cloud computing, demand for data centers should increase significantly. Currently,
~80% of the 500 largest companies, including HP, IBM and NTT are Tulip's customers.
The HP deal is estimated to have a revenue potential of INR5b in five years. The
company has also won a cloud computing order from Reliance MediaWorks.
View and outlook
While we have been impressed by the 'state-of-the-art' facility and Tulip's timely
execution, we believe ramp-up in utilization would be critical towards improvement
in cash flows. We expect interest outgo to increase with an increase in debt funding.
At current debt-equity levels, the balance sheet is stretched. We believe further
clarity on how quickly Tulip can announce order wins and increase its utilization will
be a key factor to watch out for. The stock trades at 5.2x FY13E EPS and at an EV of 4.5x
FY13E EBITDA. Maintain
Neutral
with revised target price of INR100.
TDC: Front view
TDC: Reception entrance and water body
5 March 2012
3

The InSites
TDC: Inaugurated on 6 February 2012
TDC: Lobby with view of two towers
TDC: View of the racks on raised floor
5 March 2012
4

The InSites
Tulip Telecom: Financials and Valuation
Income statement
Y/E March
2011
Revenues
23,511
Change (%)
19.6
Total Expenses
16,880
EBITDA
6,631
% of Gross Sales
28.2
Change (%)
26.3
Depn. & Amortization 1,714
EBIT
4,917
Net Interest
853
Other Income
1
PBT
4,065
Tax
1,001
Rate (%)
24.6
Adjusted PAT
3,064
Change (%)
32.7
PAT after EO
3,064
2012E
27,467
16.8
19,622
7,845
28.6
18.3
2,067
5,778
1,533
-16
4,230
1,057
25.0
3,172
3.5
3,172
(INR million)
2013E
31,899
16.1
23,461
8,438
26.5
7.6
2,664
5,774
2,327
128
3,574
894
25.0
2,681
-15.5
2,681
2014E
38,211
19.8
28,061
10,150
26.6
20.3
3,209
6,941
2,857
180
4,264
1,066
25.0
3,198
19.3
3,198
Ratios
Y/E March
2011
Basic (INR)
EPS
18.9
Cash EPS
29.4
Book Value
74.6
DPS
1.7
Payout %(Incl.Div.Taxes) 8.9
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity Ratio(x)
2012E
19.5
32.2
92.5
1.7
8.6
2013E
18.5
36.9
133.0
1.9
10.1
2014E
22.1
44.2
153.2
1.9
8.5
5.1
3.3
4.2
1.2
1.3
1.7
4.9
3.0
4.7
1.3
1.0
1.7
5.2
2.6
4.5
1.2
0.7
1.9
4.4
2.2
4.0
1.1
0.6
1.9
Balance sheet
Y/E March
2011
Share Capital
290
Additional Paid up Capital831
Reserves
11,004
Net Worth
12,125
Loans
17,769
Other Liabilities
32
Capital Employed
29,926
Gross Block
Less : Depreciation
Net Block
23,108
4,132
18,977
2012E
290
831
13,905
15,026
25,901
32
40,958
30,808
6,199
24,610
19,785
1,159
8,523
3,504
6,599
3,437
16,348
40,958
(INR million)
2013E
325
4,743
14,214
19,282
29,094
32
48,407
36,808
8,862
27,946
24,434
1,347
10,888
5,000
7,199
3,973
20,461
48,407
2014E
325
4,743
17,141
22,209
33,453
32
55,694
42,408
12,071
30,338
30,107
1,613
13,694
7,000
7,799
4,751
25,356
55,694
28.6
14.0
23.4
11.7
15.6
9.3
15.4
9.7
98
1.07
113
0.89
125
0.82
131
0.86
1.5
1.7
1.5
1.5
Cash flow statement
Y/E March
2011
Op.Profit/(Loss) bef Tax6,631
Other Income
1
Interest Paid
-853
Direct Taxes Paid
-998
(Inc)/Dec in Wkg. Cap.-2,111
CF from Op.Activity
2,669
(inc)/Dec in FA+CWIP -7,394
(Pur)/Sale of Inv.
-1,549
CF from Inv.Activity
-8,943
Issue of Shares
Inc/(Dec) in Debt
Dividends Paid
Other Fin. Activities
CF from Fin.Activity
0
5,578
2
-272
5,307
2012E
7,845
-16
-1,533
-1,057
-4,399
840
-7,700
0
-7,700
0
8,132
2
-273
7,861
1,000
2,504
3,504
(INR million)
2013E
8,438
128
-2,327
-894
-2,616
2,728
-6,000
0
-6,000
3,946
3,193
2
-2,373
4,768
1,496
3,504
5,000
2014E
10,150
180
-2,857
-1,066
-2,895
3,512
-5,600
0
-5,600
0
4,360
2
-273
4,088
2,000
5,000
7,000
Curr. Assets
13,939
Inventories
992
Debtors
6,344
Cash & Bank Balance 2,504
Other Current Assets 4,099
Curr. Liab. & Prov.
2,990
Net Curr. Assets
10,949
Appl. of Funds
29,925
E: MOSL Estimates
Inc/(Dec) in Cash
-966
Add: Opening Balance 3,470
Closing Balance
2,504
E: MOSL Estimates
5 March 2012
5

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