STOCK IDEAS - Nu Tek India Ltd

Company Name- Nu Tek India Ltd

 

BSE Code- 533015

 

NSE code – NUTEK

 

Nu Tek India Ltd (Nutek) is a Telecom infrastructure service provider. It offers Infrastructure rollout solutions for both mobile and fixed telecom networks. It provides end-to-end solutions from telecom installation to turnkey infrastructure rollout services besides providing technical support and O&M to its clients. It is the breadth of services provided that makes it a leader in the telecom infrastructure space. It is registered as infrastructure provider- category I with the department of telecommunication.

Nutek has a handsome order book position, which is growing at a robust pace. Recent order of Rs 700 crores from Indus Towers provides a major boost.

To accelerate growth Nutek is also exploring overseas markets. It has setup subsidiaries in Turkey and Hong Kong to spread its wings in these geographies. It looks at getting a foothold in US, European, North African and Middle-East markets through inorganic route. It has contracts with Ericsson AB, Dubai for providing services to their operations in Middle East.

With strength and expertise in Telecom Infrastructure space, Nutek plans diversifying in the power transmission sector also.

 

Business-

Nutek provides range of services to telecommunication Equipment Manufacturers, Telecom operators as well as third party infrastructure providers. Right from undertaking initial feasibility studies, preparing strategies and undertaking engineering, electronics, construction, installation, integration and maintenance of network components for customers, it provides total solutions to customers.

 

Telecom Infrastructure services are made up of three components; Passive infrastructure, Active infrastructure and Transmission media. Passive infrastructure, the biggest component of network, consumes almost 60-65 percent of expenditure. It is common in all types of communication technologies - GSM, CDMA, 3G, WiMax, FM Radio, digital terrestrial transmission etc. It comprises steel tower, antenna mounting structures, BTS room, power supply battery bank, to invertors and DG sets for power backup as well as air-conditioners, fire extinguishers, security cabin etc.

Active infrastructure comprises all active components in a wireless network as radio frequency, radio antenna, base transceiver section (BTS) as well as all microwave equipments. Each operator uses his own BTS and each tower can have many BTS or cell sites depending upon occupancy level of the tower.

Transmission Media is the network that connects the BTS or cell site to the base controller of a particular area.

 

Activities extend from setting up passive infrastructure, to active infrastructure, Transmission media and further to operation and maintenance (O&M) of the same. It also provides technical support services in high-end telecom segments as radio frequency and transmission planning, Network tuning & optimization and quality of service to clients. Technical and engineering Staff deputed at client sites provides for these services.

 

On revenue front telecom turnkey projects contribute 60- 65 percent of total revenues. Recurring revenues per year from Telecom consultancy, Telecom Implementation and Telecom O&M are about Rs 20 crores, Rs 18 crores, Rs 8.10 crores respectively.

 

Nutek has site-offices and facilities located in major cities. This helps it execute projects in all telecom circles. It has successfully implemented various projects for major telecom equipment manufacturers like Nokia Siemens networks Pvt Ltd, Ericsson India, Motorola India etc. All telecom operators as Tata, Reliance, Bharti Airtel, Idea, Vodafone, VSNL, Aircel and Shyam Telelink etc include its list of clients for whom it has successfully implemented or is presently working on projects. Among third party Infrastructure leasing companies, its major clients include Quippo Telecom Infrastructure Ltd, Xcel Telecom, ATC Tower Company etc. It has been expanding rapidly and added 500 employees in last five months.

 

Investment Rationale-

 

India has emerged as the largest growing telecom market in the world. Number of subscribers is expected to reach 500 million by 2010 and 650 million by 2012. Telecom regulator TRAI studies estimate the requirement of telecom towers to increase to 3,30,000 by 2010. Government too has aggressive targets. It plans to provide 200 million rural connections by 2012 (i.e rural teledensity to reach 25 percent from 8.35 percent in Dec'07). Besides targets for broadband services, 3G services and mobile TV etc indicate towards the massive telecom infrastructure that would be required.

 

Nutek stands to gain mileage from all these opportunities. All telecom operators will look forward to expand population coverage, enhance capacity and optimize network. 3 G option will open more opportunities with telecom players upgrading to 3G in a phased manners. Telecom equipment manufacturers will utilize Nutek's services for executing network expansion equipments and service.

 

Nutek provides services across the telecom value chain. Nutek and GTL Ltd, its nearest competitor, dominate the telecom services industry. There are players like Spanco, Leadcom etc that are in specific tower manufacturing segment. Thus competition is limited and pressure on margins for competition also gets eased.

 

Order-book position of Nutek stands at robust Rs 230 crores. Letter of Intent from Indus towers provides a big boost. Nutek will provide services for the rollout of towers in 15 out of 16 circles. Order, which is for a three-year period, would require it to deploy 200 new sites and upgrade 1250 existing sites every month. Out of total order for Rs 700 crores, Rs 40 crores is expected to come this year.

 

Nutek had been rewarded with order from Datacom for deploying 150 sites in Tamil Nadu and Shyam Telecom for sites in Rajasthan. Besides having already done sites for Aircel in three circles, additional order for 125 sites for Delhi has been received and it expects more for Mumbai. Expectation for another 600 more sites from across India would add to Rs 30 crores orders.

 

On the Capex front Nutek has planned Rs 23 crores of which Rs 2.75 crores has been utilized. It further plans specialized test equipments like digital power meters etc towards strengthening its Telecom consultancy and implementation business. For strengthening operation and Maintenance business it plans setting up a Network operation center, while telecom turnkey does not require much investment as civil works are contracted.

 

On Global front after setting up a subsidiary in Turkey to cater to the region of Turkey, Azerbaijan, Jordan, Kazakhstan etc, it has opened a company in Hong Kong for catering to south East Asian market. Nutek is actively looking towards an acquisition in US. This acquisition will give strength to its high end engineering services, 3G planning services and sector management services besides Spectrum management services. The Target acquisition company has presence in North African Markets, Middle East and European markets and thereby provides Nutek a foothold in these markets apart from US market.

 

Looking at the next 3-4 years, the telecom space is expected to buzz with major capacity expansions and growth. Another area, which is expected to grow phenomenally, is the power transmission business. Nutek with strong execution teams to draw out benefits of economies of scale is working on power transmission towers. Mr Vineet Sirpaul, Executive director, Nutek points out that focus remains on telecom for the present. Thus Nutek may utilize its prowess in power transmission business in long run to compensate for any reduction in telecom space.

 

Concerns-

Telecom Turnkey solutions contribute to 60-65 revenues for Nutek. It is this business which is providing major impetus to growth. However this business has lowest operating margins as compared to other three business segments. Growth of this segment can pull down overall margins. On the other hand equipment supplies contribute 15-20 percent of telecom turnkey revenue and these have high margins nullifying the drag. Any reduction in equipment supplies can have major impact on overall margins.

 

Valuations-

Nutek posted an impressive topline of Rs 40.11 crores in Q2FY09, and Rs 76.58 crores for HY ended September 08. Nutek was listed in August 08 only and hence Quarterly figures for last year remain unavailable. Current year first half reported a robust 102 percent growth in topline over first half 07 topline of Rs 38.06 crores. Net profits were at Rs 9.71 crores for second quarter and Rs 15.10 crores for Half year ending September. This is an impressive growth of 125.7 percent over Rs 6.69 crores of first half '07. It was remarkable for operating margins being almost maintained. Profit margins grew good 214 basis points over first half last year.

Going forward Nutek plans for achieving a topline of Rs 208-210 crores with margins being maintained. With a strong order book position, which is likely to grow phenomenal, this figure seems achievable. Its business segments as telecom turnkey, consultancy, implementation services and O&M have 25 percent, 44 percent, 42 percent and 39 percent operating margins respectively. With increased supply of active components in implementation and O&M segment overall operating margin of 33 percent during FY09E seems attainable.

Thus Nutek with a strong performance, robust business prospects and attractive valuations seems to be a good bet for investors.

	Q2	Annual	Annual E
	FY09	FY08	FY09
Net sales	40.11	95.16	208.00
OP	14.23	31.02	68.64
PAT	9.71	19.45	43.68
Capital	17.26	13.76	17.26
EPS	5.77	10.40	25.31

 

Margin
OP	35.47	32.59	33
PAT	24.21	20.44	21
Price	Rs 50.30	Date	7/11/2008
PE	4.83	P/BV	1.01
Book Value	50.12	EV	123.42
EV/EBIDTA	3.98	Mcap	86.82
		(rs.crore)

 

Shareholding	30-Sep-08
Promoter	42.42
FII	5.73
Public	11.5
Others	40.35
Total	100