Tulip Telecom is now a far cry from what it was two years ago, when it was expected to be a $1-billion company by 2014. Now, the enterprise data services provider has joined the league of companies trying to restructure its debt.
Tulip Telecom’s stock price rose to the maximum permissible limit of 5 per cent on Tuesday and Wednesday after it approved debt recast plans, and closed down 1.39 per cent at Rs 35.50 on Thursday.
“The company had planned to expand fast into too many areas, which resulted in stretching of its balance sheet. The overall slowdown in both the industry and the markers also had its impact.
The cost of borrowings - for both the company and the sector - rose with the increase in interest rates, while business did not grow as much,” said Jagannadham Thunuguntla, equity head at brokerage firm SMC Capitals.
Tulip Telecom’s stocks fell nearly 70 per cent in 2012, prompting many analysts to raise flags on the firm’s rising net debt. The firm’s share price was at about Rs 175 in December 2011. The firm had a debt about Rs 2,700 crore as of September.
“Debt is another overhanging issue for some time, and the company’s stocks were not reacting to earnings’ announcements or other investment plans,” another analyst, who had stopped tracking the company sometime in 2012, said.
The company did not respond to queries mailed for this article.
HUMBLE BEGINNINGS
Tulip Telecom was started by Lt. Col. (Retd) Hardeep Singh Bedi in 1992 (then Tulip Software) with just four employees in New Delhi as a software reseller. It has had a meteoric rise since.
The company later forayed into network integration and data centre facilities, even as it implemented the world’s largest wireless network in Mallapuram, Kerala. It also has more than one million square feet of data centre space across Mumbai, Kolkata, Bangalore and Delhi.
In 2010, the founder Chairman had said he was confident of sales touching $1 billion by 2014. In December 2010, the company posted revenues of Rs 602.6 crore on a net profit of Rs 81.6 crore.
DEFAULTING ON BONDS, SALARIES
Tulip Telecom had defaulted on redemption of $140-million convertible bonds, which were due on August 26, 2012. The debt-ridden firm had also delayed salaries last year.
“Delays in FCCB (foreign currency convertible bond) refinancing are a big concern for the stock,” brokerage firm Nomura had said in a December report, while Fitch had downgraded the company to ‘default’ from `junk’ status in August. “There are concerns on its finances and on its business model, and the spurt in share prices is due to the debt restructuring plans,” said S.P. Tulsian, CEO of sptulsian.com, adding “I am not very positive on the company”.
Tulip had invested a lot in data centres and for working capital requirements, but these investments did not ramp up nor bring in revenues. This resulted in increasing of debt, a Mumbai-based analyst tracking the company said.