Pick of the Week

Nu Tek India Ltd

BSE Code: 533015

CMP: Rs.33.70

Market Cap: Rs.58.16

Company Profile: Incorporated in 1993, Nu Tek India Limited is a Telecom infrastructure serviceprovider, offering Infrastructure rollout solutions for both mobile and fixed telecommunication networks. It offers services to Telecommunication Equipment Manufacturers, Telecom operators as wellas third party infrastructure leasing companies in installing and maintaining Telecom Network Equipment& Infrastructure. Nu Tek undertakes turnkey projects, provide management expertise to their clients for infrastructurecreation and installation for telecom sites which includes Passive Infrastructure like Towers, TelecomShelters, Backup Power - DG sets, Battery Banks, Electrical Infrastructure, Earthing Stations andactive infrastructure like Base Transceiver Station (BTS), microwave, optic fibre, Base StationController (BSC), Mobile Switching Centres (MSC), IN (Intelligent networks), VAS (Value addedservices) equipments, transmission equipment such as STM’s and future ready 3G Nodes.

It is also providing technical support services in the High End Telecom segments such as RadioFrequency and Transmission Planning, Network Tuning & Optimization and Quality of Service (QoS) totheir clients.

Major clients amongst Telecom Equipment Manufacturers are: Nokia Siemens Networks Pvt Ltd,Ericsson India Pvt Ltd, Motorola India Pvt Ltd and Nortel Networks India Pvt Ltd. Major clients amongstTelceom Operators are: Tata Teleservices Ltd, Reliance Communications Ltd, Bharti Airtel Ltd, IdeaCellular Ltd, Vodafone Essar Ltd and VSNL. Major clients amongst third party infrastructure leasingcompanies are: Quipo Telecom Infrastructure Ltd, Essar TTIL Ltd, Xcel Telecom Ltd and IMI LTD.

The company came out with an IPO in August, 2008 in the price band of Rs.170—Rs.192, through 100%book building process. The Company intended to utilize the proceeds from the Issue to meet the cost of capital expenditure, overseas acquisitions and augmenting the long term working capital requirementamongst others.

Shareholding Pattern: The promoters’ holding is 43.55% while the general public holds 56.45%. Among the promoters Balyasny Si Ltd holds 9.56% of the shares of the company.

Financials: It has grown at a 3 year CAGR of over 45% in its income from operations to achieve Rs.95.2Cr with gross margins of 34% and Profit after tax (PAT) of Rs.21.2 Cr i.e. net margins of 22% for the FY2008. On a standalone basis the total income of the company for Q3FY09, came out to be Rs.31.09 Crand net profit of Rs.1.96 Cr. The operating profit margin is 12.46% and the net profit margins is 6.56%.The EPS of the company for Q3FY09 is Rs.1.29 which is quite healthy considering its peer groups. Itsnearest competitor GTL Ltd had an EPS of Rs.2.25 for the Q3FY09 and is trading currently atRs.229.80.

Investment Rationale:

• It has an order book of more than Rs.160 Cr. This includes work orders from Aircel / DishnetWireless Limited, Huawei Telecommunications, Ericsson, ATC Tower Company of India, ShyamTelelink Ltd. In addition, it has Letter of Intents of more than Rs.50 crore from other clientsagainst which work orders are yet to be received.

• Nu Tek India Ltd earlier informed BSE that the NONE of the shares held by the Promoters ofthe Company, has been pledged to any Institutions or any other person for securing any loan orGuarantee or for any other purpose. This is great news for any company in these days.

• It has diversified client base like telecom service providers, equipment manufacturers as well asthird-party tower infrastructure players. This gives several opportunities to tab the towerrollouts. With mobile subscribers still being added at 6-7 million per month and the entry of newpan-India players, there will be a big potential for new tower rollouts.

• To accelerate growth the company is exploring overseas markets and as a first step has set up asubsidiary in Turkey. They have a contract with Ericssion AB, Dubai to provide services to theiroperations in Middle East. Further, they are in the process of acquiring such companies / entitieswhich are complimentary to their requirements. The Company said earlier that it plans to utilize the funds generated from the IPO, both for its organic and inorganic growth. The company is also thinking of acquiring a company based in Nigeria.

• Nu Tek India Limited, which is one of the leading telecom infrastructure services providers, inthe last month appointed Raghavendra Kulkarani as its new Chief Executive Officer. His additionto the management team further strengthens Nu Tek's expertise and understanding of thetelecom industry. With an experience of over 29 years in the telecom industry, both in India andoverseas, Kulkarani also brings with him a rich pool of knowledge and experiences fromorganizations like Lucent Technologies and Soma Networks. Moreover, his managementresponsibilities till date have included organizational revitalization of the services team, solutionengineering, execution latest technology, telecom infrastructure projects, planning processes,strategic collaboration with external technology sources and outsourcing, which we are sure totake Nu Tek to better levels of performance.

Investment Concern:

• Its top client ZTE Telecom India Private Ltd contributed 17.75% of the total revenues in FY08whereas top 5 clients contributed 57.57% of the total revenues. Loss of any of these clients willaffect the financial performance of the company.

• The company performance is dependent on growth of the telecom industry. Any down trend intelecom industry will affect its performance.

• It has negative cash flow from operating activity of Rs.105.74 for the FY08. Unable to manage itscash flow properly in the future, will adversely affect its working capital requirement and in turnits financial performance.

Industry Profile:

• India has become second largest wireless network in the world after China overtaking USA.• The total number of telephone connections reached 308.51 million at the end of April 2008 ascompared to 300.51 million in March 2008. The numbers of subscribers are expected to reach500 million by 2010 & 650 million by 2012.

• The overall tele-density reached to 26.89% at the end of April 2008 as against 26.22% in March2008.

• The Indian telecom industry had a market size of Rs.1,052,870 million in 2006 and it is expectedto reach a size of Rs.3,449,210 million by 2012 at a growth rate of over 26 % and the sector willgenerate employment opportunities for about 10 million people during the same period.

• The surge in mobile services market is likely to see investment worth amount US $ 24 billion by2010. The total revenue of all telecom operators is set to nearly double to US$ 43.6 billion infour years from US$ 222.5 billion in 2006. The revenue share of mobile business would rise to76% in the same period from 57% currently.

Conclusion: The stock has deserves a better valuation as compared to its peers and hence at the CMPof Rs.33.70, the stock looks cheap. However, stiff competition, long receivables cycle and clientconcentration are key risks to the business.From the daily charts its can be said that most of the parameters are in buy mode. The candle stickchart pattern indicates an immediate start of the uptrend in the scrip. The stock can be purchased atthe CMP of Rs.33.70, for a short term target of Rs.42. Please keep a SL of Rs.31.50 for any short termtrade.

Note: This stock was recommended to the Paid Groups on this Sunday (1st March, 2009) to the Paid Group Members. Very soon the "Quickie Calls" (Short Term Calls) for this week to the "Quickie Group" members will be disclosed here............