Established in 1992, Tulip Telecom is a leading provider of IT and data centre services. Over the years, the New Delhi-based firm has grown from a software reseller to a network integration and data centre business.

However, of late, Tulip Telecom has reported a decline in its performance. For the quarter ended June 30, 2013, it reported a consolidated net loss of Rs 1.57 billion as against a net profit of Rs 1.16 billion in the corresponding quarter in 2012. Its total revenues declined from Rs 7.16 billion in the second quarter of 2012 to Rs 2.54  billion for the same period in 2013.

The company has been accumulating short-term debt owing to large investments in data centres and for meeting its working capital requirements. However, these investments have failed to yield results, leaving the company with a huge debt burden and increasing losses.

To compound the financial challenges, there has been an exodus at the senior management level. The company’s joint chief executive officer (CEO), Deepak Khanna, resigned in June 2013. Prior to his departure, several other senior executives, including the previous CEO, Sanjay Jain, and the chief financial officer, Rahul Ahuja, had quit the company. In fact, Ahuja’s successor, Umesh Garg, also left within six months.

In addition, Tulip Telecom’s data centre business has witnessed a large number of exits. Raj Gopal A.S., CEO; Kannan Venkatraman, chief operating officer; and Sujeet Deshpande, senior vice-president for the data centre business, were among the key officials to put in their papers.

 Revival plan

With the telecom industry facing tough times, ensuring profitable operations in a competitive market has become a major challenge for the company. To stabilise its business, the company initiated a master restructuring plan with its lenders in July 2013. The package, approved by a consortium of 12 banks, is worth Rs 18 billion and comprises a 12-year door-to-door repayment plan; a reduction in interest rates by about 2.5 per cent; a one and a half year moratorium on interest, and a two and a half year moratorium on the principal.

Following the completion of its loan restructuring programme, Tulip Telecom seeks to stabilise operations, secure new orders and clear salary dues. The company is currently disbursing outstanding salaries to its 4,500 employees.

Moreover, the company defaulted on the redemption of foreign currency convertible bonds (FCCBs) worth $140 million, which were due in August 2012. As a result, it had to use the proceeds from the sale of its stake in the joint venture with Qualcomm to repay its FCCB debt. Further, the company had approached its lenders during October-December 2012 for recasting its debt of Rs 30 billion. With the package being approved, Tulip is expected to clear its loans over the next 12 months.

The company is focusing on strengthening its performance through several corrective measures. Its long-term revival plan includes restructuring teams to ensure higher productivity, simplifying processes to reduce costs and proactively reaching out to clients by reducing the customer response time. Going forward, Tulip Telecom is optimistic about its data centre business. It is expecting annual revenues of Rs 10 billion from its new data centre in Bengaluru over the next three years.

The Tulip Data Centre is owned and managed by Tulip Data City, a wholly owned subsidiary of Tulip Telecom. In 2012, the company invested Rs 9 billion in setting up the data centre, which is spread over an area of 900,000 square feet. It has signed long-term deals with companies like Hewlett-Packard, IBM and NTT. Further, the company is expecting to secure orders worth Rs 6 billion in 2014-15, which are expected to deliver revenues of Rs 1.2 billion on an annual basis.

Besides, Tulip Telecom is focusing on leveraging its large MPLS virtual private network for providing last mile connectivity. The company’s network covers 2,000 cities and serves over 2,500 clients. Tulip Telecom’s owned and leased last mile fibre network spans over 18,000 km. Fibre constitutes 80 per cent of the new order inputs in the data connectivity business. This gives the company an edge over its competitors, given its large fibre-based network. It is well positioned to capture a higher share in the high speed broadband market.

In addition, having partnered with the government for creating e-governance infrastructure, Tulip is now focusing on increasing its stake in government-led e-governance projects. It is working with the government on the National e-Governance Plan and is exploring opportunities for the roll-out and implementation of district- and state-wide area networks for enabling e-governance services.

 The way forward

The subdued economic environment has impacted the company’s order flow owing to delays in decision-making on the part of its clients. In addition, delays in receipt of payments have led to an increase in working capital cycles. However, the organisation has taken various initiatives to stabilise its operations. It is working towards enhancing its performance by optimising its existing resources. It is realigning its product portfolio with a focus on ensuring profits across business lines. Moreover, the completion of debt restructuring is expected to improve Tulip’s liquidity position, thereby enabling it to strengthen its core operations in the long term.