To cater to the rapidly increasing subscriber base, many telecom operators are exploring the option of outsourcing various network processes. The deals involve network rollout, operations and maintenance (O&M), network management and managed services.
Telecom infrastructure solutions provider Nu Tek India has been working steadily to tap this potential. Formed in July 1993, the company provides end-to-end telecom infrastructure solutions for both mobile and fixed telecom networks. Nu Tek has three major types of consumers. First, it gets contracts from telecom operators for installation and maintenance of telecom tower infrastructure and equipment; second, it caters to telecom equipment manufacturers that have been engaged by operators; and third, it works for telecom infrastructure leasing companies.
The company provides a range of services, from turnkey infrastructure rollout – including civil/electrical infrastructure, construction, installation and integration of telecom equipment – to taking up O&M contracts. Nu Tek India builds and provides O&M services catering to passive infrastructure, thus offering service providers a single-window service for their infrastructure needs.
The company has executed projects for a number of clients such as Nokia, Ericsson, Huawei, Motorola, Bharat Sanchar Nigam Limited, ZTE India, Quippo Telecom Infrastructure, Essar Telecom Infrastructure, Tata Teleservices, Reliance Communications, Mahanagar Telephone Nigam Limited and Delhi Metro Rail Corporation.
Financial performance
Nu Tek reported a net profit of Rs 212.7 million and revenue of Rs 951.6 million for 2007-08. During the period 2003-07, the company grew at a compounded annual growth rate of 37 per cent. Its income from operations increased to Rs 635 million in 2006-07 from Rs 180 million in 2002-03, while profit after tax (PAT) grew to Rs 134 million from Rs 8 million over the same period.
Going public
On July 29, 2008, Nu Tek India launched its initial public offering (IPO) of 4.5 million equity shares. The price band was fixed at Rs 170-Rs 192 per equity share with a face value of Rs 10 each. The issue closed on August 1, 2008 and was oversubscribed 1.63 times to receive bids for 7.35 million shares. The qualified institutional buyer category was oversubscribed two times and the non-institutional investor category was oversubscribed 1.78 times, while the retail portion was fully subscribed. The net issue constituted 25.49 per cent of the post-issue paid-up capital of the company.
In end-August 2008, the equity shares of Nu Tek India were listed on both the Bombay Stock Exchange and the National Stock Exchange. The funds raised from the IPO will be used for capital expenditure, overseas acquisitions and increasing the available long-term working capital.
Plans and targets
In 2008-09, the company is targeting to achieve revenue of Rs 2.07 billion and PAT of Rs 350-370 million. Nu Tek expects 60-63 per cent of the targeted revenue to come from the construction of sites and the rest to be on account of radio frequency engineering services, O&M services and services provided to telecom equipment manufacturers, including installation, commissioning and integration of the electronic elements of telecom networks.
The company expects faster growth as the market gears up to adopt technologies such as 3G and Wi-Max. "We will have the technology ready before deployment starts, and expect this vertical to contribute to business to a great extent," says Inder Sharma, managing director, Nu Tek.
Issues and concerns
Amongst the major concerns for the company is the lack of bargaining, limited clientele and lack of geographical diversity. "Though the company has good opportunities and a large market, its inability to bargain with vendors and clients is reflected in inefficient working capital management. It provides no clear visibility of sustainable growth in revenues for the future. This is a major concern," says an analyst.
The industry that Nu Tek caters to has a limited number of players. Hence, business is dependent on a few customers. For instance, in 2006-07, Nu Tek's biggest client accounted for about 57 per cent of the company's total revenue, whereas the top five clients contributed 83 per cent. Any significant reduction in demand from the key clients or a need to offer lower prices to these clients could have an adverse effect on Nu Tek's business.
A large part of Nu Tek's infrastructure rollout business is concentrated in the northern region. The company's exposure to the southern and eastern regions is limited to small projects. However, Nu Tek is working aggressively on strengthening its presence in these regions so that it can tap the growing opportunities.
The company is also expanding abroad to mitigate the risks of geographical concentration. "We have already entered into marketing arrangements in Libya and are in the process of setting up a subsidiary in Turkey," says an official from Nu Tek. However, there is a risk involved in expanding overseas as well. "Historically, since the company has earned all its revenues from domestic markets, our inexperience in new geographies may affect our execution capabilities and have an adverse effect on our business, profitability, financial condition and results of operation," says the official.
If Nu Tek is able to handle these risks, it will leverage its strengths and benefit from the capex lined up by telecom players for infrastructure expansion and new technologies like 3G and Wi-Max.