Tulip Telecom Ltd, an enterprise communications service provider, reported strong growth for the quarter ended September. Revenue grew by 20% year-on-year (y-o-y) and 8% sequentially.

Naveen Kumar Saini/Mint

“Revenue growth was driven by strong order growth in high bandwidth fibre-led data connectivity along with wireless business segment," a report by Emkay Research said. “Fibre segment is enabling higher wallet share per customer driven by expanded product and service offerings." As much as 83% of the company’s new order flow came from the fibre segment.

Despite strong growth in revenue and profit, the stock traded flat. In the past one year, Tulip’s shares have declined by 17%, more or less in line with the fall in the broader markets. What gives?

Also See | Quarterly performance (PDF)

On the one hand, Tulip has been delivering steady growth in revenue and operating profit. On the other, its debt position has been increasing due to large capital expenditure. The company’s net debt rose to 1,890 crore at the end of the September quarter from 1,430 crore at the end of March.

Last year, the company made a 140 crore investment in Qualcomm Inc.’s Indian broadband wireless access (BWA) subsidiary. In January this year, it invested 230 crore in acquiring a 100% stake in a data centre company in Bangalore. Tulip plans to invest an additional 670 crore in the data centre’s operations, about 200 crore of which is expected to be spent in the year to March 2012.

The increasing debt burden has now started to affect profit growth. While operating profit grew by 27% in the first six months of the year, net profit grew by a lower 15.6% due to a 77% jump in interest costs.

Tulip had said earlier that it will sell a stake in the data centre by August this year, but that hasn’t materialized yet. Meanwhile, its debt continues to increase and this has led to some worry among investors.

What’s more, the Indian government has frowned upon the delay in Qualcomm’s application for BWA spectrum, raising some concerns about Tulip’s 140 crore investment as well. Newspaper reports suggest the firm now plans to raise funds through a qualified institutional placement.

Whatever the source, it’s imperative the service firm raises money to contain the rise in its leverage and calm investors’ nerves.

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