Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Telecom: In search of growth - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jan 9, 2002

    Telecom: In search of growth

    While the markets are positive of an improved performance for companies from sectors like software, cement and auto, the telecom majors are expected to report subdued growth in profits in the third quarter of the current fiscal. The reasons are multifold.

    For one, liberalisation and the consequent entry of private operators both in the basic as well as cellular telephony has resulted in intense price war between larger players. On the basic telephony front, players led by MTNL have aggressively reduced registration and initial deposits in an attempt to lure customers. Since India’s domestic as well as international long distance telephony rates are one of the highest in the world, the Telecom Regulatory Authority of India (TRAI) reduced tariffs by more than 50% last year. More recently, following a 60% reduction in DLD rates by Bharti, Bharat Sanchar Nigam Limited (BSNL) also reduced rates. Though players are optimistic of a sharp rise in paid-minute calls, which could offset the fall in tariffs, it might take some time to reflect in terms of revenue growth.

    Despite a 13% growth in telephone traffic for VSNL in 2QFY02, revenues fell by 4.5% due to a 20% fall in accounting rates. This is expected to continue in the second half as well. Given this backdrop, revenue growth of both VSNL and MTNL to remain subdued in 3QFY02.

    In an effort to diversify its revenue stream, MTNL entered into the cellular segment. Competitive airtime charges coupled with aggressive marketing has benefited the public sector major and is vindicated by the sharp rise in subscriber base. MTNL’s cellular subscriber base has reportedly touched 75,000 as against the original estimate of around 50,000. The company added 25,000 new subscribers in December 2001 alone.

    But on the cellular front, presently, the direct cost of adding a new subscriber, which primarily consists of commission expense, is substantially offset by the initial activation charges recovered from the customers. However BPL Mobile waived off activation charges in the festive season to increase subscriber base. MTNL followed suit and also waived off activation charges. So, this along with falling airtime charges would lower the average revenue per subscriber in the current fiscal.

    As far as margins are concerned, MTNL’s margins are expected to fall significantly in 3QFY02. One of the key reasons is a shift towards the revenue sharing regime, wherein MTNL is subjected to pay 12% of its gross revenues as license fee as against Rs 900 per subscriber, which hitherto it was paying (6.8% of basic telephony service in FY01). MTNL’s operating margins in the first half of the current fiscal fell by 100 basis points to 38.5%. The company reported a 12.5% drop in net profit for 1HFY02.

    But on the other hand, VSNL’s margins would be in line with previous years levels. Margins in 1HFY02 for the company increased by 240 basis points primarily on account of withdrawal of excess provision towards staff costs last year. Effectively, we expect VSNL’s margins to increase by 200 basis points for FY02. Overall, there is not much cheer about from telecom companies in 3QFY02.

    Comparative valuations...
    Category MTNL VSNL
    CMP (Rs) 128 217
    EPS (FY02E) (Rs) 20.3 51.7
    P/E (x) 6.3 4.2
    Price to book value (x) 1.0 0.9
    Market Cap (Rs m) 80,640 61,845
    Market Cap/sales (x) 1.3 0.8



    Equitymaster requests your view! Post a comment on "Telecom: In search of growth". Click here!


    More Views on News

    Bharti Airtel: A Good Quarterly Performance (Quarterly Results Update - Detailed)

    May 6, 2016

    Bharti Airtel has reported a8.4% YoY growth in the topline and an increase of 2.8% YoY in the bottomline for the quarter ended March 2016.

    Bharti Infratel: Ends the Year Positively (Quarterly Results Update - Detailed)

    Apr 27, 2016

    Bharti Infratel has reported a 7.3% YoY growth in the topline and an increase of 18.7% YoY in the bottomline for the quarter ended March 2016.

    Bharti Infratel: A Good Quarter (Quarterly Results Update - Detailed)

    Apr 8, 2016

    Bharti Infratel has reported a 4.9% YoY growth in the topline and an increase of 11.5% YoY in the bottomline for the quarter ended December 2015.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 21, 2017 (Close)