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VSNL: Higher margins boosts profits

Jan 22, 2001

VSNL, the state owned telecom major, has posted a 34% growth in net profits for the third quarter ended 31st December 2000 backed by a 23% growth in sales. Operating margin has also gone up from 26% in 3QFY00 to 31% in 3QFY01. The growth in operating margins would have been sharper but for decline in accounting rate (VSNL negotiates accounting rates with international carriers every year for transfer of calls between countries, which has been on the decline). The Total Accounting Rate (TAR) has gone down by 20% compared to the corresponding quarter of the previous year.

(Rs m) 3QFY00 3QFY01 Change
Sales 16,628 19,502 17.3%
Other Income 191 1,120 486.4%
Expenditure 12,242 13,479 10.1%
Operating Profit (EBDIT) 4,386 6,023 37.3%
Operating Profit Margin (%) 26.4% 30.9%  
Interest - -  
Depreciation 199 280 40.7%
Profit before Tax 4,378 6,863 56.8%
Other Adjustments - (52)  
Tax 1,394 2,809 101.5%
Profit after Tax/(Loss) 2,984 4,002 34.1%
Net profit margin (%) 17.9% 20.5%  
No. of Shares (eoy) (m) 95.0 285.0  
Diluted number of shares 285.0 285.0  
Earnings per share* 41.9 56.2  

Telephone traffic for the quarter ended 31st December 2000 was 707 m paid minutes, compared to 543 m paid minutes in quarter ended 31st December 1999, a growth of 30%. This could be attributed to the fact that tariff rates for international calls were reduced during the current year, which has added to the top line growth. The other reason for a 23% growth in topline could be from value-add service like Internet and leased lines.

Income from value-add services has gone up by 19% to Rs 5,705 m for the nine months period ended 31st December 2000. VSNL reduced rates for Internet and leased lines by 50% and 75% respectively, during the third quarter of the current year, which has led to this higher growth.

The stock is currently trading at Rs 312 at a P/E multiple of 5.5x the annualised 3QFY01 earnings. On the annualised sales of Rs 70,893 m, market capitalisation to sales works out to 1.3 times (market capitalisation is Rs 88,920 m)

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