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VSNL: Growth concerns - Views on News from Equitymaster
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  • Jan 30, 2002

    VSNL: Growth concerns

    Lower elasticity of demand, a sharp fall in accounting rate and tariff rationalisation on international long distance telephony (ILD) front have resulted in a 11% decline in profits for Videsh Sanchar Nigam Limited (VSNL), the state owned ILD service provider, in 3QFY02. Margins have also declined sharply.

    (Rs m) 3QFY01 3QFY02 Change 9mFY01 9mFY02 Change
    Net sales 19,502 17,386 -10.9% 53,170 48,623 -8.6%
    Other Income 1,120 1,882 68.0% 4,212 4,508 7.0%
    Expenditure 13,479 13,402 -0.6% 38,924 36,257 -6.9%
    Operating Profit (EBDIT) 6,023 3,984 -33.9% 14,246 12,366 -13.2%
    Operating Profit Margin (%) 30.9% 22.9%   26.8% 25.4%  
    Interest - -   - -  
    Depreciation 280 314 12.1% 834 965 15.7%
    Profit before Tax 6,863 5,552 -19.1% 17,624 15,909 -9.7%
    Extraordinary items (52) (59) 13.5% (52) 60 -215.4%
    Tax 2,809 1,921 -31.6% 6,269 5,057 -19.3%
    Profit after Tax/(Loss) 4,002 3,572 -10.7% 11,303 10,912 -3.5%
    Net profit margin (%) 20.5% 20.5%   21.3% 22.4%  
    No. of Shares (m) 285.0 285.0   285.0 285.0  
    Diluted Earnings per share* 56.2 50.1   52.9 51.1  
    P/E Ratio   2.8     2.8  

    One of the key reasons for this 9% decline in revenues for 9mFY02 is the revision of Total Accounting Rates (TAR) with the international telecom carriers in 1QFY02. While the telephone traffic has grown by 14% for the nine months, realisations per minute have gone down substantially. Though average revenue per minute has declined the usage has not increased commensurately despite lower charges for ILD calls. This has also affected margins. But it has to be mentioned that revenues in FY01 also include income from Intelsat. With Intelsat going public in 1QFY02, from hereon, VSNL would receive only dividend at the end of the fiscal year.

    Operating margins has declined significantly in 3QFY02. This could be on account of higher network cost levied by the Wireless Planning and Co-ordination Committee for spectrum authorisation pertaining to earlier years (Rs 726 m). Net profit for 9mFY02 has declined by 4% to Rs 10,912 m. For FY02, we expect the company to report a 18% fall in profits.

    VSNL currently trades at Rs 141 implying a P/E multiple of 2.8x annualised nine months earnings.



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