X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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.
VSNL: Poor show, yet again - Views on News from Equitymaster
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

VSNL: Poor show, yet again
Feb 1, 2008

Performance summary
  • Standalone sales decline 2% YoY in 3QFY08, grow 2% YoY in 9mHFY08 – poor performance from the wholesale voice business (sales down 13% YoY) impact overall performance during the quarter.

  • Operating margins contract to 14.8% in 3QFY08, from 26% in 3QFY07. Higher network and operating costs take toll on profitability.

  • Bottomline contacts by 93% YoY in 3QFY08, largely due to contraction in operating margins and higher extraordinary expenses due to revision in pricing arrangements with customers. Excluding the extraordinary items, net profits decline by 30% YoY during 3QFYo8.

Standalone financial performance: A snapshot
(Rs m) 3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
Sales 10,657 10,407 -2.3% 29,576 30,211 2.1%
Expenditure 7,881 8,872 12.6% 22,669 25,862 14.1%
Operating profit (EBDIT) 2,775 1,535 -44.7% 6,907 4,349 -37.0%
Operating profit margin (%) 26.0% 14.8%   23.4% 14.4%  
Other income 466 728 56.2% 1,163 1,532 31.7%
Interest expense/(income) (7) 71   (41) 131  
Depreciation 916 1,019 11.3% 2,866 2,943 2.7%
Profit before tax 2,332 1,173 -49.7% 5,246 2,807 -46.5%
Extraordinary income/(expense) (202) (1,036) 413.0% (202) (117) -42.1%
Tax 707 42 -94.0% 1,671 939 -43.8%
Profit after tax/(loss) 1,423 95 -93.3% 3,373 1,751 -48.1%
Net profit margin (%) 13.4% 0.9%   11.4% 5.8%  
No. of shares         290.8  
Diluted earnings per share (Rs)*         10.5  
Price to earnings ratio (x)*         48.6  
* On a trailing 12-months basis

What has driven performance in 3QFY08?
  • VSNL’s topline declined by 2% YoY during 3QFY08. This was largely an impact of pressure in its long distance business (national and international). While the company has not indicated any reason for the 13% YoY decline in this business’ revenues, we believe it has been a result of pressure on realisations (call charges per minute), as has been the case during the past few years. As for the enterprise and carrier data business, a segment where the company plans to increase its focus in the future, standalone sales witnessed growth of 18% YoY. The ‘Other’ business segment, which includes broadband and Internet services, recorded decline of 6% YoY during 3QFY08.

    Segment-wise performance (Standalone)
      3QFY07 3QFY08 Change 9mFY07 9mFY08 Change
    Wholesale Voice (ILD)
    Revenue 6,022 5,213 -13.4% 16,426 15,268 -7.1%
    % of total revenues 56.5% 50.1%   55.5% 50.5%  
    EBIT margin 17.5% -3.2%   17.7% -4.1%  
    Enterprise & Carrier Data
    Revenue 3,438 4,072 18.4% 9,892 11,094 12.2%
    % of total revenues 32.3% 39.1%   33.4% 36.7%  
    EBIT margin 84.3% 90.6%   82.0% 88.5%  
    Others
    Revenue 1,197 1,123 -6.2% 3,258 3,849 18.1%
    % of total revenues 11.2% 10.8%   11.0% 12.7%  
    EBIT margin 42.2% 39.0%   35.9% 46.5%  
    Total
    Revenue 10,657 10,407 -2.3% 29,576 30,211 2.1%
    EBIT margin* 41.8% 38.1%   41.2% 36.3%  
    * After adjusting for unallocable expenses

  • Higher network and operating costs (as percentage of sales) led to VSNL recording a large 11.2% contraction in operating margins during 3QFY08. The company’s network costs, for instance, increased from 54.7% of sales in 3QFY07 to 18.5% in 3QFY08. As for segments, the wholesale voice business recorded losses as it reported PBIT margins of a negative 3.2% during 3QFY08 (positive 17.5% in 3QFY07). Margins for the enterprise business expanded from 84% to 90%, while those for the others segment declined from 42% to 39%.

  • Decline in operating margins combined with a substantially higher extraordinary expense dented VSNL’s net profits, which declined by 93% YoY during 3QFY08. This extraordinary expense was on account of revision in pricing arrangements with customers. Excluding the extraordinary items, net profits have declined by 30% YoY during the third quarter.

What to expect?
At the current price of Rs 512, the stock is trading at a multiple of 11.2 times our estimated FY10 consolidated earnings. The management has outlined an aggressive growth plan in its bid to increase share of high margin retail revenues (broadband and enterprise & data business) while further reducing the contribution from low-margin wholesale (ILD & NLD) businesses.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TATA COMM. SHARE PRICE


Feb 23, 2018 (Close)

TRACK TATA COMM.

  • Track your investment in TATA COMM. with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

TATA COMM. - RELIANCE COMMUNICATIONS COMPARISON

COMPARE TATA COMM. WITH

MARKET STATS