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VSNL: Margins on the move - Views on News from Equitymaster
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  • Apr 30, 2001

    VSNL: Margins on the move

    Videsh Sanchar Nigam Limited (VSNL), the state owned international telephony service provider, has reported a 88% growth in net profit for the year ended 31st March 2001 primarily on account of higher other income and a 80 basis points growth in operating margins.

    (Rs m) 4QFY00 4QFY01 Change FY00 FY01 Change
    Sales 20,058 19,977 -0.4% 70,608 73,147 3.6%
    Other Income 157 1,406 795.5% 2,629 5,618 113.7%
    Expenditure 15,300 14,752 -3.6% 52,358 53,676 2.5%
    Operating Profit (EBDIT) 4,758 5,225 9.8% 18,250 19,471 6.7%
    Operating Profit Margin (%) 23.7% 26.2%   25.8% 26.6%  
    Interest - -   12 -  
    Depreciation 445 345 -22.5% 962 1,179 22.6%
    Profit before Tax 4,470 6,286 40.6% 19,905 23,910 20.1%
    Other Adjustments - -   (5,127) (52)  
    Tax 1,351 1,813 34.2% 6,375 8,082 26.8%
    Profit after Tax/(Loss) 3,119 4,473 43.4% 8,403 15,776 87.7%
    Net profit margin (%) 15.5% 22.4%   11.9% 21.6%  
    No. of Shares (eoy) (m) 95.0 285.0   95.0 285.0  
    Diluted number of shares 285.0 285.0   285.0 285.0  
    Earnings per share (Rs) 43.8 62.8   29.5 55.4  

    A closer look at the performance of the company in comparison with FY00 puts forth a different picture. The company had reported a net profit of Rs 8,403 m after providing for Rs 5,127 m pertaining to the write-off of the investment in the ICO Global Communications. If we were to exclude this write-off, the company's net profit stands at Rs 13,530 m in FY00, whcih effectively means that the company's net profits have grown by 21% in FY01.

    The reduction in international telephony rates has increased the paid-minutes duration in the current year. Though the company's paid minutes increased by 20% to 2,694 m minutes, the reduction in the accounting rate by 20% to 0.85 cents has subdued revenue growth to just 3%. However, the other value-added businesses of the company like Internet and leased line circuits have registered marked improvement in subscriber base in the current year. While internet subscribers have shot up by 72% to 630,970, leased line base has gone up by 201% to 4,916.

    Operating margins have gone up primarily on account of reduction in operating expenditure during the year. For instance, administration expenses have dropped by 29% to Rs 141 m in 4QFY01.

    The company plans to spend around Rs 2,000 m as capital expenditure towards expansion of its infrastructure facilities and setting up new facilities for its proposed domestic long distance telephony venture. However, the accounting rate for the current year has come down to 0.68 cents. As a result, though margins are expected to remain pressurised in the coming year also, the increase in paid minutes and the outgoing calls are a solace for the company.

    The stock is currently trading at Rs 317 at a P/E multiple of 5.7x the FY01 earnings. On the sales of Rs 73,147 m, market capitalisation to sales works out to 1.2 times (market capitalisation is Rs 90,345 m)



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