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Hughes Tele: On schedule

May 18, 2001

Hughes (HTL), the basic service provider in Mumbai and Maharashtra, has reported a lower net loss of Rs 2,088 m in FY01 compared to Rs 2,701 m in FY00. The net loss is even lower than what the company had projected during its Initial Public Offering (IPO) last year.

(Rs m)FY00FY01ChangeProjectedchange*
Sales 638 1,392 118.2% 1,858 75.0%
Other Income 32 558 -
Expenditure 1,796 2,028 12.9% 1,660 122.2%
Operating Profit (EBDIT) (1,158) (636)-45.1% 198
Operating Profit Margin (%)-181.4%-45.6%10.7%
Interest 976 1,284 31.7% 1,134 113.3%
Depreciation 600 727 21.1% 1,275 57.0%
Profit before Tax (2,701) (2,089)-22.7% (2,210)94.5%
Extraordinary item - - -
Tax 0 (1) -
Profit after Tax/(Loss) (2,701) (2,088)-22.7% (2,210)94.5%
Net profit margin (%)-423.3%-150.0%-119.0%
*Performance as a % of projections

However, due to initial delays in the roll out of infrastructure, the company has failed to achieve the targeted telephony revenues. This was primarily because of delay in clearance for laying optic fibre cable, which has resulted in lower volume growth. Though telephony revenue grew sharply by 118% to Rs 1,392 m in FY01, this is 25% lower than Rs 1,858 m targeted by the company.

The number of subscribers has gone up from 22,000 lines in FY00 to 75,000 lines. HTL had targeted around 65,000 connections by March 2001 (by FY04, the company hopes to provide 400,000 connections) and it seems to be in in line for achieving the target. Understandably, other income for the year has gone up sharply primarily on account of higher interest income from the issue proceeds of its IPO (this includes Rs 170 m from refund of operations support fees and Rs 324 m from short-term investments).

Apart from providing basic services in Mumbai, Navi Mumbai, Pune, Nashik, Nagpur and Panaji, HTL plans to extend its services in 4 more cities. The company has also launched its broadband services in Mumbai recently, which is expected to be one of the key drivers of growth of the company. As HTL has laid fibre optic cable across Mumbai and other cities, it can extend its broadband and Internet services to the existing customer base to boost revenue growth.

The stock is currently trading at Rs 9 against the offer price of Rs 12, a discount of 25%. The topline is expected to remain robust in the coming year also with its planned launch of other services like broadband, Internet and VPN. Along with the extension of its fibre optic networks and a host of value-add services, where the company has an upper edge over its competitors, the subscriber growth is also expected to be on the higher side. However, TRAI's new regulations and inordinate delay in decision making towards Wireless in Local Loop (WiLL) could act as a dampener for growth.

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