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VSNL – Diversifying revenue streams

Jun 2, 2000

Videsh Sanchar Nigam Ltd. (VSNL) operates the international telephone network, linking 10,903 Indian cities/towns to 236 overseas destinations. It handles over 1 bn international call minutes per annum providing an array of value-added specialised services like leased lines, data communication service, managed data network services, satellite mobile communication, video conferencing, television uplinking and relay, Internet access etc. VSNL was till recently a monopoly in the ISP game and is, in fact, still a monopoly when it comes to Internet gateway (data traffic). But it would lose its monopoly by 2004 in most of its business. Some private sector ISPs (Internet Service Providers) have now come close to setting up their own gateways in place and once this happens, VSNL could face stiffer competition.

The company is gearing up to meet future challenges by increasing the revenues from non-telephony business, which constitutes around 8.7% of its gross revenues of Rs 72.7 bn.

  • The company is trying to increase the revenue from its ISP business. The number of corporate leased lines for Internet has risen by 100% to 700 during the year. It has built up more than 900 lines within a year.
  • In the future the company plans to compete for domestic long distance and infrastructure services within the country including Internet backbone and satellite-delivered Internet.

Recent developments

  • The company has filed level two application with SEC (Securities and Exchange Commission) in US for the tier-II listing of ADRs on NYSE (New York Stock Exchange). With this, the state-run VSNL will be the country's first Internet Service Provider (ISP) to list its shares on the New York bourse. The move is also expected to enhance the company's brand equity abroad.
  • VSNL is also planning to diversify into providing telecom services abroad by forming a consortium with MTNL. The likely markets would be in Africa and Latin America where the telecom markets have been opened up for privatization.
  • VSNL has announced special monsoon package for Internet users, which include new Internet tariffs, credit card renewal gateway announcement, wireless access to VSNL services, etc. The domestic market has been witnessing major tariff war with Satyam, Mantra and MTNL slashing the prices. However, VSNL is the largest ISP in the country and has close to 370,000 customers at six locations in the country- Delhi, Mumbai, Calcutta, Pune, Chennai and Bangalore. The total Internet subscribers in the country are estimated to be close to 650,000, which translates into a more than 40% market share for the public sector giant.
  • Recently the company has taken 20% stake in Indiainfo.com. The deal is targeted at providing the VSNL customers a powerful portal for all purposes such as entertainment, business and e-commerce. VSNL stands to gain from Indiainfo's strength in running a wide content-based portal and from the free equity offer that is part of the deal. This deal means the huge potential of e-commerce over the net and VSNL will be able to generate remarkable revenues by way of commission on e-commerce transactions. The company will also be able to charge premium on advertisements displayed on its site due to its popularity and hit rates.

Valuations

At the current market price of Rs 1,250, VSNL’s stock trades at a PER of 15 times its FY00 earnings (52 week H/L is Rs 3,250/826). The one reason why the VSNL stock appeared to be not very dynamic is the floating stock is just 9-10%. The Government holds 53% of the equity, 31% was in the form of GDRs and most of the rest is held by institutions. The aggressiveness in the ISP business and its recent ventures are likely to improve the sentiment in the stock.

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