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VSNL: Growth is no problem - Views on News from Equitymaster
 
 
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  • Aug 4, 2000

    VSNL: Growth is no problem

    VSNL has been in the eye of a storm recently. First the company posted a flat growth in topline coupled with a decline in operating margins for the quarter ended 30th June. Second, and the bigger blow, came in the form of the government’s decision to dilute VSNL’s bandwidth monopoly.

    We recently met up with Mr. Amitabh Kumar, Director Operations, VSNL to get a first hand view of the impact of the government’s recent decision and the steps being initiated by the company to shake off the sluggishness in growth. What follows are some of the key points that came out from our discussion. We will be posting an interview with Mr. Amitabh Kumar shortly in our ‘Face to Face’ section.

    Growth in the international telephony business is not a big concern. VSNL is infact concentrating on driving up volumes. Traditionally VSNL has been getting 100 minutes of traffic per telephone line. With the total line addition in the country estimated at 5 million this year, growth would be there. Simultaneously, VSNL has been lobbying with the government to reduce international telephony tariffs. The move is aimed at capturing domestic outbound traffic. It is anticipated that the second round of rate cuts proposed by the TRAI will be implemented in September and this should give a boost to volumes. Its international telephony business is therefore anticipated to perform better.

    The threat that the government may dilute the company’s monopoly prior to 2004 is however not a concern as the company expects to be adequately compensated. Also, the company anticipates that the DoT will continue to remain the leader in domestic telephony and naturally all the international traffic that emerges will be directed through VSNL. This also partially dilutes the concern that VSNL will face intense competition from private operators in the near term.

    VSNL's value added services continue to record significant growth. Its ISP business is close to the 0.5 m subscriber mark. Infact the company has applied to the government for a category ‘A’ license, which will permit it to introduce ISP services across the country (as against six cities currently). If successful in procuring the license, the company sees a substantial increase in user base. It has also tied up with Hughes Tele.com in Maharashtra to offer an Internet service where the two service providers will share dial up charges (i.e. customers do not pay telephone charges). The company’s leased line business is witnessing explosive demand. However, the growth in revenues has been suppressed as the company has slashed rates by over 50%. VSNL is also planning to bid for a 3G licence, as and when the government opens up this service. It sees cellular telephony as having synergies with the company’s current operations.

    Meanwhile the company has been aggressively adding to its bandwidth capacity and is currently in the process of buying a satellite. The move is aimed at beefing its infrastructure. As fallout, the competition has been left to explore costlier options.

    Finally, VSNL is currently sitting on a hoard of cash, which is anticipated to increase further this year. The company’s planned capex of Rs 10 bn will be met from the cash generated from operations itself. However in coming years the capex could rise dramatically as the company makes a purchase of a satellite (Rs 8 bn).

    VSNL surely seems to be getting a grip over the current situation. However concerns still remain in the form of government intervention, although Mr. Kumar insists that wide ranging autonomy has been given.

     

     

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