VSNL: An early diwali for shareholders? - Views on News from Equitymaster

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VSNL: An early diwali for shareholders?

Aug 26, 2000

VSNL has just declared 2:1 bonus in its board meeting yeaterday. This will take the share capital to Rs 2.85 bn

(Rs m) FY00 1QFY01
Sales 70,241 16,958
Other Income 2,481 1,553
Expenditure 52,111 12,596
Operating Profit (EBDIT) 18,130 4,362
Operating Profit Margin (%) 25.8% 25.7%
Interest - -
Depreciation 1,123 265
Profit before Tax 19,488 5,650
Tax 6,369 1,821
Profit after Tax/(Loss) 13,119 3,829
Net profit margin (%) 18.7% 22.6%
No. of Shares (eoy) 95 95
Current earnings per share* 138.1 161.2
Diluted earnings per share* 46 54
Current P/E multiple 6.0 5.2

With the capital expanding by two times, the earnings will get diluted to a third of the pre-bonus level. Consequently, if we keep the P/E multiple constant at 6x, the price ex-bonus should reduce by a third to Rs 322

If one look's at 1QFY01 annualised earnings the FDEPS is showing a growth of 17%. Does it deserve a valuation of 6x earnings. Ex bonus, the price will become more affordable, this should increase the liquidity in the stock and enhance pricing eficiency. If we look at market comparables AT&T and British Telecom trade over 15x earnings.

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