VSNL: Compensation conundrum - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

VSNL: Compensation conundrum

Sep 11, 2000

Last week saw VSNL make the headlines in the top dailies, as its international monopoly is to be dismantled in 2002, two years earlier than the original schedule of 2004. For dismantling the monopoly prior to the promissed schedule the Governemnt has offered VSNL a compensation package amouting to Rs 7 bn.

The package includes allowing VSNL into domestic long distance (DLD) telephony without payment of the entry fee amounting to Rs 1 bn. Further, it will not be required to furnish bank gaurantees of Rs 4 bn. These guarantees are to be excercised only in case the service provider fails to roll out the network as per the schedule. The company will be exempted from revenue sharing for a five year period.VSNL will also be awarded a nationwide Internet service provider (ISP) license. This package has been valued at Rs 7 bn.

The questions remains, is it a commensurate compensation for business lost and should VSNL accept the offer? Equitymaster attempts to estimate the value of this package and whether it holds a good deal for VSNL.

(Rs m) FY00 FY01 FY02 FY03 FY04
Industry Revenue 70,241 80,393 90,658 101,364 112,169
Growth* 4.0% 14.5% 12.8% 11.8% 10.7%
Industry PAT 7,992 10,567 12,624 14,974 16,338
PAT Margin* 11.4% 13.1% 13.9% 14.8% 14.6%
VSNL
Market share 100.0% 100.0% 100.0% 80.0% 60.0%
Revenue 70,241 80,393 90,658 81,091 67,301
PAT 7,992 10,567 12,624 11,979 9,803
Profit loss due to liberalisation - - - 2,995 6,535
Present value of lost earnings 6,119
* Preceeding 5 year rolling average
** Discount rate = 15%

In the model till 2002 the international telephony market consists only of VSNL and therefore VSNL enjoys 100% market share.

The above exercise gives an indicative compensation figure of Rs 6.12 bn. The package looks attractive unless VSNL's cost of capital is less than 15% or it believes that either the revenue growth rate, profit margin or market share will be higher than these projected levels.

Equitymaster requests your view! Post a comment on " VSNL: Compensation conundrum ". Click here!

  

More Views on News

TATA COMM Announces Quarterly Results (2QFY22); Net Profit Up 10.3% (Quarterly Result Update)

Oct 26, 2021 | Updated on Oct 26, 2021

For the quarter ended September 2021, TATA COMM has posted a net profit of Rs 4 bn (up 10.3% YoY). Sales on the other hand came in at Rs 42 bn (down 5.2% YoY). Read on for a complete analysis of TATA COMM's quarterly results.

TATA COMM 2020-21 Annual Report Analysis (Annual Result Update)

Oct 22, 2021 | Updated on Oct 22, 2021

Here's an analysis of the annual report of TATA COMM for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of TATA COMM. Also includes updates on the valuation of TATA COMM.

6 Stocks With High Financial Leverage (Views On News)

Aug 23, 2021

Interestingly, two Adani group companies top the list while a Tata group company also makes the cut.

Top Stocks Riding the 5G Wave in India (Views On News)

Dec 3, 2021

The 5G revolution is unfolding at a faster rate than you would expect. Here's how you can hop on to this ride.

1,300% in One Year - Are You Kidding Me? (Views On News)

Nov 29, 2021

An amount of Rs 1 lakh invested in the midcap stock a year ago would have turned into Rs 15 lakh today.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TATA COMM SHARE PRICE


Dec 3, 2021 (Close)

TRACK TATA COMM

  • Track your investment in TATA COMM with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

TATA COMM - BHARTI AIRTEL COMPARISON

COMPARE TATA COMM WITH

MARKET STATS