Telecom PSUs: Profits under pressure - 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?  

Telecom PSUs: Profits under pressure

Oct 15, 2001

Telecom PSUs like Mahanagar Telephone Nigam Limited (MTNL) and Videsh Sanchar Nigam Limited (VSNL) have been the centre of activity in recent weeks. Here we take a brief look at the revenue mix of both the companies and their future prospects. The tariff restructuring effected by the Telecom Regulatory Authority of India (TRAI) last year on both the domestic and international telephony front has had adverse impact on profitability of both the companies. VSNL reported a 9.9% fall in telecom revenues and a 4.5% fall in net profits for 1QFY02.

Though MTNL reported a commendable rise in telecom revenues, operating margins witnessed a sharp slump in 1QFY02. The trend is expected to continue in the coming years also. TRAI is expected to amend the second round of tariff rebalancing in the current year to bring rates in line with international tariff structure. This will have a negative impact on margins and profits of both MTNL and VSNL. Though paid-minute calls is expected to increase, value growth would be modest.

Core revenues under pressure…
Company FY98 FY99 FY00 FY01
VSNL        
Avg Realisation (Rs/min) 34.0 32.1 27.9 24.1
growth (%) -4.2% -5.4% -13.1% -13.9%
MTNL        
ARPU (Rs) 12,971 13,015 12,169 12,339
growth (%) - 0.3% -6.5% 1.4%

Though both the telecom PSUs are focusing on value-add services to increase revenue and profitability, their contribution as a percentage of total revenues is still small. First of all, lets take a closer look at what both the PSUs offer in terms of value-add services. While VSNL provides services like telex, lease lines, Internet connectivity, satellite and uplinking services, MTNL just provides internet and lease line services. Apart from basic telephony, MTNL derives close to 6.6% of revenues from interconnectivity and circuit charges.

While VSNL has 630,970 internet subscribers, MTNL has around 50,000 subscribers. Though MTNL is better placed when it comes to offering ISP services given its last-mile connectivity advantage, the company lacks aggressiveness. On the other hand, VSNL has introduced new internet subscription packages and has also slashed charges to increase subscriber base (in FY01 subscriber base increased by 72%). It is also increasing its presence to 20 cities in the current financial year (9 in FY01). Other value-add services like satellite communication and channel uplinking services are expected to be one of the key drivers for the company in the coming years. So, when it comes to value-add services, VSNL is comparatively better placed than MTNL.

Value-add services: Long way to go…
(% of revenues) FY97 FY98 FY99 FY00 FY01
VSNL 5.3% 6.1% 8.5% 9.8% 11.2%
MTNL 4.4% 5.1% 5.5% 5.3% 7.5%

In FY02, we expect MTNL to report around 6%-8% growth in telecom revenues and a 5% fall in net profits to Rs 14,905 m. VSNL is expected to register a meager 2% rise in revenues and a 15%-17% fall in net profits for FY02. MTNL is trading at Rs 126 at a P/E multiple of 5.3x the annualised 1QFY02 earnings. VSNL is trading at Rs 222 at a P/E multiple of 4.3x the annualised 1QFY02 earnings.

Given the fact that MTNL has a bloated workforce of more than 60,000 employees (with atleast six trade unions), disinvestment is not going to be easy. On the other hand, one can expect positive news on VSNL's disinvestment in the current financial year.

Equitymaster requests your view! Post a comment on "Telecom PSUs: Profits under pressure". Click here!

  

More Views on News

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.

Bharti Airtel's Humongous Rights Issue to Open on 5 October. Key Points Investors Should Know (Views On News)

Sep 23, 2021

Shares of Bharti Airtel trade near record high ahead of rights issue.

This Company has Quietly Built an Enviable Startup Portfolio (Views On News)

Sep 22, 2021

The startups era has just begun, and it will provide massive opportunities to those who can spot the right trends at the right time.

More than 450% Gains for Tejas Networks in the Past Year. What Next? (Views On News)

Aug 18, 2021

Shares of Tejas Networks are up 173% since January 2021. Is the rally justified?

More Views on News

Most Popular

India's Best Semiconductor Stocks Views On News (Views On News)

Jan 7, 2022

Modern wars are fought with semiconductors. India's best semiconductor stocks have big tailwinds from defence and manufacturing.

10 Indian Companies with the Fastest Growth in Dividend Payouts... (Views On News)

Jan 10, 2022

These companies have been consistently paying higher dividends for several years.

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

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

MTNL SHARE PRICE


Jan 20, 2022 11:17 AM

TRACK MTNL

COMPARE MTNL WITH

MARKET STATS