X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
VSNL: Extraordinary effect - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 26, 2004

    VSNL: Extraordinary effect

    VSNL has reported improved performance in the second quarter of FY05. While the growth in topline has been only marginal, the operating margins have shown a marked improvement. Expansion in margins seems to indicate an improvement in the company's core business. We would also like to point out that though the topline growth has been negligible, it is indeed better than the performance that the company reported during the past two years, when topline had declined on a consistent basis.

    (Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
    Net sales 7,755 7,785 0.4% 16,119 15,729 -2.4%
    Expenditure 6,582 6,072 -7.7% 14,040 11,767 -16.2%
    Operating profit (EBDITA) 1,173 1,713 46.0% 2,079 3,962 90.6%
    Operating profit margin (%) 15.1% 22.0%   12.9% 25.2%  
    Other income 463 294 -36.5% 1,362 542 -60.2%
    Interest - -   - -  
    Depreciation 406 568 39.9% 793 1,115 40.6%
    Profit before tax 1,230 1,439 17.0% 2,648 3,389 28.0%
    Extraordinary items (578) 2   (965) 4  
    Tax 165 560 239.4% 538 1,244 131.2%
    Profit after tax/(loss) 487 881 80.9% 1,145 2,149 87.7%
    Net profit margin (%) 6.3% 11.3%   7.1% 13.7%  
    No. of shares (m) 285.0 285.0   285.0 285.0  
    Diluted earnings per share (Rs)* 6.8 12.4   8.0 15.1  
    P/E ratio (x)         11.3  
    (* annualised)            

    India's largest long distance telephony services provider
    VSNL was incorporated on April 1, 1986 under the Indian Companies Act, 1956 to take over the activities of the erstwhile Overseas Communication Services (OCS). In February 2002, the Government of India divested 26% of VSNL's equity to the Tata Group that now has the management control. Being the pioneer of Internet services in the country, VSNL provides international telecommunication services, directly and indirectly, linking the domestic telecommunications network to approximately 237 territories worldwide. The company operates a network of earth stations, switches, submarine cable systems and value added service nodes to provide international telephony (87% of revenues), telex and telegraph services. The company has also started its DLD (domestic long distance) and brodband services in the country.

    What has driven the performance in 2QFY05?
    Restructuring paying off: VSNL has embarked on a restructuring exercise which includes the company to increase focus on the DLD, broadband and other integrated services to corporates. This restructuring has been initiated in order to move away from its core international long distance (ILD) services, which have suffered over the last 2-3 years due to the opening up of the sector to competition. In 2QFY05 also, the topline contribution from its international telephony services have taken a beating and revenues have dropped by 17% in this segment. Its other services segment has, however, reported a 107% rise in revenues in the September quarter. This is likely to bode well for the company as the EBIT margins of the latter are much better than its core ILD services revenues. Going forward, we are likely to see further improvement in the company's profitability on account of higher contribution from services like DLD, broadband and other intergated telecom services for corporates. The table below indicates the EBIT margins of the various segments of the company.

    Segment-wise performance
      1HFY04 1HFY05 Change
    International telephony &
    related services
    14,094 11,936 -15.3%
    EBIT margin* 21.9% 29.1%  
    Other services 2,025 3,793 87.3%
    EBIT margin* 68.6% 69.2%  
    Total 16,119 15,729 -2.4%
    EBIT margin* 27.7% 38.7%  
    * Before extraordinary income and expenses

    Operating margins: The company has been able to significantly improve its operating margins. As the company continues to witness contribution from high margin services, we may see further improvement in its operating margins and consequently its profitability. There has been a significant drop in the company's network costs, while operating and other expenses have shown a jump.

    Bottomline performance disappointing, but for extraordinary expenses: Despite just a marginal growth in the topline, the bottomline has surged significantly. However, this is not strictly comparable to the corresponding quarter of FY04 as the company had then borne an extraordinary expense of Rs 568 m on account of its VRS scheme. If one were to discount the extraordinary expense (for VRS) in 2QFY04, the bottomline actually shows a decline of nearly 17%. There are several other factors that have also contributed in limiting the bottomline growth - lower other income, higher depreciation and higher tax outgo.

    What to expect?
    At the current market price of Rs 170, the stock is trading at a P/E multiple of 13.7 times annualised 2QFY05 earnings. VSNL seems to be making the right moves in order to derisk its revenues and on this account, it seems to be witnessing early success. As far as its core ILD business is concerned, we believe that the worst regarding tarriffs (both settlement and accountaing rates) may be over. From here on, we believe, while the tarriffs may not rise, higher volumes in the segment will help VSNL. The company is also betting big on the broadband market in the country, regarding which the goverment has recently announced its policy. However, we would still like to reiterate that the company's business model is still evolving and to that extent the risk profile of the stock is remains relatively higher.

     

     

    Equitymaster requests your view! Post a comment on "VSNL: Extraordinary effect ". Click here!

      
     

    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TATA COMM. SHARE PRICE


    Aug 18, 2017 (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. 5-YR ANALYSIS

    Detailed Financial Information With Charts

    COMPARE TATA COMM. WITH

    MARKET STATS