The Hindu Business Line : Association with rivals helps VSNL post rise in Q1 net

VIDESH Sanchar Nigam Ltd's association with two of its rivals — BSNL and Bharti Tele-Ventures — partly helped in lifting the company's bottom line for the first quarter of the current year.

Analysts were left quite surprised when VSNL, after reporting losses for a string of consecutive quarters, suddenly reported what appeared an `almost freak' 92 per cent increase in net profit, year-on-year, for the quarter ended June 30, 2004.

Its Q1 net profit rose to Rs 126.8 crore from Rs 65 crore even though its sales revenues, quite predictably, sank 5 per cent, to Rs 794.4 crore from Rs 836.4 crore.

Earlier of course, revenues and margins were decreasing on account of falling settlement rates from overseas carriers, and falling revenue-share from domestic telephony operators. These, in fact, were to be further battered with the impending loss of VSNL's exclusive ILD (international long distance) agreements with BSNL and MTNL.

Then came another blow when BSNL decided to have its own ILD operations and arranged to have VSNL as its carrier that would provide only its infrastructure for use.

"This was to have started on February 14 this year, but for whatever reason, BSNL was not ready. So we are not yet their carrier, but still function as their ILD operator," said a senior executive with VSNL.

The result was that VSNL was able to bargain for better margins, which were higher than if it had only leased out its infrastructure to BSNL. This is one of the reasons why, even though segment financials show a decline in international telephony revenues to Rs 609 crore (from Rs 727 crore); segment results show higher, at Rs 186.5 crore (Rs 153.5 crore).

The other major contributor has been decrease in input costs due to infrastructure sharing agreements with Bharti-Televentures, that became functional during this first quarter, said sources at VSNL. This considerably brought down the earlier higher expenditure allocated for BSNL's network.

Network costs came down 22.5 per cent during the quarter, to Rs 480 crore from Rs 620 crore; and operational costs were 35.5 per cent lower, at Rs 52 crore.

The international telephony margins are likely to be a transient butterfly of one quarter only, as also an amount of Rs 46.9 crore by way of due realisations arising from new agreements made during the quarter; but the savings from infrastructure sharing will continue and can only grow as operators increasingly arrive at mutual agreements with each other, said sources.

However, the proportion of revenues from other value-added services, which also yield higher margins, has been steadily increasing.

`Other services' increased in revenues to Rs 185 crore (from Rs 109 crore) during the quarter; and results showed a bumper increase from this segment, growing more than 72 per cent, to Rs 129.8 crore, up from Rs 75.3 crore.

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