A recent study by a London-based telecom consultancy has projected a $ 54 million loss to Videsh Sanchar Nigam (VSNL) by the year 2001 due to the increasing chunk of voice traffic on the internet.

The threat to VSNL arises from the fact that net subscribers can use the internet telephone facility to place a call anywhere in the world and pay only at the rate of a local call. Until now VSNL had used its continued monopoly over India's external telephony to block out such voice call sites on the Net, but the possibility of a number of private internet service providers (ISPs) in India and technological advances are turning this threat into a reality.

While government legislation blocking internet telephony would solve VSNL's problems in one go, the company would do well to realise the potentiality of such niche businesses like the internet, rather than transfer these high growth areas to the DoT.

The impressive growth figures involved formulate a strong case against the transfer of the value added businesses by VSNL to the DoT. Consider this - while transmitted traffic volumes have grown to 1382 million paid minutes, outgoing calls ratio has improved only marginally. On the flip side, although specialised services like the internet account for just 4 per cent of VSNL's total revenues, such services have shown a hefty growth of over 70 per cent for the year ended 1996-97.

Worldwide internet traffic is slated for a 300 per cent growth, with as many as 193 million users connecting 186 countries by the year 2000. Analysts expect a major chunk of this exponential growth to be fuelled by the Asian region, where India is slated to play an important role. What with the telecom sector receiving infrastructure status, analysts expect a rapid improvement in basic public data networks and an increasing number of connectivity-choices for subscribers. In fact, the Indian subscriber base is expected to increase at around 80-100 per cent per annum for the next three years.

Further the new Internet policy, which is being formulated by the DoT, under the guidelines of the Telecom Commission adds another unique dimension to VSNL's growth prospects. While the policy does not choose to restrict the number of ISPs, according to the guidelines the DoT is willing to forgo its license fees for the first two years of operations. Thus while this magnanimous offer could prove detrimental to VSNL by way of increasing competition, DoT's continued silence about new international gateways, is probably a way of safeguarding VSNL and its monopoly.

Copper prices looking up

After touching a seven and a half month low of $ 2135 per tonne, copper prices have started to look up. Though there has been no appreciable increase in off-take of the metal, there are likely to be supply side problems. One of the reason is that some major mines in Central America have temporarily closed down due to severe dry weather, which prevented transportation by waterway. An unusually high rainfall is expected in the later half of the year in this region, thanks to the El Nino effect, this is likely to further aggravate the supply problem.

On the demand front however, major imports are expected from China, which traders feel will be at least 150,000 tonnes. This is likely to increase as the country had desisted from entering the market in the first half as prices on the LME were high.

This does looks the right time to invest in copper, as the prices seem to have bottomed out. For small investors, the equivalent will be in investing in Hindustan Copper whose prices are directly linked to the LME.

Bharat Forge, subsidiaries

Bharat Forge has posted lower net profit of Rs 18.66 crore from Rs 50.87 crore in 1995-96, mainly due to octroi liability of Rs 38.31 crore. However, one positive factor is that the amount due from subsidiaries have come down from Rs 129.88 crore in 1995-96 to Rs 117.29 crore. Better still, the interest free loan granted to one of the subsidiaries has come down to Rs 25.18 crore from Rs 45.38 crore in 1995-96. Investment in group company Kalyani Steel has been reduced by Bharat Forge and its five NBFC subsidiaries. In case of Bharat Forge alone, the investment is lower by Rs 5 crore.

However, Bharat Forge's exposure to subsidiaries and associates remains high. Of the total amount due from subsidiaries, Rs 94.11 crore is interest free. Against this, the cash generated from operations by Bharat Forge without accounting for outgo on octroi liability, is Rs 77.11 crore. Against a cost of Rs 88.84 crore, the market value of investments is Rs 40.32 crore - a decline of just 54.6 percent. In the view of the management, the decline is temporary and no provision is required. The company has invested Rs 83.55 crore in unquoted investments of which Rs 57.75 crore is invested in 12 percent preference shares of subsidiaries. The OPM of the company for 1996-97 is 16.77 percent which means that even after accounting for tax benefits, the company would have been better off investing money in business rather than in preference shares. The wheel rim division of the company was transferred to Kalyni Lemmerz, a company promoted by Bharat Forge and a net consideration of Rs 48.41 crore was received during the year. Each of the subsidiaries invested Rs 2.4 crore in it. The RoE of the company is low at just 5 percent in 1996-97 and 16.60 percent in 1995-96. Besides octroi liability, higher tax outgo has also accounted for this fact.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.