Vindhya telelinks: Link to the Future

The Jelly Filled Telecom Cable (JFTC) sector has been the centre of attraction in the telecom industry in the past one year. The prospective growth in the telephone lines, aggressive expansion of DoT, and the improved performance of the major JFTC companies have instilled confidence in the sector. Telestock has analyzed a number of large and mid-sized JFTC companies in the past. Vindhya Telelinks, a part of MP Birla Group and the promoter of Birla Ericsson Cables, is also a major manufacturer of JFTCs. The Rewa-based company improved its performance in 1999 and is expected to continue doing so in the current year as well. Vindhya Telelinks is currently traded at Rs 151 with a 52-week high of Rs 206 and low of Rs 63. 

Background: Old Player



Vindhya Telelinks was formed in 1983 by Universal Cables and Madhya Pradesh Audyogik Vikas Nigam Ltd (MPAVN) to set up five lakh cable kilometre (lckm) of JFTC at a cost of Rs 12.15 crore. The company tied up with Ericsson Cables AB, Sweden, for technical
collaboration. To finance the project, the company came out with a public issue of 19.11 lakh equity shares at par in February 1986 to raise Rs 1.91 crore. MPAVN brought inÂ

Rs 1.05 crore and Universal Cables contributed Rs 94 lakh to the equity. The balance cost of Rs 8.25 crore was met through long-term loans. The company eventually setup a capacity of 6.25 lckm in 1986. In line with the growth of the telecom sector, the company increased its JFTC capacity to 31.25 lckm in January 1995. This was further increased to 41 lckm in 1996 and to 50 lckm in 1999.

In its first year of commercial operations, 1986-87, the company reported an impressive

performance with a turnover Rs 13.50 crore and a net profit of Rs 0.09 crore. While the performance thereafter was modest, the company’s financial performance in the last three years has been uninspiring. Its turnover for the year ended March 1997 stood at

Rs 238.26 crore recording a fall of 2 percent whereas its net profit increased marginally from Rs 21.06 crore to Rs 24.40 crore. For the year ended March 1998, its turnover fell by 14 percent to 



Rs 204.84 crore while its net profit also dipped to Rs 17.88 crore. However, it consolidated its financial position
during the year ended March 1999 with the turnover of Rs 217.41 crore, posting a modest growth of 6 percent. Its net profit leaped by 63 percent over the previous year to Rs 29.06 crore. 

Operations: Focused on JFTC



Vindhya Telelinks is engaged into manufacturing JFTCs at its plant at Rewa, Madhya Pradesh, and has an
installed capacity of 50 lckm. It is one of the major manufacturers of JFTC in the country. During the year ended March 1999, the company achieved a total turnover of Rs 217.41 crore as against Rs 204.84 crore in the corresponding period of previous year. Out of the total turnover, the company achieved a turnover of Rs 196.41 crore from sales of JFTC as against Rs 176.85 crore in the previous year. The company sold 28.28 lckm of JFTC as against 24.62 lckm in the previous year. The company increased its capacity of JFTC from 41 lckm to 



50 lckm in the year ended March 1999 whereas its average capacity utilization stood at 62 percent as against 60 percent in the same period last year. The total turnover included Rs 4.92 crore from miscellaneous sales and Rs 16.72 crore as interest income from deferred sales. Future: Set to Pace


The company currently derives its entire revenues from the sale of JFTCs. However, this is slated to change as the company now plans to foray into the manufacture of Optical Fibre Cables (OFCs). Vindhya plans to set up a plant to manufacture 15,000 ckm of OFC. Birla Ericsson Cables, a company promoted by Vindhya, is already into the manufacture of OFCs with a capacity of 8,000 ckm. With this change in strategy and focus, the company will be in a position to hedge its offerings and ensure stable growth in future. However, the company’s future performance will
depend on the orders for JFTCs and OFCs and the state of the Indian telecom industry. 

That the company is aware of the futurist scenario is evident by the fact that it recently

increased the capacity of its JFTC division from 41 lckm to 50 lckm to meet the future demand of the telecom industry. DoT, the major consumer of the JFTCs, places the orders for JFTCs on certain criteria taking into consideration the installed capacity, quoted price, delivery, and quality. Therefore, the quality and the installed capacity are crucial for the telecom companies to sustain the growth. With the expansion of its JFTC division, the company will be in a position to meet the demand for DoT and that of the private operators. DoT earlier used to place orders on deferred basis over a period of five years and pay interest on the outstanding amount.

This has, however, changed since the past one year and it has recently placed orders on cash basis, which augurs well for the telecom companies. DoT has estimated an increase in the telephone lines from 310 lakh in 2001 to 640 lakh by 2006. Moreover, the advent of private operators in the basic and cellular services and the opening of the long distance telecom services to private operators will also

improve the prospects of the JFTC industry. Similarly, the OFC industry too is expected to benefit from the long distance operators leading to the increase in demand for the OFC sector. 

Financials: Impressive



Vindhya Telelinks reported a turnover of Rs 217.41 crore for the year ended March 1998-99 registering a growth of only 6 percent over the previous year. The company reported a jump in the operating margins, which improved from 21 percent to 24 percent. The increase in the operating margins was a result of decline in the manufacturing costs. Moreover, with the decline in interest outgo from Rs 14.36 crore to Rs 8.38 crore and provision for depreciation from Rs 6.16 crore to Rs 5.73 crore, the company improved its net profit substantially. The net profit jumped from Rs 17.75 crore to
Rs 29.06 crore registering a growth of 66 percent. The company has reported impressive growth in the turnover in the first half ended September 1999 as well. Its revenues jumped from Rs 68.43 crore in March 1998 to Rs 115.25 crore in March 1999. The net profit went up by 9 percent to close at Rs 15.55 crore. The company is expected to grow by 20 percent in March 2000 and more than

25 percent in March 2001. 

Investment Potential: Good in Long Term

Vindhya stocks are currently traded at Rs 151 discounting its projected March 2000 EPS by five times and March 2001 EPS by four times only. The stock increased from Rs 85 in December 1998 to Rs 206 in

September 1999 before declining to Rs 151. The jump in the share price was due to the improved investor sentiments on the telecom sector and the impressive performance of JFTC companies. However, the telecom stocks have not been able to continue the northward journey due to a number of issues that have arisen during the period. Among these issues include the objection of DoT to the opening of long distance telecom services to the private operators. Despite the announcement of NTP’99, the telecom sector has been on a roller-coaster ride.

Consequently, while the performance of the company should result in a reasonable improvement in the share price, the finalization of the issues in telecom sector should see a change in the valuations of the entire telecom sector. We expect Vindhya to provide decent returns in the medium to long term. Buy.