Call alert for VSNL

The global carrier will have to rapidly grow non-ILD services

International long distance calls made over the internet have become much cheaper with World Phone offering calls to the US at Rs 1.6 per minute, which is about 60 per cent cheaper compared than what other net telephony providers charge on an average.

While this is a boon for consumers using such services, it's not expected to shake up the ILD market.

Net telephony currently accounts for only around 2.5 per cent of the total ILD market, primarily because it falls short on voice quality. Switch-based networks such as the one used by market leader, VSNL, are favoured because of better quality.

Nevertheless, both realisations and retention rates have been falling rapidly in the ILD market. VSNL, being the largest carrier, was the worst hit. Its total income fell 30 per cent last fiscal, and profit before exceptionals and tax plummeted 60 per cent.

While the arrangement to carry traffic for BSNL and MTNL has been extended, it's at drastically lower rates, with the company having to match the rates quoted by players like Data Access in a number of circles.

Also, a number of customers who make outgoing ILD calls are gradually shifting to private operators, in which case VSNL's networks may not necessarily be used.

The only recourse is to increase revenues from non-ILD services. VSNL has been doing exactly that -its other services including data services, calling cards, net telephony now account for 14 per cent of revenues and 31 per cent of segment profit, up from 18 per cent in FY03.

Needless to say, these services would have to grow at a rapid pace to make up for the fall in the ILD business.

Yield curve

The Reserve Bank of India seems to be signalling relative comfort at the short end of the yield curve while trying to push up yields at the medium and long end.

Take two recent instances "" the 91-day T-bill cut-off was set lower at 4.46 per cent as against 4.50 per cent in the previous auction, while at the auction held on Thursday, the RBI announced a cut off yield of 6.70 per cent for 24- year government stock 2028. This cut-off yield was above the market expectation of 6.65 per cent.

Short-term yields are driven by the abundant liquidity in the system, seen from the outstandings of around Rs 65,000 crore in the RBI's liquidity adjustment facility.

Moreover, long-term yields have fallen far more in the past two years and hence will also go up much more.

Also, a comparison of the US and Indian rates shows that real yields in India are higher at the short end than in the US, while they are lower at the long end.

For example, with inflation at 3.9 per cent in the US, three month rates are at 1.36 per cent and the 10-year Treasury bond is at 4.76 per cent.

That gives a negative real interest rate of 2.5 per cent for the three month paper and a positive real rate of 0.86 per cent for the 10-year bond.

In contrast, the real rate for three months paper (with inflation at 5.8 per cent) is minus 1.34 per cent in India while the 10-year paper has a zero real rate. No wonder, then, that the RBI wants the yield curve to steepen.

Pfizer's pink numbers

Pfizer India has reported impressive results for the quarter ended May 31 2004. Net profit has surged 672 per cent to Rs 9.35 crore.

Operating profit was Rs 7.89 crore during the three months compared with an operating loss of Rs 5.42 crore in the same period of the previous year.

Clearly, its aggressive marketing strategy has helped the company overcome the pricing pressures faced by its key brands.

In the key pharmaceuticals segment, backed by rising sales of Becosules, Corex and anti-infectives such as Fasigyn, segment profits rose by 110 per cent to Rs 24.29 crore and segment operating profit margins rose 948 basis points to 21.15 per cent.

A similar trend was observed in the animal health division, where improved sales of Amoxisol and Distodin helped segment profits rise to Rs 1.43 crore in the May quarter as against a loss of Rs 15 lakh in the previous year.

The company has been shutting or selling unviable plants, while employee numbers have also been reduced, and these measures will help lower costs going forward. The synergies in the form of marketing efficiencies and an efficient supply chain due to the integration of Parke Davis (India) Ltd should also help boost profitability.

Pfizer's product launches have been scarce, but there have been reports that the company may consider launching them once the new patent regime comes into force in 2005. Introducing new products will be critical if the company expects to maintain a price-earnings multiple of around 30.

With contributions from Mobis Philipose, Anindita Dey and Amriteshwar Mathur