MTNL, the state owned basic telephone service provider, has posted an impressive 21% growth in topline for the third quarter ended 31st December 2000 to Rs 14,687 m. This is a creditable performance in light of high tele-density in both Mumbai as well as in Delhi, where MTNL provides fixed line services. Besides, the reduction in domestic long distance telephony rates has increased the paid call minutes, which in turn has boosted sales. Sales for the first nine months of the current year is also up by 19%.
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However, operating margins have declined from 43.0% in 3QFY00 to 42.4% in 3QFY01. The operating margins have declined sharply to 40.4% in the first nine months of the current year compared to 44.6% in the corresponding period of the previous year. The reduction in domestic long distance telephony rates is cited as the major reason for this sharp fall in operating margins.
The sharp decline in effective tax rate as a percentage of profit before tax to 8.4% in the first nine months of the current year from 22.7% in the corresponding period of the previous year has prevented the bottomline from a sharp decline.
Since the company operates in high tele-density circles, growth in topline has been one of the concerning factors. But, with the launch of its cellular services in Delhi and the proposed launch of the same in Mumbai in February 2001 could result in higher growth in the coming quarters. However, margins would continue to suffer on account of tariff rebalancing by the Telecom Regulatory Authority of India (TRAI).
The stock is trading at Rs 197 at a P/E multiple of 7.2x the annualised nine months earnings. On the annualised sales of Rs 58,541 m, market capitalisation to sales works out to 2.1 times (market capitalisation is Rs 124 bn).
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