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MTNL: Margins take a pounding - Views on News from Equitymaster
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  • Apr 26, 2001

    MTNL: Margins take a pounding

    Mahanagar Telephone Nigam Limited (MTNL), the basic service provider in Mumbai and Delhi, has reported a 52% rise in net profits to Rs 16,535 m for the year ended 31st March 2001. The net Income from services have also gone up by 11% to Rs 57,320 m. The reason for this higher sales growth is primarily on account of the reduction in domestic long distance telephony rates, which has increased the paid call minutes. This in turn has aided higher growth for the company.

    (Rs m) 4QFY00 4QFY01 Change FY00 FY01 change
    Sales 14,965 13,414 -10.4% 51,822 57,320 10.6%
    Other Income - 501   1,747 2,485 42.2%
    Expenditure 7,546 7,828 3.7% 32,393 33,984 4.9%
    Operating Profit (EBDIT) 7,419 5,586 -24.7% 19,429 23,336 20.1%
    Operating Profit Margin (%) 49.6% 41.6%   37.5% 40.7%  
    Interest - 3   84 62 -26.3%
    Depreciation 1,429 1,625 13.7% 7,093 7,184 1.3%
    Profit before Tax 5,990 4,458 -25.6% 13,999 18,574 32.7%
    Extraordinary items - (450)   (1,630) (1,589)  
    Tax (825) 405   1,491 450  
    Profit after Tax/(Loss) 6,815 3,603 -47.1% 10,878 16,535 52.0%
    Net profit margin (%) 45.5% 26.9%   21.0% 28.8%  
    No. of Shares (eoy) (m) 630.0 630.0   630.0 630.0  
    Diluted number of shares 630.0 630.0   630.0 630.0  
    Earnings per share (Rs)       17.3 26.2  

    The company's performance for the fourth quarter, however, is rather dissappointing. While income from services have dropped by 10%, the fall is operating margin is profound. The operating margins have fallen by 790 basis points to 42%. But interestingly, as per the company's press release, operating margins have gone up from 37.5% in FY00 to Rs 40.7% in FY01. Since the company had reported a drop in operating margins in the first three quarters as well as the fourth quarter, the sharp rise in margins seems a trifle confusing.

    Having said that, operating costs as a percentage of sales has come down from 62.5% in FY00 to 59.3% in FY01. Both the staff costs as well as the national network charges that accounted for more than 41% of the costs in FY00 have fallen in the current year.

    Declining costs…
    (% of sales) FY00 FY01
    Staff cost 21.0% 19.2%
    Admin/operative exp 14.9% 14.2%
    License fee 6.3% 6.3%
    National network charge 20.3% 19.6%
    Total costs 62.5% 59.3%

    The scrip is currently trading at Rs 150, at a P/E multilple of 5.7x the FY01 earnings. On the sales of Rs 57,320 m, market capitalisation to sales works out to 1.6 times (market capitalisation is Rs 94,500 m).



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