MTNL: Woes continue - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

MTNL: Woes continue

May 2, 2003

Mahanagar Telephone Nigam Limited (MTNL), has posted a poor performance for the full year ended March 2003. While revenues from its core businesses i.e. basic and cellular services have declined, there has been a significant pressure on the operating margins as well. Net profit for FY03 is lower by 31%.

(Rs m)4QFY024QFY03ChangeFY02FY03change
Sales 13,805 13,565 -1.7% 61,437 57,837 -5.9%
Other Income 458 814 77.9% 2,483 2,380 -4.2%
Expenditure 6,374 9,816 54.0% 37,676 38,512 2.2%
Operating Profit (EBDIT) 7,432 3,749 -49.6% 23,761 19,325 -18.7%
Operating Profit Margin (%)53.8%27.6%38.7%33.4%
Interest 10 124 - 57 273 381.1%
Depreciation 2,002 2,463 23.1% 8,165 8,806 7.9%
Profit before Tax 5,877 1,976 -66.4% 18,023 12,626 -29.9%
Extraordinary items - - (79) -
Tax 1,716 140 -91.9% 4,938 3,651 -26.1%
Profit after Tax/(Loss) 4,162 1,836 -55.9% 13,007 8,975 -31.0%
Net profit margin (%)30.1%13.5%21.2%15.5%
No. of Shares (m) 630.0 630.0 630.0 630.0
Diluted earnings per share (Rs) 26.4 11.7 14.2
P/E (x) 6.5

The decline in revenues has not come as a surprise. To understand the reason for the same, let's take a brief look at the company's operations. MTNL is a basic and cellular service provider in Mumbai and Delhi (other services include internet and limited mobility). While basic services contribute to 90% of its topline, revenues from interconnection and cellular based services contributed to 7% and 1% respectively in FY02. Since MTNL operates in circles where basic penetration level are higher (14%), growth prospects are limited. Though it has made significant strides on the mobile telephony front, competition is stiff and contribution to total revenues is insignificant. Consequently it is not enough to arrest the decline in basic revenues.

Given this backdrop, combined with the significant fall in tariffs (be it, mobile, domestic or international long distance telephony), MTNL's performance in FY03 is hardly surprising. We expect the basic subscriber base to have grown marginally by 2% in FY03. On the cellular services front, MTNL subscriber base has touched 291,917 as of March 2003, a growth of 50%. However, the company has under-performed in both the Mumbai and Delhi circles during FY03 (as against the market growth of 71%, MTNL's growth of 50% is on the lower side). After tasting success in the initial phase of the launch on the back of a competitive tariff structure, the PSU major lost to private players. The entry of fourth operator in both the circles in the form of Idea Cellular in Delhi and Bharti in Mumbai and competition from Reliance on the limited front also added to the woes.

While subscriber growth has been on the lower side, MTNL is also facing pressure on the revenue sharing front. Given the steep fall in domestic and international long distance rates, MTNL's share of the same has also come down resulting in lower average revenue per user (ARPU). We expect ARPUs to be lower by 7% in FY03. The 6% fall in revenues has to be viewed in this context. Operating margins, due to a combination of all the aforesaid factors, have come under pressure. This is below our estimates. Though net profit is as per the results declared as lower by 31%, we expect further correction in the same, as MTNL has provided for revenue sharing on a pro-rata basis and is likely to restate its numbers.

The stock is currently trading at Rs 93 implying a P/E multiple of 6.5x FY03 earnings. As far as FY04 is concerned, the new tariff regime for basic operators i.e. halving of free calls from 60 to 30 in urban area, reduction in average local call duration and fall in subsidised calls will directly add to the profit of MTNL This has been one of the reasons why the stock has held up in the recent past despite weakening fundamentals. Beyond this, there is no respite in sight for MTNL in the near term.

Equitymaster requests your view! Post a comment on "MTNL: Woes continue". Click here!


More Views on News

Top Stocks Riding the 5G Wave in India (Views On News)

Dec 3, 2021

The 5G revolution is unfolding at a faster rate than you would expect. Here's how you can hop on to this ride.

1,300% in One Year - Are You Kidding Me? (Views On News)

Nov 29, 2021

An amount of Rs 1 lakh invested in the midcap stock a year ago would have turned into Rs 15 lakh today.

Bharti Airtel's Humongous Rights Issue to Open on 5 October. Key Points Investors Should Know (Views On News)

Sep 23, 2021

Shares of Bharti Airtel trade near record high ahead of rights issue.

This Company has Quietly Built an Enviable Startup Portfolio (Views On News)

Sep 22, 2021

The startups era has just begun, and it will provide massive opportunities to those who can spot the right trends at the right time.

More than 450% Gains for Tejas Networks in the Past Year. What Next? (Views On News)

Aug 18, 2021

Shares of Tejas Networks are up 173% since January 2021. Is the rally justified?

More Views on News

Most Popular

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

These 5 Penny Stocks are Held by Rakesh Jhunjhunwala. Worth a Look? (Views On News)

Jan 18, 2022

Rakesh Jhunjhunwala is holding these penny stocks in his portfolio for several years now.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

Time to Buy Energy Stocks (Fast Profits Daily)

Jan 14, 2022

Energy is a sector that looks set to take off. It's time to get in.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 24, 2022 (Close)