Mahanagar Telephone Nigam Limited (MTNL), the state owned basic service provider in Mumbai and Delhi is one of the top losers on the bourses over the last one year. The scrip has fallen from Rs 250 in June 2000 to Rs 130 in June 2001, a fall of 48% or a loss of Rs 75 bn in market capitalisation.
The underlying reason behind this sharp fall on the bourses is the concerns regarding the growth prospects of the company. As MTNL operates in two of the highest tele-density circles in India (approximately 12% as against the national average of 2.7%), subscriber base is not expected to report any sharp upward trend, keeping in mind the competition factor. But against expectations, MTNL reported a sharp 10% growth in revenues to Rs 57,320 m in FY01. The reductions in long distance telephony tariffs and fall in registration costs augured well for the company.
To boost topline, the company ventured into cellular telephony in 4QFY01. Though the initial response to its service was encouraging, as expected, MTNL has failed to deliver on the services front. The company also lost its competitive advantage in terms of lower airtime charges. The private operators lowered airtime rates as soon as MTNL fixed its tariff structure.
But since MTNL provides basic service in Mumbai and Delhi circles that accounts for a significant portion of the NLD traffic, the company benefits from lower revenue share. Also, MTNL has a clear advantage in terms of last mile connectivity in two of the most lucrative circles in India. With basic subscriber base of more than 4 m, MTNL can always leverage this to provide other value-add services. But the company’s aggressiveness on the ISP front is far from encouraging.
Value-added services constitute just 0.5% of turnover (even after including other services like telex and circuits, it is just 5% of turnover). Even if one were to assume a 100% growth in these services, they are not expected to boost sales of the company significantly in the coming years.
It is a well-known fact that basic telephony alone cannot be a growth driver for telecom companies in the long run. Though MTNL seems to have realized this, there exists a big gap between planning and execution. This is where private operators stand out and giants like MTNL, which suffer from lower productivity and government control, lose out despite a strong infrastructure. This is reflected in the valuations of the company.
The scrip is currently trading at Rs 130, at a P/E multiple of 5.1x the FY01 earnings. With disinvestments almost at halt, the better days for MTNL seem like a long wait.