MTNL: Gathering moss - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

MTNL: Gathering moss

Jul 22, 2003

MTNL has not yet declared its 1QFY04 results. In the meanwhile let’s have a look at the trend of its 1st quarter results of the last 4 years. As seen in the table below, the sales (read revenues) in the last few years have been sluggish. This can be attributed to a variety of factors predominantly, its operating inefficiencies and strong competition from private operators both basic and cellular. Its operational inefficiencies can be measured with reference to its employees per line. It had employed 59 employees per line in FY99, which has increased to 78 employees per line in FY02, this despite the reduction in its employees in the said period. Also, there has been tremendous pressure on the bottomline due to reducing revenues. Expenditure is also on a rise (though slowly), putting further pressure on margins. Depreciation cost is high mainly due to capacity expansion for cellular and WLL connections. There has been a negative growth of 8% (CAGR) in the margins in the previous four quarters. For the current quarter (1QFY04), we do not foresee a very different picture from what is seen below.

(Rs m) 1QFY00 1QFY01 1QFY02 1QFY03
Sales 12,637 14,007 14,953 14,937
% Growth - 10.8% 6.8% -0.1%
Other Income 674 462 521 416
% Growth - -31.5% 12.9% -20.2%
Expenditure 6,704 8,320 9,201.4 9,561
% Increase / Decrease - 24.1% 10.6% 3.9%
Operating Profit (EBDIT) 5,933 5,687 5,752 5,375
% Growth - -4.1% 1.1% -6.5%
Operating Profit Margin (%) 46.9% 40.6% 38.5% 36.0%
Interest 11 24 18 9
Depreciation 1,646 1,952 1,861 2,179
Profit before Tax 4,950 4,172 4,393 3,604
% Growth - -15.7% 5.3% -18.0%
Extraordinary items - - - (1)
Tax 1,699 482 620 1,105
Profit after Tax/(Loss) 3,251 3,691 3,773 2,499
% Growth - 13.5% 2.2% -33.8%
Net profit margin (%) 25.7% 26.3% 25.2% 16.7%

MTNL has a few positives going for it. The company has seen its number of subscribers go up from 4.5 m in FY02 to 4.74 m in FY03 (source: MTNL website). Also, owing to the hike in tariffs, MTNL is set to realise more revenues per paid minute call from landline to cellular or WLL. Free calls have been halved and this too is likely to reflect positively on its performance.

Despite this, we anticipate that MTNL will see only a marginal rise in topline during the quarter. This is because MTNL is facing immense competition from the private players not only on the basic telephony front but also on the cellular and WLL segment. The basic private operators are eating into its share of not only corporate customers but also retail subscribers, slowly but steadily. Due to this, there has been a reduction in volumes leading to a decline in ARPUs. The decline in ARPUs is on an average 2.4% in the last seven years.

Besides, on the cellular front, though there has been an increase in its subscriber base (205,377 in 1QFY03 to 290,841 in 1QFY04), its market share in Delhi has reduced from 7.3% in the 1QFY03 to 5.3% in the 1QFY04 and its market share in Mumbai has reduced from 9.8% to 8.8% during the same period. This decline in market share can be attributed to its inability to increase capacity despite demand, a sign of incompetence. Despite the rise in cellular subscribers there has been a constant decline in its market share.

The cellular segment contributed to 2% of its revenues in 1QFY03 when the tariffs were higher. Even an increase in cellular subscribers may be unable to add to its revenues due to reduction in tariffs and free incoming calls. On the contrary, we foresee a reduction in cellular subscribers due to better services offered by other players.

On the WLL front, its brand ‘Garuda’ is unable to move neck to neck with the likes of Reliance and Tata and garner substantial market share. This further adds to its worries as these companies are giving it stiff competition. In addition, the reduction in ILD/NLD rates by the cellular operators will also affect its margins. There has been an average decline of 0.64% in profits over the last seven years. Moreover, with the introduction of interconnect user charge, the margins are going to suffer further as it will have to divert a certain part of its income to the carrier and terminator which was not the case earlier.

The company is currently trading at a price of Rs. 100 implying a P/E multiple of 7x FY03 earnings. As far as FY04 is concerned the revenues may show a marginal rise despite weakening fundamentals due to the reasons stated above. Apart from that there is not much in store for the investor in the near future!

Equitymaster requests your view! Post a comment on "MTNL: Gathering moss". Click here!

  

More Views on News

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?

Can Vodafone Idea Survive if Government Provides Support? (Views On News)

Aug 3, 2021

Despite the company making several efforts to improve its operational efficiency, its financial position has sharply deteriorated.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.

More

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

MTNL SHARE PRICE


Dec 1, 2021 (Close)

TRACK MTNL

COMPARE MTNL WITH

MARKET STATS