MTNL: No respite in sight - 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: No respite in sight

Jul 31, 2002

Mahanagar Telephone Nigam Limited (MTNL), the public sector basic and cellular service provider, has posted a lacklustre performance for the first quarter ended June 2002. While revenues have slipped marginally, operating margins have declined sharply on account of its venture into the cellular segment. But the company is yet to adjust for new revenue share regulation, pending agreement with Bharat Sanchar Nigam Limited (BSNL). This has not been accounted for in 1QFY03 performance.

(Rs m) 1QFY02 1QFY03 Change
Net sales 14,953 14,937 -0.1%
Other Income 521 416 -20.2%
Expenditure 9,201 9,561 3.9%
Operating Profit (EBDIT) 5,752 5,375 -6.5%
Operating Profit Margin (%) 38.5% 36.0%  
Interest 18 9 -53.5%
Depreciation 1,861 2,179 17.0%
Profit before Tax 4,393 3,604 -18.0%
Extraordinary items - (1)  
Tax 620 1,105 78.1%
Profit after Tax/(Loss) 3,773 2,499 -33.8%
Net profit margin (%) 25.2% 16.7%  
No. of Shares (m) 630.0 630.0  
Diluted Earnings per share* 24.0 15.9  
P/E Ratio (x)   8.1  
(* annualised)      

One of the key reasons for this lacklustre performance is the drastic fall witnessed in domestic and international long distance telephony tariffs over the last two years, post telecom liberalisation. Lower tariffs means lower revenues for every call made and lower revenue share from other operators. This combined with slower basic subscriber growth in Mumbai and Delhi, which has high penetration levels, has affected growth prospects of the company. But it has to mentioned that the fall in revenues in 1QFY03 is below expectations considering the level of tariff reduction.

Moving away from basic, the company has made marked progress on the cellular and Wireless in Local Loop (WiLL) front. The estimated cellular subscriber base of MTNL as of March 2002 was 195,000, signifying an all India market share of 3%. MTNL has a 10% market share in the Delhi cellular area followed by a 9% share in Mumbai circle. It aggressive foray into WiLL also seems to have yielded positive results. Reportedly, its subscriber base is closer to 27,000 and growing at a faster clip. The reduction in monthly charges and a competitive airtime rates are a big positive for WiLL. Another notable initiative undertaken by MTNL is free internet usage for its basic subscribers in 1QFY03. While internet usage is free, the users are charged for the telephone paid-minute calls. This is a innovative strategy and could have aided in increasing overall calls for the company.

Both the fall in revenues and operating margins are below expectations. With the transition from fixed license fee to a revenue share based regime, the company is liable to pay 15% of gross telephone revenues as license fee to the regulator. However, the company is yet to conclude its negotiation with BSNL for the same period. Just to put things in perspective, license fee as a percentage of revenue stood at 11% in 1QFY03. Assuming 15% of telecom revenues in 1QFY03 (as a indicative measure), license fee increases by 41% to Rs 2,240 m as against the actual figure of Rs 1,588 m in the same period. Consequently, operating margins stands reduced to 32% as against 36% reported in 1QFY03. This translate into a 51% fall in net profits. The company, in its press release, has said that revenue share has been calculated on a provisional basis and are therefore subject to change in the coming quarters.

Net profits are lower by 34% in 1QFY03 also due to a sharp spurt in tax provisions. Overall, it has been a lacklustre performance by the company and one can expect similar results in the coming quarters as well. The core business faces pressure from further fall in ILD/DLD tariffs in the future and growth is also limited in the domestic market due to its PSU status. New ventures like cellular and WiLL still contribute to a smaller portion of total revenues (cellular contributed to 2% of revenues in 1QFY03). Besides, once the company adjusts for new revenue share, profitability would go for a toss.

The stock currently trades Rs 128 implying a P/E multiple of 8.1x 1QFY03 annualised earnings. The only factor that has aided the stock price recently is divestment. Even disinvestment has gone into some rough weather off late, with the government yet to declare a timetable for divesting its stake in companies like MTNL.


Equitymaster requests your view! Post a comment on "MTNL: No respite in sight". Click here!

  

More Views on News

MTNL Announces Quarterly Results (1QFY20); Net Profit Down 11.6% (Quarterly Result Update)

Aug 20, 2019 | Updated on Aug 20, 2019

For the quarter ended June 2019, MTNL has posted a net profit of Rs 11 bn (down 11.6% YoY). Sales on the other hand came in at Rs 4 bn (down 16.2% YoY). Read on for a complete analysis of MTNL's quarterly results.

MTNL Announces Quarterly Results (4QFY19); Net Profit Up 16.1% (Quarterly Result Update)

Jun 5, 2019 | Updated on Jun 5, 2019

For the quarter ended March 2019, MTNL has posted a net profit of Rs 8 bn (up 16.1% YoY). Sales on the other hand came in at Rs 5 bn (up 9.0% YoY). Read on for a complete analysis of MTNL's quarterly results.

MTNL 2017-18 Annual Report Analysis (Annual Result Update)

Dec 19, 2018 | Updated on Dec 19, 2018

Here's an analysis of the annual report of MTNL for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of MTNL. Also includes updates on the valuation of MTNL.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

MTNL SHARE PRICE


Sep 24, 2020 11:17 AM

TRACK MTNL

COMPARE MTNL WITH

MARKET STATS