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MTNL: Margins under threat

Aug 1, 2001

Mahanagar Telephone Nigam Limited, the basic service provider in Mumbai and Delhi, has reported a stagnant growth in net profits for the first quarter ended 30th June 2001. Revenues from telecom services have gone up by 6.8% to Rs 14,593 m in the first quarter.

(Rs m) 1QFY01 1QFY02 Change
Sales 14,007 14,953 6.8%
Other Income 462 521 12.9%
Expenditure 8,320 9,201.4 10.6%
Operating Profit (EBDIT) 5,687 5,752 1.1%
Operating Profit Margin (%) 40.6% 38.5%  
Interest 24 18 -23.4%
Depreciation 1,952 1,861 -4.7%
Profit before Tax 4,172 4,393 5.3%
Tax 482 620 28.7%
Profit after Tax/(Loss) 3,691 3,773 2.2%
Net profit margin (%) 26.3% 25.2%  
Diluted number of shares 630.0 630.0  
Diluted Earnings per share* 23.4 24.0  
Market cap/Sales 1.3 1.3  
Market cap/subscriber 20,825 17,435  
Revenue/subscriber 3,891 3,477  
*(annualised)      

The reduction in long distance telephony tariffs effected by the Telecom Regulatory Authority of Indiam, twice last year, seems to have increased the paid-minutes and consequently revenues. However, average revenue per subscriber should have come down in the same quarter due to reduction in tariffs. The company's aggressiveness on the ISP as well as on the basic telephony services front also seems to have fueled the topline growth. MTNL had reduced the registration charges for basic services in 3QFY01 and has launched new schemes for its internet services (corporate as well as retail) in recent months.

Other income has gone up sharply by 12.9% to Rs 521 m in 1QFY02. The company has saved significantly with the introduction of a 12% revenue sharing regime (previously it was fixed license fees) and also via reduction in national network charges. But network charges have been provided on an adhoc basis since BSNL is yet to finalise the formulae for network charges. However, staff costs and administration expenses have gone up significantly in 1QFY02, which has resulted in a 210 basis points fall in operating margins to 38.5%.

Both the interest and depreciation charges have also fallen in 1QFY02 and thus have enabled MTNL to post a marginal 2.2% growth in net profit to Rs 3,773 for the first quarter of the current financial year. However, excluding the other income component, net profit in 1QFY02 has increased by just 0.7%.

At the current price of Rs 119 the scrip is trading at a P/E multiple of 4.9x the annualised 1QFY02 earnings.


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