MTNL: Problems a plenty - 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: Problems a plenty

Dec 4, 2001

Mahanagar Telephone Nigam Limited (MTNL) made a 'soft debut' in the US markets last month. But it has failed to attract much interest amongst investors. The reasons for this are multi-fold. Lets consider its cellular foray. The company has managed to increase its all India market share in the cellular segment from 0.7% in August 2001 to 1.2% in October 2001 (0.5% in March 2001). MTNL has added more subscribers in Mumbai compared to its formidable competitors like Hutchison and BPL Mobile. As a result, its market share in the Mumbai circle has gone up to 4.9% in October 2001. The waiver of activation charges during the festive season seems to have resulted in a sharp rise in subscriber base in October 2001. Presently, the direct cost of adding a new subscriber (which primarily consists of commission expense) is substantially offset by the initial activation charges recovered from the customers. This also forms a substantial part of expenses from a subscriber's point of view. Though subscriber base has increased significantly, average revenue per subscriber (ARPU) is expected to fall in the current year. Churn rate, which denotes the ratio of additions and deletions in subscriber base, might also increase if the company fails to service the new customers.

MTNL's cellular performance…
(Nos) Aug-01 Sep-01 Oct-01
Delhi 11,637 22,692 23,353
% market share 1.7% 3.0% 3.0%
Additions 996 11,055 661
Mumbai 17,836 20,071 36,382
% market share 2.6% 2.8% 4.9%
Additions 4,342 2,235 16,311
Total 29,473 42,763 59,735
% market share 0.7% 0.9% 1.2%
Source: COAI

But the core business of the company i.e. basic telephony, is expected to suffer due to a variety of reasons. For one, the tariff rationalisation effected by the Telecom Regulatory Authority of India (TRAI) last year, both on the domestic as well as on the international long distance telephony front, is expected to result in a 1%-1.5% fall in ARPUs in the current financial year. Though paid-minute calls have increased after the tariff rationalisation, basic telephony revenues that contributed to 93% of MTNL's FY01 revenues would continue to be under pressure. Going forward, tariffs are only going to fall as telecom liberalisation gains pace and competitors expand services (India's DLD and ILD rates, by far, are amongst the highest). Though MTNL has taken aggressive stance on the ISP front, value-add services contribute to just 0.7% of revenues. Even if one were to assume a 100% growth in income from value-add services in the coming years, contribution to topline and profits is expected to be marginal.

The transition into a revenue sharing regime will further lower profit growth for the company. License fees, which stood at 6.2% of revenues in FY01 is expected to shoot up sharply in the current year. Since MTNL operates in Category 'A' circles, a 12% revenue share is applicable. Against the current license fee of Rs 900 per active subscriber, which MTNL pays to DoT, MTNL has to shell out 12% of gross telecom revenues from now. Assuming a 12% revenue share, license fee payable would increase by close to 87% in the current financial year.

The first half performance of the company vindicates our estimates. While revenues increased by 6.7% to Rs 31,164 m, margins fell by 100 basis points to 38.5% in 1HFY02. Higher depreciation and tax outflow resulted in a 12.5% fall in net profits to Rs 7,147 m in 1HFY02. While MTNL is expected to save costs on the employee front, higher advertisement and promotional expenses towards expanding its cellular subscriber base, to a certain extent, would offset this benefit.

We expect MTNL to report around 6% growth in telecom revenues and a 18%-20% fall in net profits for FY02. Operating margins are expected to fall from 37.7% in FY01 to 33.1% in FY02. MTNL is expected to spend Rs 8,000 m as capital expenditure towards upgrading its existing infrastructure and installing new cellular sites. Though MTNL has expressed its intent to enter the DLD segment, it is yet to announce any concrete plans on this front.

MTNL currently trades at Rs 143 on a P/E multiple of 7.1x expected FY02 earnings.

Equitymaster requests your view! Post a comment on "MTNL: Problems a plenty ". 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

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'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.

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 6, 2021 03:36 PM

TRACK MTNL

COMPARE MTNL WITH

MARKET STATS