MTNL rings in gains

MTNL was the subject of buying support from foreign institutional investors on Tuesday as it rose 2.74% to Rs 97.60.

Volumes of over 300,000 MTNL shares were recorded on BSE by 12:40 IST. Over the last two sessions, the stock has risen 15% from Rs 85 on 2 May 2003.

As per market buzz, Capital International has been active on the Mahanagar Telephone Nigam counter on Tuesday, with a long-term view (over 1 or 2 years).

Dealers say the rise on the counter also manifests from expectations that the company, which is cash-rich, may come out with a huge dividend.

Funds are accumulating the stock at the moment because the negativity as a result of growing competition has been accounted for in the current price. The revised tariff charges, in addition, are expected to bring in gains in future. With the implementation of inter-connect charges from 1 May 2003, the whole telecommunications scenario in India has changed.

MTNL has also reset tariffs with effect from 1 May 2003 slashing the number of free calls, retaining the three-minute pulse for local calls and keeping unchanged overall monthly rentals. MTNL has decided to offer three alternative packages.

MTNL's mainstay is basic services in the two metros of Mumbai and Delhi, where the company is witnessing stiff competition from private operators. Also, it has entered a new services line - cellular services - where there is already stiff competition. Overall, the stiff competition and changing scenario in the telecom sector is taking its toll on the company. Added to the operational problems, the company has been involved in controversies over issues like disinvestment and merger with BSNL with no clear roadmap ready for either. With rising competition and MTNL's inability to compete in the changing telecom scenario, divestment is considered to be the only way out for the company.

Earlier, there were reports that MTNL's privatisation may take place sooner than expected, but nothing has materialised so far. The Government of India holds 56.25% of the total equity capital of Rs 630 crore of MTNL, while institutions and the public hold 40% and 2% respectively.

Recently, the Group of Ministers cleared the proposal to raise foreign equity ceiling for basic telecom and mobile services to 74% from the current 49%.

Recently, MTNL declared its fourth quarter as well as full year results for the period ended 31 March 2003. For Q4, the company recorded a huge 56% fall in net profit to Rs 183.62 crore (Rs 1.83 billion) on a 2% drop in sales to Rs 1,356.49 crore (Rs 13.56 billion).

While for FY 2002-03, the company posted a 31% fall in net profit to Rs 897.50 crore (Rs 8.97 billion) on a 6% drop in sales to Rs 5,783.73 crore (Rs 57.83 billion).

BSE code: 500108