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MTNL undervalued, says Cazenove

Shares of Indian telecom firm Mahanagar Telephone Nigam Ltd are undervalued and are poised to rise with the launch of its cellular operations as well as its upcoming US listing, securities firm Cazenove & Co said.

"Based on our sum-of-the-parts valuation, the shares of MTNL are undervalued. Our one-year price target is Rs 280," the firm said in a research report dated January 12.

The securities firm said it expected MTNL's cellular foray and the US listing to trigger a re-rating of the stock.

MTNL shares ended Tuesday at Rs 174.20, down 1.25 per cent from its previous close. The stock is down over 50 per cent from a record closing high of Rs 350.55 hit on February 10 last year.

The research report said the capital costs of the state-owned fixed line telephony and Internet access provider's foray into cellular services would be lower than those of private operators.

"MTNL has bought much larger capacity switches from Lucent , unlike others who bought switches in incremental capacities," the report said.

"MTNL's incremental costs will also be lower, as it owns some of the cell sites and has mostly built its base transmission stations on rooftops of other government-owned buildings," it added.

Cazenove said the firm would also have to spend little on customer acquisition as it had a captive customer base in Bombay and New Delhi where it operates services.

MTNL earlier this month said it would launch its cellular service in New Delhi on January 31 and follow it up with a launch in Bombay on February 28.

The firm began registering customers for its cellular service in the Indian capital on Monday and is expected to start the same in Bombay on February 15.

Its entry into the cellular market, until now the preserve of private operators, is expected to slash charges and increase competition in the fledgling sector.

The firm is also likely to list its American depository receipts on the New York Stock Exchange by converting its existing global depository receipts later this month.

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