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Tariff cuts seen denting MTNL's Q3 net

Telecom firm Mahanagar Telephone Nigam Ltd is likely to report only modest growth in third-quarter net profit because of a steep cut in call tariffs and higher wage costs, analysts said on Wednesday.

The state-owned firm, which provides fixed line and Internet access services in Bombay and New Delhi, announces on Thursday results for the third quarter ended December 31.

Analysts said MNTL was likely to feel the pinch from a steep cut in international and national long-distance call tariffs, which came into effect on October 1, just as the quarter began.

"This is going to slow down revenue growth, which was over 24 per cent in the second quarter," said Mahesh Patil, telecom analyst at Inquire Equity Research.

Patil said he expected MTNL's bottomline to rise only 3.57 per cent from a year earlier to Rs 3.77 billion, and its topline by 20 per cent to Rs 14.70 billion.

A Reuters poll of brokerages forecast an average 6.27 per cent growth in profit to Rs 3.87 billion, on sales of Rs 14.59 billion, up 19.68 per cent.

Net profit in the second quarter expanded 38.5 per cent to Rs 4.47 billion.

Tariff cut to hurt

The government last year slashed long-distance telephone charges by as much as 33 per cent with effect from October 1. The tariff cuts averaged 18 per cent.

Revenues from international and domestic long-distance calls make up 50 per cent of MTNL's call revenue, which in turn accounts for nearly 65 per cent of total revenue.

Benefits of higher call traffic prompted by the lower charges will accrue to the firm only six months later, Patil said.

Higher wage costs have also narrowed profit margins.

"Margins will come down primarily on account of higher wage costs. We are expecting 500 basis points reduction in operating profit margins," Patil said. Five hundred basis points is the same as five percentage points.

Analysts said the hit on revenues was likely to be partly mitigated by an increase in fixed-line subscribers and in cellular call connection fees.

"The firm should get good money from cellular interconnect charges given the jump in cellular subscribers -- money against which there is practically no expenditure for MTNL," an analyst with a foreign brokerage said.

Cellular firms are required to pay MTNL for routing calls through its network.

New foray

MTNL, which is expected to list on the New York Stock Exchange sometime this month, is due to launch its own cellular phone service in New Delhi at the end of the month and in Bombay by end-February.

The firm also has plans to step up its fledgling Internet access business which had about 26,000 subscribers in Bombay and 19,000 in New Delhi at the end of calendar 2000.

MTNL's shares were up 3.91 per cent at Rs 187.85 in late-morning trading Wednesday on the Sensex.

At Rs 187.85, the stock has rallied over 33 per cent since October 31 when it announced second-quarter results, but down over 51 per cent from a year-high of Rs 390 hit on February 14 last year.

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