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Surging MTNL net pushes brokers into 'buy' mode

NetScribes/Rajiv Banerjee

Mahanagar Telephone Nigam Ltd (MTNL) has posted better than expected results for the quarter ended December 2000, prompting brokers to put a 'buy' on the scrip.

Despite a cut in the ISD and STD rates, MTNL earned higher revenues which pushed up its bottomline by 30 per cent over the year ago quarter.

The topline rose 20 per cent to Rs 14.69 billion, over the year ago figure of Rs 12.19 billion. Consequently, net profit too rose to Rs 4.76 billion, as compared to Rs 3.64 billion for the year ago quarter.

However, compared to the previous quarter, total income fell 3 per cent from Rs 15.21 billion, while net profits rose 6 per cent from Rs 4.47 billion.

"The results are better than expected; the bottomline was expected to grow only 20 per cent year-on-year," said Milind Muchhala, an analyst with Dalal & Broacha Stock Broking Pvt Ltd.

The rise in domestic telephony volumes despite a fall in tariff rates, and revenues from Internet-related services has helped MTNL post good results, he said.

While the operating margins - when measured year-on-year - remain constant at 47 per cent, they show an upside of 4 per cent to 47 per cent when compared to the previous quarter. Lower expenses quarter-on-quarter have enabled MTNL post a good margin, say analysts.

"Quarter-on-quarter sales show a decline because of the fall in STD and ISD rates. However, the positive is that margins improved due to the decline in total expenses by 9 per cent," said Mahesh Patil, analyst with broking firm Motilal Oswal.

Brokers are also bullish on the scrip. The reason their upbeat mood is that MNTL has made forays into cellular services, there is also talk of a listing on the New York Stock Exchange and divestment in the PSU.

On the Bombay Stock Exchange (BSE), the scrip closed at Rs 191.20 on Monday, down Rs 6.45 from its previous close of Rs 197.65 because of profit booking. A total of 3.3 million shares have been traded at the counter. On Tuesday, it closed at Rs 196.60 with a volume of 4.3 million shares.

At its current market price, the scrip is trading at a forward earnings multiple of 9 times its annualised EPS of Rs 22.16 for financial year 2000-2001.

In the run-up to the results - which were announced on January 25 - the scrip moved up 19 per cent, from Rs 166.30 on January 18 to Rs 197.65 on January 25.

Looking ahead, analysts say that the scrip movement will be dictated by how fast the divestment and the NYSE listing happen.

"We see upsides for the scrip in a one-year time-frame, but this would largely depend on developments which would be beneficial for the company," said Muchhala.

The divestment talks, the cellular services foray and the NYSE listing lend a fundamentally positive outlook for MTNL. "We recommend a buy," added Muchhala.

Motilal Oswal's Patil has put an 'add' on the scrip. He said the scrip was poised for further upsides of around 10-20 per cent in the near short term from the current levels.

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