MTNL: Clearing line congestion

The company’s aggressive stance in the wireless business will not make an immediate impact.

It’s action stations at state-owned Mahanagar Telephone Nigam (MTNL). The scrip has risen 20 per cent in the last one month. The company slashed international subscriber dialling (ISD) tariffs by a margin that many private players may find difficult to match. But, the moot question is, whether this will make a dent.

Analysts reckon that MTNL is a price taker and not a maker and trends change only when leaders like Vodafone, Bharti and Reliance Communications act.

The management suggests it will be able to add 100,000-200,000 customers with its latest move. It may be noted that despite its early entry into 3G services, MTNL managed to add just 40,000 subscribers in June, whereas the industry adds around 14 million a month on an average, with leaders adding around two million a month. It was in March, the best in the past seven months, that MTNL added 100,000 wireless subscribers.

The company’s balance sheet will also be under strain now. Its zero-debt position will change, as it will have to take debt to pay Rs 11,000 crore for 3G and broadband wireless access licences. It is estimated that the company’s cash of around Rs 6,800 crore will be wiped off. For FY10, the company incurred a net loss of Rs 2,500 crore and suffered a loss at the operational level. The cut in ISD rates is not expected to substantially dent profitability, as MTNL has access to low-cost carriers. However, the ability to service the increase in interest costs will be a concern.

On the optimistic side, analysts said losses in FY10 were due to the outgo (Rs 5,000 crore) on account of pay commission recommendations. That was a one-off cost and will not be as high again. The triggers will be the company’s tie-ups with players such as Reliance Industries. Also, it sits on valuable real estate, which, when sold, could more than take care of its debt. Till then, there’s enough static on the line.