MTNL: Weak signals

The MTNL stock has been a big underperformer since March this year, having gained just under 50 per cent to the Sensex’s 83 per cent. Even that is something to be surprised about because the company’s performance in the June 2009 quarter was rather weak, posting as it did a second consecutive quarter of EBITDA (earnings before interest tax and depreciation) losses.

The problem essentially was weak wireless revenues and high wage costs, amounting to 57 per cent of sales, and the state-owned telco ended up with an EBITDA loss of Rs 21 crore and a net loss of close to Rs 47 crore. Revenues at Rs 955 crore, fell 12 per cent sequentially with wireless revenues dropping 30 per cent, partly due to the cut in termination rates, which make up a large share of revenues, and also due to a loss in market share. With the mobile telephony market becoming increasingly competitive, especially with new players rolling out in Delhi and Mumbai circles, the ARPU (average revenue per user) fell 4 per cent quarter-on-quarter but nearly 50 per cent year-on-year.

The silver lining was the broadband business, but analysts point out that MTNL has had limited success on its 3G platform so far and believe that the poor subscriber’s mix is not good enough to drive up ARPUs in the highly-penetrated metro markets. MTNL, therefore, is unlikely to be able to attract high-end subscribers from other networks and may not be able to add the targetted one million subscribers on its 3G network in a year’s time. Besides, they doubt that it would help even if a foreign operator runs its 3G operations. With merger with BSNL about a year away, the stock isn’t expected to do much.