Debt-free Company - Mahanagar Telephone Nigam

The financial world is a mess, both in India and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. During such unsteady markets, where investors are looking for a safe bet, here is company which is and has been a debt-free company for the last five years, a cash rich company (Rs 3369 crore) and to top it all the scrip is available (Rs 68.25) at a discount  to its book value of Rs 189. Additionally, it is a PSU with the GoI holding a major stake in the company. MTNL is one such company and hence it is a safe heaven for investors at this point in time.

MTNL a government owned (56.25 per cent stake) basic telecom service provider in Mumbai and Delhi has a fixed line subscriber base of 3.96 m. During the Q2FY09, 240,066 Mobile Phone customers and 19,631 Broadband Customers were added. In the period of October '07 to September '08, MTNL's GSM cellular service customer base grew by 32 per cent, and broadband service customer base grew by 25 per cent. The company has a license to offer basic telephony services in both these metros upto the year 2013. MTNL accounts for around 9 percent of all India fixed line subscriber base. The subsidiaries of MTNL are Millennium Telecom at Mumbai and Mahanagar Telephone Mauritius at Mauritius.

Just to put things in perspective, MTNL is the second largest player in the basic telephony segment after BSNL, and has been investing continuously to upgrade as well as expand its existing telecom infrastructure and this we believe is a strong entry barrier for new companies in the said regions. Further, in an effort to diversify its revenue stream from the ailing basic services, MTNL has initiated various other value added services like GSM, broadband, IPTV, voice mail, video conferencing and electronic mail and cellular telephony services. It has also joined hands with VSNL, TCIL to form a joint venture for providing basic services based on limited mobility in Nepal. These initiatives are expected to lower the pressure on revenues on account of reducing subscriber base in the fixed line business. Off late the company has received an International Long Distance (ILD) Licence from the Dept. of Telecom. (DOT) for providing International Long Distance Services. This will help the company in increasing its product portfolio as against its peers. In terms of capex. the company is expected to spend Rs 300-500 crore in the next three years, especially towards expanding its network in the cellular and broadband space.

During the last quarter the company reported a net sales of Rs 1236 crore as against Rs 1198 crore in the corresponding quarter last year. During the same period, the OPM increased by just 35 bps to Rs 187 crore. On the CMP of Rs 68.25 the scrip is available at a PE of 8.19x its trailing four quarters earnings. Having a market cap-to-sales (trailing) of 0.91x the scrip is a steal at the current valuations. We had recommended this scrip early this year, nevertheless looking at the current valuations; we yet again strongly suggest a buy on this counter with an upside appreciation of 20 per cent within a year.