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MTNL (MTNL)
Telecom
Operational strife likely to continue. MTNL reported another quarter of substantial
EBITDA losses, even as the same came down qoq to Rs3.3 bn from Rs4.9 bn in 4QFY12.
EBITDA performance continues to be a function of pension/retirement benefits accrual –
overall employee expenses remain a high 100%+ of revenues. Operationally, revenue
quality continues to deteriorate with a sustained fall in ARPU in all the businesses –
fixed-line, wireless, and BB. We retain our SELL rating with a TP of Rs35/share
1QFY12 – EBITDA loss declines qoq but still high
MTNL reported another quarter of high EBITDA loss – reported loss of Rs3.3 bn at the EBITDA level
was lower than 4QFY12’s Rs4.9 bn led by an absolute decline in employee and admin expenses.
Provision for retirals form a bulk of the company’s employee costs and this line item remains
volatile qoq. Nonetheless, employee expenses have remained higher than 100% of revenues for
the past three quarters and a reduction in the high employee base (43,000+ at end-March 2011,
2X+ of the much larger Bharti) is the only means to a return to profitability. MTNL’s employee base
has been coming down over the past several years, but it remains high and a sharp reduction
would encounter union challenges among others.
Revenues for the quarter came in at Rs8.43 bn, down 1.4% qoq, and 0.8% lower than our
estimate. A sharp increase in interest expenses also impacted net income – MTNL reported a net
loss of Rs8.5 bn for the quarter.
Earnings-based or DCF based valuation meaningless. Reiterate SELL
A massive 3G/BWA payout, non-increasing revenue base, a cost structure which is out of control,
weak competitive positioning, subscale operations (presence in only two circles), and sustained
tariff pressure continue to dent the earnings power of MTNL. A lack of earnings visibility, even in
the medium term, renders earnings or DCF-based valuation for MTNL meaningless, in our view.
In addition, potential spectrum-related payouts (one-time for excess and recurring on renewals)
will strain the balance sheet further.
The stock will likely continue to trade at asset-based valuation (real estate assets, 2G/3G/BWA
spectrum in Mumbai/Delhi, and other telecom infrastructure). Our earnings model is under review
– we shall revisit the same post the release of FY2011 annual report. We retain our SELL rating on
the company with a target price of Rs35/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MTNL (MTNL)
Telecom
Operational strife likely to continue. MTNL reported another quarter of substantial
EBITDA losses, even as the same came down qoq to Rs3.3 bn from Rs4.9 bn in 4QFY12.
EBITDA performance continues to be a function of pension/retirement benefits accrual –
overall employee expenses remain a high 100%+ of revenues. Operationally, revenue
quality continues to deteriorate with a sustained fall in ARPU in all the businesses –
fixed-line, wireless, and BB. We retain our SELL rating with a TP of Rs35/share
1QFY12 – EBITDA loss declines qoq but still high
MTNL reported another quarter of high EBITDA loss – reported loss of Rs3.3 bn at the EBITDA level
was lower than 4QFY12’s Rs4.9 bn led by an absolute decline in employee and admin expenses.
Provision for retirals form a bulk of the company’s employee costs and this line item remains
volatile qoq. Nonetheless, employee expenses have remained higher than 100% of revenues for
the past three quarters and a reduction in the high employee base (43,000+ at end-March 2011,
2X+ of the much larger Bharti) is the only means to a return to profitability. MTNL’s employee base
has been coming down over the past several years, but it remains high and a sharp reduction
would encounter union challenges among others.
Revenues for the quarter came in at Rs8.43 bn, down 1.4% qoq, and 0.8% lower than our
estimate. A sharp increase in interest expenses also impacted net income – MTNL reported a net
loss of Rs8.5 bn for the quarter.
Earnings-based or DCF based valuation meaningless. Reiterate SELL
A massive 3G/BWA payout, non-increasing revenue base, a cost structure which is out of control,
weak competitive positioning, subscale operations (presence in only two circles), and sustained
tariff pressure continue to dent the earnings power of MTNL. A lack of earnings visibility, even in
the medium term, renders earnings or DCF-based valuation for MTNL meaningless, in our view.
In addition, potential spectrum-related payouts (one-time for excess and recurring on renewals)
will strain the balance sheet further.
The stock will likely continue to trade at asset-based valuation (real estate assets, 2G/3G/BWA
spectrum in Mumbai/Delhi, and other telecom infrastructure). Our earnings model is under review
– we shall revisit the same post the release of FY2011 annual report. We retain our SELL rating on
the company with a target price of Rs35/share.
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