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MTNL (MTNL)
Telecom
Net worth erosion continues. MTNL reported another quarter of substantial EBITDA
loss, its eight consecutive quarter in the red at the operational level. Revenue growth of
2.1% qoq was actually decent for a seasonally weak quarter. However, MTNL’s real
issue is not revenue traction but the mismatch between its revenue base and large and
largely fixed cost structure. Large net debt post 3G/BWA spectrum payouts and interest
payments have also started to hurt meaningfully. Reiterate SELL. Cut TP to Rs30/share.
2QFY12 – some improvement qoq but the operational strife continues
MTNL reported a decent quarter of revenue growth and decline in absolute EBITDA loss. Revenue
for the quarter at Rs8.6 bn was up 2.1% qoq, a robust showing in a seasonally weak quarter.
Decline in employee expenses at the absolute level continued (led by lower retiral provisions),
driving a reduction in EBITDA loss qoq to Rs3.2 bn from a loss of Rs3.3 bn in the previous quarter.
Nonetheless, EBITDA loss run-rate of over Rs3 bn a quarter and interest expenses running over Rs2
bn a quarter are leading to a fast-expanding net debt on the balance sheet and corresponding
erosion in net worth. Net worth has come down to Rs49 bn (Rs78/share) versus Rs82.3 bn
(Rs131/share) at end-Sep 2010.
Earnings-based or DCF-based valuation meaningless; reiterate SELL
A massive 3G/BWA payout, stagnant revenue base, a cost structure which is out of control, weak
competitive positioning, and subscale operations (presence in only two circles) continue to dent
the earnings power of MTNL. 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 retain our SELL rating on the company with a target price of Rs30/share (Rs35 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
MTNL (MTNL)
Telecom
Net worth erosion continues. MTNL reported another quarter of substantial EBITDA
loss, its eight consecutive quarter in the red at the operational level. Revenue growth of
2.1% qoq was actually decent for a seasonally weak quarter. However, MTNL’s real
issue is not revenue traction but the mismatch between its revenue base and large and
largely fixed cost structure. Large net debt post 3G/BWA spectrum payouts and interest
payments have also started to hurt meaningfully. Reiterate SELL. Cut TP to Rs30/share.
2QFY12 – some improvement qoq but the operational strife continues
MTNL reported a decent quarter of revenue growth and decline in absolute EBITDA loss. Revenue
for the quarter at Rs8.6 bn was up 2.1% qoq, a robust showing in a seasonally weak quarter.
Decline in employee expenses at the absolute level continued (led by lower retiral provisions),
driving a reduction in EBITDA loss qoq to Rs3.2 bn from a loss of Rs3.3 bn in the previous quarter.
Nonetheless, EBITDA loss run-rate of over Rs3 bn a quarter and interest expenses running over Rs2
bn a quarter are leading to a fast-expanding net debt on the balance sheet and corresponding
erosion in net worth. Net worth has come down to Rs49 bn (Rs78/share) versus Rs82.3 bn
(Rs131/share) at end-Sep 2010.
Earnings-based or DCF-based valuation meaningless; reiterate SELL
A massive 3G/BWA payout, stagnant revenue base, a cost structure which is out of control, weak
competitive positioning, and subscale operations (presence in only two circles) continue to dent
the earnings power of MTNL. 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 retain our SELL rating on the company with a target price of Rs30/share (Rs35 earlier).
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