JP Morgan maintains 'Neutral' rating on MTNL

MTNL
RESEARCH: JP MORGAN
RATING: NEUTRAL
CMP: Rs 94

JP Morgan maintains `Neutral��� rating on MTNL and cuts the estimates significantly to reflect weak financial performance over the past two quarters as MTNL continues to lose out to more efficient private operators and higher wages impact margins.

While fundamental reasons for owning MTNL are few, cash per share of Rs 53, continued positive free cash flow, and a stable dividend yield of 4% provide some downside support for the stock. MTNL continues to lose market share to the more efficiently run and more customer-centric private operators in both the wireline and wireless segments.

Moreover, the core wireline business is still under pressure as wireless tariffs are falling consistently. MTNL���s wireline and wireless revenues are to keep falling. Broadband remains the only growth driver, but its small base provides limited upside to revenues. JP Morgan cuts FY10E/FY11E revenue by 15%/13% and FY10E/FY11E EBITDA by 60%/37%.

EBITDA margins are also affected by higher employee costs following the pay commission increase. The EPS estimates are cut by 72%/25%. JP Morgan expects a revenue decline of 5% and a 4% EPS CAGR over FY09-11.