Talks about merger with BSNL prop up MTNL stock
25 June 2004
Mumbai: Even as the share market remain subdued, stock of PSU telecom major Mahanagar Telephone Nigam Ltd (MTNL) has been in the limelight in the last couple of weeks The MTNL stock has been gathering steam over talks that a possible merger between the company and Bharat Sanchar Nigam Ltd (BSNL).
There have been strong rumours in the market about a possible merger between the two state-owned telecom companies. The MTNL stock had bounced back from its recent low of Rs 95 and is now ruling over Rs 130 levels and many broking houses are now setting a target of Rs 180 price for the stock.
The proposal of merger of MTNL-BSNL is not new. It was first mooted about two years ago. However, the circumstances are quite different now. Unlike the previous attempt, which seemed to block privatisation moves, this one seems to be backed by more genuine intentions, according to analysts with SSKI, a leading Mumbai-based broking house.
Revenues from the core fixed-line business of MTNL and BSNL have seen a marked revival since then, and the upside potential in wireless is only partly tapped. A merger will provide MTNL with the cushion of vertical integration even as BSNL gets a chance to extend its success in wireless to Mumbai and Delhi.
Also the government is unlikely to short change minority shareholders in case of an eventual merger. MTNL and BSNL were much more vulnerable then than now. Long-distance rates were still falling, competition was just beginning, and growth prospects of the wireless industry were still somewhat unclear.
All of that has changed now. Long-distance rates have now stabilised, and any further cuts are likely to be of manageable proportions. Wireless subscriber base has boomed over the past two years, from 6.4 million subscribers in March 2002 to over 35 million now.