MTNL shares rise 29% in four sessions; what’s fuelling the telecom stock rally?

Shares of Mahanagar Telephone Nigam Limited (MTNL) have risen nearly 29% in four sessions, propelling the state-owned telecom stock to touch its 13-year high of ₹55.67 in intraday trade on June 16. The PSU stock has witnessed strong buying in the recent past amid a report that the government was considering the option of handing over operations of the telecom company to Bharat Sanchar Nigam Limited (BSNL). A final call on this is likely to be taken in a month’s time, as per media report.

However, MTNL in a clarification to exchanges said that there was “no such specific decision or information is available at this point of time”.

“MTNL has not disseminated any such information as published in newspaper nor in a position to confirm or deny as no such concrete information/decision is there with MTNL. As such no comment on material impact of this article can be given,” the telco says in a reply to exchanges on July 16.

The Delhi-headquartered MTNL, which provides services in the metro cities of Mumbai and New Delhi, is a wholly owned subsidiary of BSNL, which has pan India presence.

On Tuesday, MTNL shares ended 8.9% higher at ₹53.35 on the BSE, with a market capitalisation of ₹3,361 crore. During the session, the telecom stock gained as much as 13.6% to hit a record high of ₹55.67, driven by strong volume.

At the current level, MTNL shares have zoomed nearly 3-fold from its 52-week low of ₹19.27 touched on July 18, 2023. The counter has delivered 178% returns in the last one year; 55% in six months; and 62.5% in the calendar year 2024.

It is notable that MTNL shares have witnessed a strong rally despite ballooning losses and higher debts. On July 11, MTNL informed exchanges that it could not fund the escrow account for the payment of semi-annual interest on the series VIII-A bonds, which is due on July 20, 2024, due to insufficient funds. 

Following this news, India Ratings (Ind-Ra) said that it would monitor the developments and take the appropriate rating actions accordingly. 

Ind-Ra in a statement said that it also received an intimation from the trustee on July 11, 2024, confirming that the escrow account is not funded by T-10 days from the due date of payment of the interest which is due on July 20, 2024. This breach of condition of the debenture trustee deed is considered as event of default, as per the intimation received by the agency. 

Ind-Ra has an outstanding rating of ‘AAA(CE)’ with ‘Stable’ outlook on these bonds, based on the presence of a pre-default guarantee from the parent, Government of India, along with a structured payment mechanism monitored by a third-party trustee. As per the payment structure mechanism, the government shall deposit requisite funds in the designated trust and retention account as per the notice of invocation served by the trustees latest by T-3rd day. 

In FY24, MTNL losses widened to ₹3,303 crore as compared to ₹2,911 crore a year ago. The revenue from operations declined by 15% to ₹728 crore from ₹862 crore in the previous fiscal. MTNL's outstanding debt rose to ₹25,795 crore in FY24 from ₹23,500 crore in FY23.

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