Why MTNL Share Price is Falling

Investing in public sector units (PSUs) or government companies often comes with a major concern - heavy debt. Many PSUs struggle with high debt burdens, which affects their growth and profitability.

That is why, investors usually tend to shy away from high debt companies due to uncertainties around their ability to manage these borrowings.

Currently, Mahanagar Telecom Nigam (MTNL) is facing a similar situation.

MTNL, or Mahanagar Telephone Nigam, provides telecom services in India. The company has been in operation for decades, offering fixed-line and mobile communication services, but it has struggled with financial issues, particularly its debt.

Despite all these struggles, MTNL's share price saw an upward trend over the past six months, with a notable 28.4% rise. In one of our articles titled Why MTNL Share Price is Rising, we even discussed about the possibility of government intervention and a likely handover of operations to BSNL.

However, new debt concerns have emerged, putting pressure on the stock. In the past five days, MTNL's share price has fallen by 3.5%. Let's explore what these fresh debt struggles are.

Banks Classify MTNL's Loan Accounts as NPA

Last week, State Bank of India (SBI) classified MTNL's loan accounts as sub-standard non-performing assets (NPAs) after the telecom firm failed to pay installments and interest since 30 June 2024.

As of 30 September 2024, MTNL owed Rs 325.5 million (m) to SBI, with Rs 281.6 m overdue that needs immediate attention for account regularisation. SBI has warned of potential legal action against MTNL if payments are not made.

The ongoing financial distress extends beyond SBI. Other banks, such as Punjab National Bank and Union Bank of India, have also taken actions against MTNL due to similar payment issues. Union Bank has even frozen all of MTNL's accounts, further hampering the company's financial operations.

MTNL's total borrowings stand at Rs 7,873.5 m, with an alarming total debt of Rs 31,944.5 m. The firm has also requested Rs 1,151.7 m from the government for interest payments on sovereign guarantee bonds.

Despite seeking government support, the allocation in the budget for MTNL bond principal payments is not enough to alleviate immediate financial pressures.

The situation raises significant concerns among investors, as the inability to meet financial obligations can lead to severe repercussions for MTNL's stability.

The threat of legal action from SBI and other banks adds to the negative sentiment surrounding MTNL, resulting in a decline in its share price. Investors may react unfavorably to these developments, fearing for the company's long-term viability.

Thus, the combination of heavy debt, legal threats, and operational freezes contributes to the downward pressure on MTNL share price.

What Next?

MTNL is at a critical juncture, and its future strategies will play a significant role in determining its trajectory. The recent agreement with BSNL allows MTNL to tap into a broader network while continuing to focus on its core markets in Delhi and Mumbai. This collaboration can enhance service delivery and operational efficiency.

The company is also closing Millennium Telecom, which will help cut costs and streamline its operations. Additionally, MTNL's planned divestments, including shares in various subsidiaries, are expected to generate funds, contributing to its financial recovery.

The government's restructuring plan is essential for tackling MTNL's massive debt, estimated at around Rs 280-300 bn. Swift implementation of this plan will be crucial in stabilizing the company and restoring investor confidence.

Leadership changes, with a new chairman at the helm, will be vital in guiding MTNL through this transition. Investors are keenly observing how this new leadership navigates the challenges and opportunities ahead.

Overall, the next few months will be crucial for MTNL. Successful execution of restructuring plans, improved operational performance, and strategic partnerships will be vital for turning around the company and positively influencing its share price.

The focus will be on demonstrating financial viability and adapting to the competitive landscape of the telecom industry.

How MTNL Share Price has Performed Recently

In the past five days, MTNL share price has tumbled 3.5%. In the last month, it is down 8.3%.

In 2024, so far its share price has surged 52.9% and its up 83.5% in the last one year.

The stock touched its 52-week high of Rs 101.9 on 29 July 2024 and a 52-week low of Rs 25.2 on 26 October 2023.

About MTNL

MTNL, a public sector enterprise, was established by the government of India in April 1986.

Its purpose was to improve the quality of telecom services, expand the telecom network, introduce new services, and generate revenue for telecom development needs for Delhi and Mumbai.

The company has also been at the forefront of technology induction by converting 100% of its telephone exchange network into state-of-the-art digital mode.

The company is presently engaged in providing telecom services in the geographical areas of Mumbai and Delhi.

It also provides various types of telecommunication services, including telephone telex, wireless data communication, telematics and internet services.

For more details, see the MTNL company fact sheet and quarterly results.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy Investing

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