MTNL has found zing from the successful Maruti IPO, as the market now looks upon the company as the next divestment candidate.

By 11:20 IST, the stock of the state-run telecom service provider, Mahanagar Telephone Nigam (MTNL), sprang forth 3.55% to Rs 110.85. It's low for the day was Rs 106.50. It registered volumes of over 5.53 lakh shares on BSE thus far.

MTNL has now risen 37% from its 52-week low Rs 81.05 on 24 January 2003.

As per market talk, one domestic mutual fund was active on the MTNL counter today.

Optimists over MTNL's probable divestment were further vindicated by reports yesterday that the government had asked the divestment commission to study the case for the telecom service provider's privatisation and submit reports after considering all modalities.

For the government, the prime concern is that the company is ripe for divestment now. Too much competition in the industry later may prompt a decline in the company's valuation.

Already, private telecom players have started eating into the market share of MTNL by offering competitive tariffs. And cut-throat competition looks more likely now that the Telecom Regulatory Authority of India has said that it will not intervene in the tariff war among telecom operators.

Operators may now look to slash rates further to occupy a larger portion of the market, making the situation rather difficult for MTNL.

The Government of India holds 56.25% stake in the total equity capital (of Rs 630 crore) in MTNL. Institutions and the public hold 40% and 2%, respectively.

Recently, the Group of Ministers (GoM) cleared a proposal to raise foreign equity ceiling in basic telecom and mobile services companies to 74% from the current 49%. This should have some bearing on the company.

MTNL's mainstay is basic services in the two metros of Mumbai and Delhi. It recently entered a new services line - cellular services - where there is already stiff competition.

However, there were reports earlier that the Department of Telecommunications (DoT) is planning to permit an expansion of operations by MTNL beyond Delhi and Mumbai.

Apart from acquiring private cellular operators, a proposal is under consideration to allow MTNL to acquire the Maharashtra circle from BSNL (after due compensation). With huge reserves (of around Rs 2,000 crore) at its disposal, MTNL is very much in a position to carry out mergers and acquisitions (M&A).

For Q4 ended 31 March 2003, MTNL recorded a huge 56% fall in net profit to Rs 183.62 crore (Rs 416.18 crore) on a 2% drop in sales to Rs 1,356.49 crore (Rs 1,380.53 crore).

For FY 2002-03, the company posted a 32.6% fall in net profit to Rs 877.15 crore (Rs 1,300.68 crore) on a 6% drop in turnover to Rs 6,030.66 crore (Rs 6,392.07 crore).

The company has also recommended a dividend of 45% for FY 2002-03.