By Mahanagar Telephone Nigam Ltd. (MTNL) has seen an impressive rally in its share price, which was locked at a 5% upper circuit at ₹88.06 on Wednesday. This marks the ninth straight session of gains for the state-owned telecom company, with shares more than doubling in value over this period.
The rally commenced earlier this month following the government’s decision to deposit ₹92 crore to pay MTNL’s immediate bond interest dues. This financial boost came at a crucial time for MTNL, which has been grappling with liquidity issues.
In the Union Budget for 2024-2025, the government has earmarked ₹3,668.97 crore for the repayment of MTNL bonds’ principal amount. This substantial allocation underscores the government’s commitment to stabilizing the financial health of the telecom PSU.
A significant portion of the ₹1.28 lakh crore allocated for telecom projects and public sector companies under the telecom ministry is directed towards BSNL and MTNL. This comprehensive support plan is crucial for ensuring MTNL’s continued operations and financial obligations are met.
MTNL had previously announced its inability to fund the escrow account for the semi-annual interest payment on its series VIII-A bonds due to insufficient liquidity. However, the situation saw a turnaround on July 17, when the company confirmed the funding of the designated escrow account for the payment of the second semi-annual interest on the 7.59% MTNL Bond Series VIII-A, due on July 20, 2024. This move alleviated immediate concerns about a potential default and demonstrated the company’s and government’s efforts to maintain financial stability.
Telecom Minister Jyotiraditya Scindia has been vocal about the government’s unwavering support for MTNL. He emphasized that the Government of India stands firmly behind the sovereign guarantee bonds, ensuring no defaults will occur. Scindia also mentioned that MTNL’s operations would be transferred to Bharat Sanchar Nigam Limited (BSNL), as part of an asset monetization strategy aimed at paying off MTNL’s liabilities.
This robust support from the government has significantly boosted investor confidence, leading to a remarkable surge in MTNL’s stock price. The company has provided multibagger returns, with shares jumping nearly 109% in one month and over 136% in three months. Year-to-date, MTNL’s stock has rallied more than 161%, and it has delivered a staggering 345% return over the past year. At 10:20 am on Wednesday, MTNL shares remained locked at the 5% upper circuit, trading at ₹88.06 apiece on the BSE.
The remarkable rise in MTNL’s share price is a clear reflection of the market’s positive response to the government’s proactive measures. The significant financial backing and assurance against defaults have provided a safety net for the company, allowing it to stabilize and focus on its long-term strategic goals.
Despite the challenges MTNL has faced, including its liquidity issues and the need to fund bond interest payments, the government’s intervention has been pivotal in reversing its fortunes. The proposed transfer of operations to BSNL and the ongoing asset monetization efforts further indicate a strategic approach to managing MTNL’s financial health.
As MTNL continues to navigate its financial challenges with strong governmental support, the company’s future looks more secure. The market’s reaction, as evidenced by the sustained share price rally, highlights the renewed investor confidence in MTNL’s ability to overcome its financial hurdles and capitalize on the support provided by the government.
