Investors were impressed by MTNL's plans for inorganic growth, propelling the stock higher in early trades on Tuesday.

By 10:05 IST, the scrip of Mahanagar Telephone Nigam, a service provider in Mumbai and Delhi, rose 3.45% to Rs 103.50. But it had reached even higher to Rs 108 on opening on Tuesday. A total of 34,093 MTNL shares were traded on BSE by 10:05 IST. The scrip of the state-run telecommunications service provider has now gained 15% from Rs 90 on 24 April 2003.

Newspaper reports suggest that the Department of Telecommunications is planning to permit an expansion of operations by MTNL beyond Delhi and Mumbai. Apart from acquisitions of private cellular operators, a proposal is under consideration to allow MTNL to acquire the Maharashtra circle from BSNL (after due compensation). With huge reserves at its disposal, MTNL is very much in a position to carry out mergers and acqusitions.

MTNL's mainstay is basic services in the two metros of Mumbai and Delhi. However, the company is witnessing stiff competition from private operators here. It recently entered a new services line - cellular services - where there is already stiff competition.

The company is also looking to be a certifying authority for digital signatures and will be applying for a CA licence in the first week of June 2003. Currently, there are four licence-holders in this category - NIC, Satyam Infoway arm SafeScrypt, Hyderabad-based RBI arm IDRBT and TCS.

In the stock markets, MTNL has been witnessing sustained buying from institutions over the last few sessions. Analysts say that institutions are accumulating the stock as the company's revised tariff charges are expected to enhance profitability. With the implementation of the inter-connect charges regime from 1 May 2003, the whole telecommunication services scenario in India has changed. MTNL has also reset tariffs with effect from 1 May 2003 by slashing the number of free calls, retaining the three-minute pulse for local calls and keeping unchanged overall monthly rentals. The company has offered three alternative packages to its basic services subscribers.

Earlier, there were reports that MTNL's privatisation may take place sooner than expected, but nothing has materialised on this front so far. The Government of India holds 56.25% of the total equity capital in MTNL, while institutions and the public hold 40% and 2%, respectively.

Recently, the Group of Ministers cleared the 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.

For Q4 ended 31 March 2003, MTNL recorded a huge 56% fall in net profit to Rs 183.62 crore (Rs 1.83 billion) on a 2% drop in sales to Rs 1,356.49 crore (Rs 1,3.56 billion). For FY 2002-03, the company posted a 31% fall in net profit to Rs 897.50 crore (Rs 8.97 billion) on a 6% drop in sales to Rs 5,783.73 crore (Rs 57.83 billion).