Friday, January 14, 2011

Time to short MTNL? 3661 crores additional liability may wipeout Mcap of 3316 crores.

The scandal prone telecom sector has seen most telco stocks fall. MTNL being mainly a fixed line operator(a declining business) with heavy pension liabilities, the stock price has fallen to Rs 51 and thats why I thought of it as a 'contra buy'. Both the notes to accounts & audit report for 2009-10(available at merely said that Note No.16(a) & (b) regarding the amounts recoverable from DOT/ BSNL are subject to reconciliation and confirmation and in view of various pending disputes regarding each others claims we are unable to comment on the impact of the same on the profitability of the company.

But then I stumbled upon the C&AG audit report on Central Public Sector undertakings covering the 2009-10 reporting year.  And that was a shocker. Summarizing Page 11 & positions as per the audited accounts;-
MNTL- BSNL owes us Rs 1580.11 crores net
BSNL-MNTL owes us Rs 2080.99 crores(net).
There's a difference of 3661.1 crore between these 2 positions. And this does not find a mention in the audit report(to be fair-the auditor does not have access to BSNL's accounts and so must state the bland excuse "we are unable to comment"..

Since 2005-06, C&AG has been trying to get the Govt(DoT) to resolve this dispute between its two PSU's. But the management has not taken any initiative. Given the IPO plans of BSNL(on hold for now), this festering issue is bound to come out and heads will roll. But when will that be? God alone knows.This unfortunate episode highlights the agency problem at PSU's-there is no 'skin in the game' and inaction is not punished. By any token, 5 years is too long a time.

Takeaway: -Why should we care about disputes between 2 Govt cos? MTNL is listed and a F&O stock.If the press highlights this, short sellers could have a bonaza till the Govt clarifies. And given the weak systems of MTNL(as mentioned in its audit reports), it is likelier that its figure is incorrect.

1 comment:

Miheer Desai said...

Message: Don't call MTNL. Pun intended :)