Telco Industry Trends And Its Impact On Mahanagar Telephone Nigam Limited (NSE:MTNL)
Mahanagar Telephone Nigam Limited (NSEI:MTNL), a ₹13.77B small-cap, is a telco company operating in an industry which continues to face innovations and technological developments, confronting industry incumbents with rapid changes. Telco analysts are forecasting for the entire industry, a relatively muted growth of 6.20% in the upcoming year , and a low 6.18% growth over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Mahanagar Telephone Nigam is a laggard or leader relative to its telco sector peers. Check out our latest analysis for Mahanagar Telephone Nigam
What’s the catalyst for Mahanagar Telephone Nigam’s sector growth?
Innovations and technological developments allow telco companies to be more cost-competitive. However, this has become a necessity given that the overall growth in the sector is stagnating, and often the only way to maintain profitability is through cost-cutting. Over the past year, the industry saw negative growth of -29.95%, underperforming the Indian market growth of 13.95%. Mahanagar Telephone Nigam lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Mahanagar Telephone Nigam may be trading cheaper than its peers.
Is Mahanagar Telephone Nigam and the sector relatively cheap?
The telco sector’s PE is currently hovering around 31.2x, higher than the rest of the Indian stock market PE of 25.8x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 13.70% compared to the market’s 9.68%, potentially illustrative of a turnaround. Since Mahanagar Telephone Nigam’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Mahanagar Telephone Nigam’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
Mahanagar Telephone Nigam’s track record in earnings growth shows that it has been able to keep up with its peers. If the stock has been on your watchlist for a while, now may be the time to buy, if you are not already highly concentrated in the telco industry. However, before you make a decision on the stock, I suggest you look at Mahanagar Telephone Nigam’s fundamentals in order to build a holistic investment thesis.
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has MTNL’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Mahanagar Telephone Nigam? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
