The situation in MTNL's revenue growth has worsened. Throughout the currentyear and earlier, the company has been witnessing a slowdown in revenuegrowth on the back of falling tariffs; especially on long distancetelephony. For the first half, MTNL reported a 4 per cent fall in profit andthis was expected to be the trend for the rest of the year. However, in Q3,the profit after tax has grown by 7 per cent while the topline has dippedmarginally. This situation of declining margins, depressed topline andfalling profits has arisen as a result of the phased reductions being madein telecom tariffs, over a period of two or three years.

In the first phase, there has been a 23-25 per cent cut in long distancedomestic telephony rates. Domestic long distance telephony provides close to60 per cent of MTNL's revenues. "Telecom traffic volume ideally should havepicked up with the reduction in tarrifs, but have not done so as yet," saysDeepti Chaturvedi, equity analyst, ASK Raymond James. As per the phasedtariff reduction programme, there are additional cuts expected over the nextcouple of years, which in the absence of adequate volume growth, willcontinue to hurt earnings. And there will be pressure on volume growth inbasic services considering that there is increasing competition. And in thevalue-added services that MTNL has begun to provide or which it is waitingto launch, there are already established players, making it a competitiveenvironment.

There is some expectation that a NYSE listing will provide some respite tothe stock, owing to the relatively low valuations as compared to itsinternational peers. It currently trades at a historic price-earningmultiple of 13 times. The stock has appreciated by around 60 per cent duringthe last one quarter.