Asia Pacific Equity Research

16 August 2009

MTNL (Mahanagar Telephone

Neutral
Nigam) MTNL.BO, MTNL IN
Price: Rs97.95
Fundamentals continue to weaken; however cash on
Price Target: Rs80.00
books and stable dividend provide downside support

We are cutting our estimates for MTNL significantly (FY10E/FY11E India

EPS by 72%/25%) to reflect weak financial performance over the past Wireline Services/Incumbents
two quarters as MTNL continues to lose out to more efficient private Manoj Singla, CFA
AC

operators and higher wages impact margins. While fundamental (91-22) 6639-3017
reasons for owning MTNL are few, in our view, cash per share of manoj.singla@jpmorgan.com
Rs53 (at end-FY10E assuming Rs6.4B outflow for 3G auction), J.P. Morgan India Private Limited
continued positive free cash flow, and a stable dividend yield of 4% Nishit Jasani
provide some downside support for the stock. Maintain Neutral. (91-22) 6639-3008
nishit.x.jasani@jpmorgan.com
Business outlook weak: MTNL continues to lose market share to the
J.P. Morgan India Private Limited
more efficiently run and more customer-centric private operators in both
the wireline and wireless segments. Moreover, the core wireline business Tim Storey
(852) 2800-8563
is still under pressure as wireless tariffs are falling consistently. We tim.storey@jpmorgan.com
expect MTNLs wireline and wireless revenues to keep falling.
J.P. Morgan Securities (Asia Pacific) Limited
Broadband remains the only growth driver, but its small base (<10% of
revenues) provides limited upside to revenues. Further MTNLs 3G Price Performance
launch has had a very limited response and we are unconvinced about its
110
ability to improve ARPUs from 3G services.
Rs 80
We are cutting our estimates sharply given the weak performance 50
over the past two quarters: We cut FY10E/FY11E revenue by Aug-08 Nov-08 Feb-09 May-09 Aug-09
15%/13% and FY10E/FY11E EBITDA by 60%/37%. EBITDA margins MTNL.BO share price (Rs)
are also affected by higher employee costs following the pay NIFTY (rebased)

commission increase. Our EPS estimates are cut by 72%/25%. We YTD 1m 3m 12m
expect a revenue decline of 5% and a 4% EPS CAGR over FY09-11. Abs 24.4% 14.3% 33.6% -9.1%
Rel -27.4% -1.6% 6.9% -10.8%
We set a Jun-10 DCF-based PT of Rs80 (unchanged from our Dec-09
price of Rs80). Key upside risks to our PT are a possible merger with
BSNL and monetization of real estate. Key downside risks are a sharper-
than-expected decline in wireline business, an overseas acquisition, and
irrational 3G spectrum bidding.

Mahanagar Telephone Nigam Limited (Reuters: MTNL.BO, Bloomberg: MTNL IN)

Rs in mn, year-end Mar FY08A FY09A FY10E FY11E ADR
Revenue 47,225 45,150 38,294 40,081 52-wk range (Rs) 123.70 - 51.75 Reuters MTE
EBITDA 7,311 2,280 1,738 3,206 Mkt cap (Rs mn) 61,709 52-wk range ($) 5.34 - 2.25
EBITDA growth (%) -9.1% -68.8% -23.8% 84.5% Mkt cap ($ mn) 1,281 Ratio 1.0 to 2
Net Profit 4,068 1,823 665 1,979 Shares O/S (mn) 630 ADR Premium -2.1%
EPS (Rs) 6.46 2.89 1.06 3.14 Free float (%) Price ($) 3.98
EPS growth (%) -12.7% -55.2% -63.5% 197.3% 3-mth avg trading value: Date of Price 14 Aug 09
DPS (Rs) 0.01 0.01 0.01 0.01 - Local (Rs mn)
EV/EBITDA (x) 3.8 3.2 7.0 5.9 - ADR (mn)
P/E 15.2 33.9 92.7 31.2 NIFTY 4,580
Dividend Yield 0.0% 0.0% 0.0% 0.0% Exchange Rate 48.18
FCF to mkt cap (%) 41.8% 39.7% -6.5% 15.5% Price (Rs) 97.95
Date Of Price 14 Aug 09
Source: Company data, Reuters, J.P. Morgan estimates.

See page 11 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

FY10
Company Description P&L sensitivity metrics EBITDA FY10 EPS
impact
(%) impact (%)
MTNL is a government owned telecom Wireless Subscribers
operator and provides wireline, wireless Impact of each 5% 2% -1%
and broadband services in only 2
ARPU
circles (Delhi and Mumbai). The
company has 13% market share in the Impact of each 5% 3% -2%
urban wireline. EBITDA margin
Impact of each 1% 10% 13%
Capex
Impact of each 5% 0.0% 0.0%
Source: Company Reports and J.P. Morgan Estimates

We maintain a Jun-10 DCF based price target of Rs80/share. Our

Business Mix (FY08) DCF estimate assumes a 10-year revenue CAGR (2009-2019E) of -
2%, long-term EBITDA margin of 11% and a terminal growth of
1.5%. We assume a beta of 0.90, risk-free rate of 6.5%, market risk
premium of 8.0%, and cost of debt of 7.5% to arrive at a WACC of
13.7%.

Risk free rate: 6.5%

Market risk premium: 8%
Beta: 0.90
Debt/captial 0%
Cost of debt: 8%
Terminal g: 1.5%

We value MTNL based on DCF valuation, to arrive at a Jun-10 PT

Source: Company Reports of Rs80/share. With weak business fundamentals, we expect
MTNL value is largely determined by cash per share and attractive
EPS: J.P. Morgan vs consensus dividend yield. The key upside risks to our valuation is possible
In Rs Mn J. P. Morgan Consensus merger with BSNL and monetization of real estate. Key downside
FY10E 1.1 3.5 risks are a sharper-than-expected decline in wireline business, an
FY11E 3.1 2.6 overseas acquisition, and irrational 3G spectrum bidding.
FY12E 3.1 -0.6
Source: J.P. Morgan Estimates and Bloomberg

2
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

Weak quarterly performance

MTNL has seen continued Table 1: MTNL Quarterly financial performance
pressure on revenues with
Rs MM, YE March 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10
continued market share loss and
Fixed Line Telephone
APRU decline in Wireless
Rentals 2,650 2,563 2,628 2,380 2,300
business and reducing tariffs in Call Charges & Other Revenue 4,304 4,832 4,157 3,637 3,055
fixed line business. As a result Interconnection 629 880 755 984 921
revenues have fallen for the past Cellular 2,133 2,208 2,140 1,962 1,367
three quarters. Margins have WLL 165 124 128 127 111
come off due to provisions on Other Services 1,335 1,442 1,514 1,472 1,623
wages (from recent pay Total recurring revenues 11,216 12,049 11,323 10,562 9,377
commission) leading to loss at Interconnection charges (1,935) (2,069) (1,885) (2,053) (1,483)
EBITDA level in last two quarters License fee (932) (1,057) (1,117) (977) (940)
Employee cost (4,500) (4,750) (5,895) (6,508) (5,457)
Network + SG&A (2,093) (2,612) (2,333) (2,074) (1,883)
Total operating expenditure (9,459) (10,489) (11,230) (11,612) (9,762)
EBITDA 1,757 1,560 93 (1,050) (385)
EBITDA margin (%) 15.7% 13.0% 0.8% -9.9% -4.1%
Depreciation (1,770) (1,796) (1,798) (1,884) (1,812)
EBIT (13) (235) (1,705) (2,934) (2,197)
Interest and other income 863 1,549 2,721 2,290 1,471
Interest expense (10) (1) 0 0 0
PBT 841 1,313 1,016 (644) (727)
Provision for taxes (164) (392) (432) (189) 258
Extraordinaries / prior period 475 0 (1) 0 0
Reported net profit 1,152 920 583 (833) (468)
Reported EPS Rs 1.8 Rs 1.5 Rs 0.9 -Rs 1.3 -Rs 0.7
Source: Company reports and J.P. Morgan.

Table 2: MTNL Quarterly operational performance

Rs MM, YE March 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10
Fixedline subs (incl. FWLL) 3,747 3,692 3,654 3,695 3,674
Net adds/(loss) (60) (55) (38) 41 (21)
GSM subs 3,438 3,678 3,900 4,177 4,297
CDMA limited mobility subs 164 161 168 184 185
Total wireless subs 3,601 3,838 4,068 4,361 4,482
Net adds/(loss) 199 237 230 293 121
ADSL broadband subs 584 603 646 696 701
Net adds/(loss) 13 20 42 50 6
ARPU (Rs)
Fixed Line 653 625 614 581 574
GSM 167 149 147 124 111
Blended 426 393 378 344 330
Broadband 581 618 651 579 594
Q/Q Growth
Fixed Line -2% -4% -2% -5% -1%
GSM -11% -11% -1% -16% -10%
Blended -6% -8% -4% -9% -4%
Broadband 5% 6% 5% -11% 3%
Y/Y Growth
Fixed Line -5% -7% -11% -13% -12%
GSM -20% -27% -25% -34% -34%
Blended -14% -17% -21% -24% -23%
Broadband 19% 19% 7% 5% 2%
Source: Company reports and J.P. Morgan.

3
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

Cutting estimates to reflect weak performance

Table 3: MTNL: Estimate change summary
Rs MM, year-end March FY08 FY09 FY10E FY11E FY12E
Revenue
Old 47,225 45,841 44,935 46,001 46,484
New 47,225 45,150 38,294 40,081 41,061
% Change 0% -2% -15% -13% -12%
YOY growth (%) -4% -15% 5% 2%

EBITDA
Old 7,311 4,343 4,493 5,060 5,113
New 7,311 2,280 1,738 3,206 3,285
% Change 0% -47% -61% -37% -36%
YOY growth (%) -69% -24% 85% 2%

EBITDA Margin (%)

Old 15.5% 9.5% 10.0% 11.0% 11.0%
New 15.5% 5.1% 4.5% 8.0% 8.0%
% Change 0% -4% -5% -3% -3%

Net Profit
Old 4,068 3,165 2,355 2,633 2,617
New 4,068 1,823 665 1,979 1,962
% Change 0% -42% -72% -25% -25%
YOY growth (%) -55% -63% 197% -1%

Source: Company reports and J.P. Morgan estimates.

4
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

Financial tables
Table 4: MTNL: Income statement
2008-2013 E 5 Yr
Rs MM, year-end March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E FY2013E CAGR
Fixed Line Telephone
Rentals 11,384 11,000 10,221 9,148 9,236 9,236 8,959 -4%
Call Charges & Other Revenue 23,711 18,727 16,930 12,334 12,515 12,515 11,890 -9%
Interconnection 2,548 3,658 3,248 3,683 3,683 3,683 3,683 0%
Cellular 7,619 8,364 8,443 5,849 6,661 6,997 7,113 -3%
WLL 835 881 544 445 464 488 499 -11%
Other Services 2,996 4,596 5,763 6,836 7,521 8,141 8,141 12%
Total recurring revenues 49,093 47,225 45,150 38,294 40,081 41,061 40,284 -3%

Employee cost (18,132) (16,435) (21,653) (19,916) (20,040) (20,530) (20,142)

Network + SG&A (9,463) (11,222) (9,111) (7,183) (7,214) (7,391) (7,251)
License fee (4,647) (4,215) (4,163) (3,590) (3,607) (3,695) (3,626)
Interconnection charges (8,807) (8,042) (7,942) (5,868) (6,012) (6,159) (6,043)
Total operating expenditure (41,050) (39,914) (42,869) (36,557) (36,874) (37,776) (37,061)

EBITDA 8,043 7,311 2,280 1,738 3,206 3,285 3,223 -15%

EBITDA margin (%) 16.4% 15.5% 5.1% 4.5% 8.0% 8.0% 8.0%
Depreciation (6,832) (7,041) (7,248) (6,727) (6,262) (6,364) (6,445)

Operating profits 1,211 270 (4,967) (4,989) (3,056) (3,080) (3,223) -264%
Other income 6,735 6,074 8,223 5,882 5,882 5,882 5,382
EBIT 7,947 6,344 3,256 893 2,827 2,803 2,159 -19%
Interest income (20) (28) (11) 0 0 0 0
Profit before tax 7,927 6,316 3,245 893 2,827 2,803 2,159
Tax (3,267) (2,248) (1,422) (228) (848) (841) (648)
Tax Rate (%)
Net income 4,660 4,068 1,823 665 1,979 1,962 1,512 -18%
EPS (Rs) 7.4 6.5 2.9 1.1 3.1 3.1 2.4 -18%
Adj. EPS (Rs) 10.8 9.3 2.9 1.1 3.1 3.1 2.4 -24%
DPS (Rs) 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Payout ratio (%) 37% 43% 138% 379% 127% 128% 167%
Shares outstanding (MM) 630.0 630.0 630.0 630.0 630.0 630.0 630.0

Revenue growth -12% -4% -4% -15% 5% 2% -2%

EBITDA growth -1% -9% -69% -24% 85% 2% -2%
Adj. EPS growth 17% -14% -69% -63% 197% -1% -23%

Key Operating Data

Mobile subscribers ('000) 2,747 3,242 4,177 5,023 5,563 6,013 6,374
Incremental subscribers ('000) 806 495 935 847 539 451 360
Blended ARPU (Rs) 271 233 190 106 105 101 96

Fixed line subscribers ('0000 3,802 3,807 3,700 3,700 3,700 3,700 3,700
Incremental subscribers ('000) -76 6 -108 0 0 0 0
Fixed line ARPU (Rs) 762 651 603 484 490 490 470

Source: Company reports and J.P. Morgan estimates.

5
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

Table 5: MTNL: Balance sheet

Rs MM, year-end March FY2007 FY2008 FY2009E FY2010E FY2011E FY2012E FY2013E
Current Assets:
Inventories 2,213 1,607 1,536 1,303 1,364 1,397 1,371
Sundry Debtors 9,652 9,418 9,277 7,869 8,236 8,437 8,278
Cash and Bank Balances 18,687 33,694 48,027 30,149 32,061 35,132 38,120
Other Current Assets 1,101 2,385 2,257 1,915 2,004 2,053 2,014
Loans & Advances 110,305 94,513 77,838 83,000 83,000 83,000 83,000
Total Current Assets 141,957 141,617 138,937 124,236 126,665 130,020 132,782

Net Block 64,037 63,198 62,723 67,484 66,032 62,952 58,521

Capital WIP 7,644 9,650 9,650 9,650 9,650 9,650 9,650
Investments 4,414 5,574 5,574 5,574 5,574 5,574 5,574
Deferred Revenue Expenditure 2,217 1,592 1,592 1,592 1,592 1,592 1,592

Total Assets 220,268 221,630 218,475 208,535 209,512 209,787 208,119

Debt 0 0 0 0 0 0 0
Current Liablities 43,309 43,093 40,635 32,550 34,068 34,902 34,242
Provisions 54,461 54,458 54,458 54,458 54,458 54,458 54,458

Share Capital 6,300 6,300 6,300 6,300 6,300 6,300 6,300

Reserves and Surplus 109,993 112,914 112,216 110,362 109,820 109,262 108,254
Deferred Tax Liablity 6,205 4,865 4,865 4,865 4,865 4,865 4,865
Shareholder's Funds 122,498 124,079 123,382 121,527 120,986 120,427 119,419

Total Liablities and Shareholder's Equity 220,268 221,630 218,475 208,535 209,512 209,787 208,119

Ratios and other data

Total debt 0 0 0 0 0 0 0

Accumulated depreciation 88,877 95,228 102,476 109,202 115,464 121,829 128,274

Gross fixed assets 152,913 158,426 165,198 176,687 181,496 184,781 186,795

ROE (%) 4% 3% 1% 1% 2% 2% 1%
ROC (%) 5% 5% 2% 1% 2% 2% 2%
ROA (%) 2% 2% 1% 0% 1% 1% 1%
Debt / Capital (%) 0% 0% 0% 0% 0% 0% 0%
Net (debt) or cash to equity -15% -27% -39% -25% -26% -29% -32%
Source: Company reports and J.P. Morgan estimates.

6
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

Table 6: MTNL: Cash flow statement

Rs MM, year-end March FY2007 FY2008 FY2009E FY2010E FY2011E FY2012E FY2013E
Net Profit Before Tax and Extraordinary Items 7,927 6,316 3,245 893 2,827 2,803 2,159
Depreciation 6,832 7,041 7,248 6,727 6,262 6,364 6,445
Prior Period Adj 2,243 1,851 0 0 0 0 0
Profit on sale of Fixed Assets -10 -26 0 0 0 0 0
Loss on sale of fixed assets 50 444 0 0 0 0 0
Compensation charged under VRS 622 625 0 0 0 0 0
Compensation paid under VRS -1,696 0 0 0 0 0 0
Interest cost 20 28 0 0 0 0 0
Interest income -5,336 -4,138 0 0 0 0 0
Interest Paid -22 -29 0 0 0 0 0
Adjustment: 0 0 0 0 0 0 0
Trade and Other receivables -6,140 -80 141 1,409 -367 -201 160
Inventories -835 606 71 233 -61 -33 26
Change in current liabilities -5,591 3,033 -2,458 -8,085 1,518 833 -660
Others 0 0 11,640 -4,819 -89 -49 39
Cash generated from operations 9,246 15,671 19,886 -3,642 10,090 9,717 8,169
Direct taxes paid -5,670 9,207 -1,422 -228 -848 -841 -648
Income Tax Refund 0 0 5,162 0 0 0 0
Net Cashflow from Operating Activities 3,576 24,878 23,626 -3,870 9,242 8,876 7,522

Purchased of fixed assets -7,752 -8,749 -6,772 -11,488 -4,810 -3,285 -2,014
Sales of fixed assets 56 73 0 0 0 0 0
Interest received 5,326 2,912 0 0 0 0 0
Investment -227 -1,160 0 0 0 0 0
Net Cashflow from investments activities -2,597 -6,923 -6,772 -11,488 -4,810 -3,285 -2,014

Repayment of Loans -2 0 0 0 0 0 0
Dividend Paid(including tax) -2,873 -2,948 -2,520 -2,520 -2,520 -2,520 -2,520
Net Cash Flow from Financing Activities -2,875 -2,948 -2,520 -2,520 -2,520 -2,520 -2,520

Net Change in Cash -1,896 15,007 14,333 -17,878 1,912 3,071 2,987

Cash and Cash Equivalents at the beginning of the year 20,584 18,687 33,694 48,027 30,149 32,061 35,132
Cash and Cash Equivalents at the end of the year 18,687 33,694 48,027 30,149 32,061 35,132 38,120

Net debt / (cash) -18,687 -33,694 -48,027 -30,149 -32,061 -35,132 -38,120

Ratios
Capex to sales (%) 9% 15% 15% 30% 12% 8% 5%
Source: Company reports and J.P. Morgan estimates.

7
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

Figure 1: MTNL: DCF summary

Rs in millions, year-end March 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E
Assumptions (%)
Revenue growth (3.8) (4.4) (15.2) 4.7 2.4 (1.9) (2.1) (1.8) (1.9) (2.0) (2.1) (2.1)
EBITDA margin 15.5 5.1 4.5 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0
FCF margin 32.1 27.1 (51.5) 0.8 3.6 4.3 (0.8) (0.5) 4.5 4.5 4.4 4.4
FCF growth NM (19.3) NM NM 368.4 18.1 NM NM NM (3.2) (2.9) (2.2)
Capex / sales 15.2 15.0 30.0 12.0 8.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0
Debt / capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
RoCE 4.5 2.4 0.7 2.2 2.3 1.9 1.5 1.2 0.8 0.9 1.0 1.1
Change in Working Capital / FCF 99.7 118.9 57.1 318.2 37.3 (25.0) 792.1 1,149.2 (19.2) (20.7) (21.8) (22.0)

EBIT * (1-tax rate) 174 (2,790) (3,716) (2,139) (2,156) (2,256) (2,209) (2,170) (2,130) (2,088) (2,045) (2,003)
Depreciation & Amortization 7,041 7,248 6,727 6,262 6,364 6,445 6,313 6,201 6,086 5,966 5,844 5,723
Change in working capital 15,131 14,555 (11,262) 1,001 550 (435) (2,438) (2,292) (331) (345) (353) (348)
Capital expenditure (7,176) (6,772) (11,488) (4,810) (3,285) (2,014) (1,973) (1,938) (1,902) (1,864) (1,826) (1,788)
Free cash flows 15,170 12,240 (19,739) 315 1,473 1,740 (308) (199) 1,723 1,668 1,619 1,583
WACC =
DCF Valuation June-10
NPV of cash flows (2010E-2019E) 6,216 WACC Assumptions
Perpetual growth (%) 1.5 Cost of equity = 13.7%
Implied 2019E terminal value FCF exit multiple (x) 8.2 Cost of debt = 7.5%
Implied 2019E EBITDA exit multiple (x) 4.0 Tax = 34.0%
PV of terminal value 4,867 Risk free rate = 6.5%
Enterprise Value (EV) 11,083 Beta = 0.90
Terminal value as % of EV 43.9 Equity risk premium = 8.0%
FY09E net debt/(cash) (39,088) Req equity market return = 14.5%
Equity value (Rs mn) 50,171 Debt/capital = 0%
Number of shares (mn) 630 Equity/capital = 100%
Equity value (Rs/share) 80 WACC = 13.7%

Source: Company reports and J.P. Morgan estimates.

8
Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

All Data As Of 14-Aug-09

Q-Snapshot: Mahanagar Telephone Nigam Ltd.

Quant Return Drivers (a Score >50% indicates company ranks 'above average') J.P. Morgan Composite Q-Score
Score 0% (worst) to 100% (best) vs Country vs Industry Raw Value
100% HIGH/STRONGER
Value
P/E Vs Market (12mth fwd EPS) 13% 15% 1.9x C
75%
P/E Vs Sector (12mth fwd EPS) 11% 17% 1.7x O
EPS Growth (forecast) 3% 14% -10.4% U
50%
Value Score 2% 7% N
Price Momentum T
25%
12 Month Price Momentum 38% 48% -8.1% R
1 Month Price Reversion 65% 23% 14.3% Y 0%
LOW/WEAKER
Momentum Score 44% 35% 0% 25% 50% 75% 100%
Quality
Return On Equity (forecast) 5% 16% 2.1% INDUSTRY
Earnings Risk (Variation in Consensus) 15% 30% 0.24 Quant Return Drivers Summary (vs Country)
Quality Score 10% 22%
100%
Earnings & Sentiment
Earnings Momentum 3mth (risk adjusted) 21% 52% -25.2 75%
1 Mth Change in Avg Recom. 8% 4% -0.46 50%
Net Revisions FY2 EPS 26% 54% 0% 25%
Earnings & Sentiment Score 12% 18%
0%
COMPOSITE Q-SCORE* (0% To 100%) 3% 8% VALUE PRICE QUALITY EARNINGS

Targets & Recommendations** EPS Revisions** EPS Momentum (%) Historical Total Return (%)
14 Targets Recoms 8 2.0 40 34
Consensus Changes (4wks)
Consensus Changes (4wks)

12 0.0 30

(Local Currency %)
6 14
10 20
-2.0
8 10
(%)

4 -4.0 0
6
-6.0 -10
4 2 -8
-20
2 -8.0 -30
0 0 -10.0 -40 -28
Up Dn Unchanged Up Dn Unchanged -1 Mth -3 Mth 1Mth 3Mth 1Yr 3Yr
FY1 FY2 FY1 FY2
Consensus Growth Outlook (%)
10.0
5.0
5.0 1.4
0.0
0.0
-5.0
-10.0 -7.6
-10.4
-15.0
EPS FY1 To FY2 EPS FY2 To FY3 Cash Flow FY1 To FY2 Dividends FY1 To FY2 Sales FY1ToFY2

Closest in Country by Size (Consensus. ADV = average daily value traded in US$m over the last 3 mths)
Code Name Industry USD MCAP ADV PE FY1 Q-Score*
532696-IN Educomp Solutions Ltd. Miscellaneous Commercial Services 1,313 23.58 31.5 53%
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500480-IN Cummins India Ltd. Trucks/Construction/Farm Machinery 1,300 0.41 18.4 46%
500770-IN Tata Chemicals Ltd. Chemicals: Agricultural 1,277 1.37 10.8 22%
532488-IN Divi's Laboratories Ltd. Pharmaceuticals: Other 1,272 0.68 20.4 3%
500108-IN Mahanagar Telephone Nigam Ltd. Major Telecommunications 1,267 1.22 28.5 3%
532321-IN Cadila Healthcare Ltd. Pharmaceuticals: Other 1,248 0.17 14.8 85%
532947-IN IRB Infrastructure Developers Ltd. Engineering & Construction 1,237 3.65 18.5 19%
532814-IN Indian Bank Ltd. Major Banks 1,159 0.54 4.5 95%
500800-IN Tata Tea Ltd. Food: Specialty/Candy 1,154 0.52 12.8 59%
532424-IN Godrej Consumer Products Ltd. Household/Personal Care 1,130 0.25 23.9 79%

Source: Factset, Thomson and J.P. Morgan Quantitative Research. For an explanation of the Q-Snapshot, please visit http://jpmorgan.hk.acrobat.com/qsnapshot/
Q-Snapshots are a product of J.P. Morgans Global Quantitative Analysis team and provide quantitative metrics summarized in an overall company 'Q-Score.'
Q-Snapshots are based on consensus data and should not be considered as having a direct relationship with the J.P. Morgan analysts recommendation.
* The Composite Q-Score is calculated by weighting and combining the 10 Quant return drivers shown. The higher the Q-Score the higher the one month
expected return. On a 14 Year back-test the stocks with the highest Q-Scores have been shown (on average) to significantly outperform those stocks with the
lowest Q-Scores in this universe. ** The number of up, down and unchanged target prices, recommendations or EPS forecasts that make up consensus.

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Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

MTNL (Mahanagar Telephone Nigam): Summary of Financials

Profit and Loss Statement Balance Sheet statement
Rs in millions, year end Mar FY08 FY09 FY10E FY11E FY12E Rs in millions, year end Mar FY08 FY09 FY10E FY11E FY12E

Revenue 47,225 45,150 38,294 40,081 41,061 Cash and equivalents 33,694 48,027 30,149 32,061 35,132
EBITDA 7,311 4,343 4,493 5,060 5,113 Accounts receivable 9,418 9,277 7,869 8,236 8,437
Depreciation -7,041 -7,248 -6,727 -6,262 -6,364 Others 96,898 80,096 84,915 85,004 85,053
Amortization - - - - - Total Current assets 141,617 138,937 124,236 126,665 130,020
EBIT 6,344 3,256 893 2,827 2,803
Interest income 6,074 8,223 5,882 5,882 5,882 ST loans - - - - -
Interest expense - - - - - Others - - - - -
Associates - - - - - Total current liabilities 43,093 40,635 32,550 34,068 34,902
Profit before tax 6 3 1 3 3
Tax -2,248 -1,422 -228 -848 -841 Net working capital 98,524 98,302 91,685 92,596 95,118
Net profit - reported 4,068 1,823 665 1,979 1,962
Net profit - adjusted 2,267 3,165 2,355 2,633 2,617 Net fixed assets 72,848 72,372 77,134 75,682 72,602
Other long term assets - - - - -
Shares Outstanding 630 630 630 630 630 Total non-current assets 80,013 79,538 84,300 82,847 79,768
EPS (Rs) (Reported) 6.46 2.89 1.06 3.14 3.11
EPS (Adjusted) 3.60 5.02 3.74 4.18 4.15 Total Assets 221,630 218,475 208,535 209,512 209,787
DPS (Rs) 4.00 4.00 4.00 4.00 4.00
DPS payout ratio 61.9% 79.6% 107.0% 95.7% 96.3% Long-term debt 0 0 0 0 0
Other liabilities - - - - -
Revenue growth (3.8%) (2.9%) (2.0%) 2.4% 1.1% Total Liabilities 97,551 95,093 87,008 88,527 89,360
EBITDA growth -9.1% -40.6% 3.5% 12.6% 1.1%
Net profit growth -12.7% -55.2% -63.5% 197.3% -0.8% Shareholders' equity 124,079 123,382 121,527 120,986 120,427
EPS growth (12.7%) (22.2%) (25.6%) 11.8% (0.6%)
DPS growth 0.0% 0.0% 0.0% 0.0% 0.0% Total liabilities and equity 221,630 220,438 219,458 220,531 221,063

Net debt/(cash) (33,694) (48,027) (30,149) (32,061) (35,132)

Book value per share 196.95 195.84 192.90 192.04 191.15

Ratio Analysis Cash flow statement

%, year end Mar FY08 FY09 FY10E FY11E FY12E Rs in millions, year end Mar FY08 FY09 FY10E FY11E FY12E

EBITDA margin 15.5% 9.6% 11.7% 12.6% 12.5% Cash flow from operations 24,878 23,626 -3,870 9,242 8,876
FCF margin 52.7% 36.7% 22.4% 18.6% 20.2% Capex - - - - -
ROE 1.8% 1.5% 0.5% 1.6% 1.6% Cash flow from other investing 1,753 0 0 0 0
ROC 5.1% 2.6% 0.7% 2.3% 2.3% Cash flow from financing -2,948 -2,520 -2,520 -2,520 -2,520
ROA 1.0% 0.8% 0.3% 0.9% 0.9%
Tax rate 35.6% 43.8% 25.5% 30.0% 30.0% Change in cash for year 15,007 14,333 -17,878 1,912 3,071
Capex to sales - - - - -
Debt/Capital - - - - - Beginning cash 18,687 33,694 48,027 30,149 32,061
Net debt or (cash) to equity -27.2% -38.9% -24.8% -26.5% -29.2% Closing cash 33,694 48,027 30,149 32,061 35,132
Interest cover (x) - - - - -
Source: Company reports and J.P. Morgan estimates.

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Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

Analyst Certification:
The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an AC on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures

Client of the Firm: MTNL (Mahanagar Telephone Nigam) is or was in the past 12 months a client of JPMSI.

MTNL (Mahanagar Telephone Nigam) (MTNL.BO) Price Chart

Date Rating Share Price Price Target

330 (Rs) (Rs)
05-Nov-06 UW 137.60 115.00
275 UW Rs125 N Rs150 29-Jan-07 UW 171.60 125.00
17-Jul-07 UW 168.00 140.00
220 UW Rs115 UW Rs140 N Rs115 N Rs113 N Rs80
27-Aug-07 N 135.30 150.00
Price(Rs) 01-Apr-08 N 96.55 115.00
165 17-Jul-08 N 91.25 113.00
31-Mar-09 N 69.55 80.00
110

55

0
Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug
06 06 07 07 07 07 08 08 08 08 09 09 09

Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends.
This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it
over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

MTNL (Mahanagar Telephone Nigam) (MTE) Price Chart

Date Rating Share Price Price Target

($) ($)
18 27-Aug-07 N 6.67 -

12 N
Price($)

0
Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug
06 06 07 07 07 07 08 08 08 08 09 09 09

Source: Reuters and J.P. Morgan; price data adjusted for stock splits and dividends.
This chart shows J.P. Morgan's continuing coverage of this stock; the current analyst may or may not have covered it
over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve

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Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] The analyst or analysts teams coverage universe is the sector
and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Manoj Singla, CFA: Bharti Airtel Limited (BRTI.BO), HCL Infosystems (HCLI.BO), HCL-
Technologies (HCLT.BO), Idea Cellular Limited (IDEA.BO), Infosys Technologies (INFY.BO), MTNL (Mahanagar
Telephone Nigam) (MTNL.BO), MindTree Ltd. (MINT.BO), Mphasis Ltd (MBFL.BO), Patni Computer (PTNI.BO),
Reliance Communications Limited (RLCM.BO), Satyam Computer Services (SATY.BO), Tata Communications Ltd
(TATA.BO), Tata Consultancy Services (TCS.BO), Tech Mahindra Ltd. (TEML.BO), Wipro Ltd. (WIPR.BO)

J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2009

Overweight Neutral Underweight
(buy) (hold) (sell)
JPM Global Equity Research Coverage 36% 46% 18%
IB clients* 55% 56% 42%
JPMSI Equity Research Coverage 36% 52% 12%
IB clients* 77% 72% 60%
*Percentage of investment banking clients in each rating category.
For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category.

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Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

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redistributed without the written consent of J.P. Morgan.

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Manoj Singla, CFA Asia Pacific Equity Research
(91-22) 6639-3017 16 August 2009
manoj.singla@jpmorgan.com

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