Chairman-cum-managing director S Rajagopalan told The Financial Express that the buyback process will be completed in less than 76 days. Welcoming the decision, Rajagopalan said," The move will boost the price-earning ratio of our company, as the prevailing price of the scrip is less than its actual value and does not reflect its true strength."

The Cabinet decision has approved the sale of up to 5 per cent of the Government equity in MTNL. The Centre's stake, which at present is 54.94 per cent, thus, will go down to nearly 52 per cent, if MTNL buys back the entire 5 per cent.

The Government could raise up to Rs 320 crore or more, depending on what price is set for the buy back, from the sale of its 5 per cent stake. The MTNL scrip closed at Rs 185 on Wednesday, rising to a high of Rs 201 in the day from its overnight close of Rs 192 on BSE, and ended the day at Rs 185.

With the buyback, MTNL's PE ratio of less than 10, at present, will improve slightly and move closer to the industry standard of 13 to 15, said Rajagopalan.

The MTNL board had earlier earmarked Rs 500 crore for funding the buyback. The price of the shares, to be decided by the finance minister, industry minister and administrative ministry on the recommendations of the core group of secretaries on disinvestment, may be pegged at higher levels than market value, said sources.

The Government intends to utilise the entire Rs 500 crore earmarked by the MTNL board in order to boost its earnings. It could thus set a higher value for the scrip, said sources.

Rajagopalan added that MTNL was studying the amendments to the buyback ordinance, which now allows buyback "of up to or less than 25 five per cent of the total paid-up capital and free reserves of the company, provided that the buyback in any financial year shall not exceed 25 per of its total paid-up equity capital in that year."

Sources said that MTNL was well placed for the buyback, with cash reserves of more than Rs 2,100 crore this year. The company expects to incur capital expenditure of Rs 1,300, a tidy surplus of Rs 800 crore will be left for funding the buy back.