The Rs 5,100 crore MTNL is bogged down with over 61,000 employees and has little leverage in downsizing. This shows in its performance in the Q2 (ended September 2000) results. A 36 per cent rise in operational expenses have dented its topline that grew by 25 per cent to Rs 1,521 crore ( Rs 1,230 crore). The story does not differ much for the half-year ended September, 2000. Operational expenses are up by 30 per cent to Rs 1,769 crore (Rs 1357 crore) while net sales grew by about 18 per cent to Rs 2,922 crore.

The hiatus between the growth rates shows a pressure on the bottomline. What has hit the operating profit is staff cost up a whopping 82 per cent to Rs 331 crore (Rs 182 crore) on a q-o-q basis. A rise of 33 per cent in national networking charges paid by MTNL has further dented operating profits at Rs 584 crore for the quarter. Being a relatively debt-free company, interest cost is negligible. Despite a 25 per cent lower tax provision owing to the rebate under Sec 80 IA, the bottomline has not gained much.

Net profit rose by 35 per cent to Rs 447 crore (Rs 397 crore). OPM at 38 per cent is down from 43 per cent and net profit margin at 8.2 per cent down from 9 per cent came under pressure as a result of high cost. MTNL's much awaited foray in cellular services is now slated for January, 2001. Delays apart, the company is bullish still. It is banking on an expanded subscriber base to sustain itself in a low tariff scenario. India is witnessing an exponential growth in the cellular subscriber base supported by high penetration levels.

The subscriber base had crossed 2 million by June 2000. MTNL may not be able to succeed unless it sheds its bureaucratic style and adapts to the market. Drawing on its monopoly status it may still lose to its private sector peers which enjoy a headstart.

Larsen & Toubro
L&T's performance during the quarter ended September 2000, has to be set against the overall economic scenario . The GDP growth estimate for the current year has been pruned. The industrial sector is sliding into a slowdown and the capital goods segment has suffered from a sluggish investment demand. This has had an inevitable fallout on L&T. The volume growth in cement is tempered by lower price realisations and higher production costs kicked off by higher fuel prices. L&T has no control over these. It has done its best by deciding to demerge its cement division that will materialise in the next 4-6 months. It is no surprise that the topline has remained flat at Rs 1,741 crore.

The first two quarters of the fiscal have historically been lean compared to the next two. Total expenditure crept up by 7.7 per cent to Rs 1,615 crore. Operational profits fell by 44.4 per cent to Rs 126 crore, resulting in a severe dip in OPM to 7.2 per cent. Interest was up at Rs 102.4 crore. Depreciation went up by around 8.3 per cent to Rs 74 crore, possibly due to the commissioning of a captive power plant based on naphtha. An 86 per cent fall in net profit to Rs 12.5 crore is disturbing. Had it not been for other income, the bottomline would have turned red. Other income has been a regular rescuer of the company. This is due to engineering equipment given on a hire purchase basis.

The first-half results, disappointing as they are, need not be a pointer to the future, given L&T's prowess to rebounce. Various contracts in the E&C segment are expected to reach an advanced stage of completion during the second-half of the current year. This may help realise the expected revenue growth of 12 per cent and significant contribution to margins as hoped by the company. After the loss making cement division demerger, balance sheet will look slimmer. This means a reduction in total debt as well as total assets. So, the fallout will be reflected in lower interest and depreciation.

The bottomline will look better. The company has decided to take the subsidiary route for a demerger as has been done by many. It will be able to generate a substantial cash flow through the sale of the stake in its subsidiary.

-- Sachchidanand Shukla and Manish Joshi