>MTNL(BNP PARIBAS)

We initiate coverage on Mahanagar Telephone Nigam (MTNL), a
government-owned telecom operator, with a REDUCE rating and TP of
INR55 based on a cash per share of INR39 and a core business
valuation of INR16 at 2.5x FY09 EBITDA. Historically MTNL traded close
to its book value but the valuation is now converging towards its cash
per share as its ROE has declined to 3.3%, well below its cost of capital,
and one-fourth of its book value is amount recoverable from Department
of Telecom, which is unconfirmed and outstanding for several years.

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