MTNL Shares Surge 4% on VRS Approval Amid Cost-Cutting Strategy

Mahanagar Telephone Nigam Ltd. (MTNL), a public sector telecom service provider, saw its shares climb by 4% during the morning trading session after its board approved a strategic plan aimed at reducing employee-related costs.

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As of 9:50 am, MTNL's share were trading at ₹52.59 on the NSE, representing a 2.45% increase compared to the previous session’s close. This price surge is part of a broader trend, with the stock having gained nearly 60% over the past year.

The key component of this strategy is the introduction of a Voluntary Retirement Scheme (VRS), which is largely inspired by the Gujarat Model but with some alterations. Among these changes is a reduced ceiling on the ex-gratia payment, a one-time financial compensation offered to employees who choose to retire voluntarily under the scheme. 

The VRS will be available to employees aged 45 years and older, covering both executive and non-executive staff. The move is designed to create a leaner organizational structure while addressing the high costs associated with a large workforce. In a regulatory filing, MTNL highlighted that the initiative aligns with its goal of long-term sustainability.

However, challenges remain. MTNL is burdened with over ₹31,000 crore in debt owed to multiple lenders. According to an October 14 report by CNBC-TV18, citing sources, the company may benefit from a revival plan and avoid the National Company Law Tribunal (NCLT) resolution route. Insiders suggest that relief may involve restructuring efforts rather than government bailouts. 

Earlier reports by Moneycontrol in August indicated the government’s reluctance to fully support MTNL’s recovery, aside from honoring commitments on interest payments for Sovereign Guarantee Bonds. This stance also dampens prospects of major interventions like monetization of assets or a merger with Bharat Sanchar Nigam Ltd. (BSNL).

Despite these headwinds, MTNL's shares have experienced significant volatility. After reaching a 52-week high of ₹101.93 on July 29, 2024, the stock has since dropped sharply, losing about 50% of its value to settle at ₹51.33 on December 23, 2024. 

Analysts suggest that while the VRS plan could ease financial pressure, its long-term impact on MTNL's operations remains uncertain. The company's future could hinge on a combination of internal restructuring and external market dynamics.