MTNL perked up today despite a flat market as players deemed the company was the next candidate for divestment after the successful IPO of Maruti.

By 14:15 IST, the stock of Mahanagar Telephone Nigam (MTNL) leaped up 6.67% to Rs 108.80. Volumes reached a solid 10 lakh shares on BSE so far. The stock of MTNL has now risen 34.23% from its 52-week low Rs 81.05 on 24 January 2003.

Reportedly, the government has asked the divestment commission to study the case for the telecom service provider's privatisation and submit reports after considering all modalities .

For the government, the prime concern  is that the company is ripe for divestment now. Too much competition in the industry later may prompt a decline in the company's valuation. Already private telecom players have started eating into the market share of MTNL, by offering competitive tariffs.

The Government of India holds 56.25% of the total equity capital (of Rs 630 crore) in MTNL, while institutions and the public hold 40% and 2%, respectively.

Recently, the Group of Ministers (GoM) cleared the proposal to raise foreign equity ceiling in basic telecom and mobile services companies to 74% from the current 49%. This should have some bearing on the company.

MTNL's mainstay is basic services in the two metros of Mumbai and Delhi. It recently entered a new services line - cellular services - where there is already stiff competition.

However there were reports earlier that the Department of Telecommunications (DoT) is planning to permit an expansion of operations by MTNL beyond Delhi and Mumbai. Apart from acquisitions of private cellular operators, a proposal is under consideration to allow MTNL to acquire the Maharashtra circle from BSNL (after due compensation). With huge reserves (of around Rs 2,000 crore) at its disposal, MTNL is very much in a position to carry out mergers and acquisitions (M&A).