Why NTC has lost its original charm despite being such a great scrip

ShareSansar, July 3:

Nepal Doorsanchar Company Limited (NTC) is such a nice stock in so many ways.

It has been giving very good returns to its shareholders, that too, consistently — it has a really impressive dividend history.  An impressive 45 percent in the last fiscal year, 48 percent cash dividend in the fiscal year 2068/69, 45 percent in the fiscal year 2067/68, and so on.

NTC is also one of the safest scrips to go for as not only the government’s reputation is directly linked to it, but it has an awesome reserve and surplus of Rs 40 arba and share capital of another Rs 15 arba – not to mention that it is a huge asset-based company.  

Its investment portfolio shows that it is a great company in terms of profitability. Besides the booming telecom sector, look at the kinds of companies it has been investing in from its reserve.  

It has invested Rs 63.54 crore in the Upper Tamakoshi share capital at the face value of Rs 100 per share.  It also holds 20 percent of the promoter shares of Trishuli Hydropower Company Limited. It has also been investing lavishing in the bonds issued by the government and various commercial banks over the years.

Its profitability is set to rise to a new high as it is one of the key investors in the much-awaited Upper Tamakoshi hydropower company of 456 MW. It may also be noted that apart from its investment in equity, the loan it issued to Upper Tamakoshi now stands at more than Rs 2.5 arba.

Even competition from privately run Ncell is not a major challenge per se in that there is still enough market for a few more players in the country.  

That is not all!

Only in the last week of June, the state-run telecom giant has come up with the final list of consultants as it is planning to bring in strategic partner to give that edge in its day-to-day operation and service to its clients through cutting edge technology and efficient management. It will be giving 30 percent of its stake to the strategic partner.

Also last month, it has unveiled its plan to set up a separate IT company to upgrade its infrastructure.

Against such an encouraging backdrop, the price of NTC scrip kind of defies all logics.

Its price hovers around merely Rs 580, which is even below its initial offering price!

This should have been another reason for the investors -- institutional as well as retail -- to seek this undervalued scrip, especially as the entire capital market is facing surplus liquidity.

It is even more intriguing in that there is not even an issue of cross-holding involved here. BFIs, insurance companies, any of the institutional investors, retail investors, you name it, all sorts of investor can buy and hold NTC stock.

Challenges galore, nonetheless

But NTC has simply lost its original spark for some reasons. What on the earth are the factors that have not let the NTC scrip rise?

Ironically enough, one of the reasons that is not letting the price of NTC scrip rise is its own market capitalization, according to the stock pundits.

“Even big players are shying away from this scrip since one has to invest at least Rs 10 to 12 crore to get desired returns,” says Chairperson of the Brokers’ Association Narendra Sijapati. “Who will invest so much in this stock which gives only around 25 percent dividend in average when they can get much higher yield by investing in the stocks of insurance, BFI or the hydropower sectors?”

And the general impression among the investors is that you need a big player to play up a stock.

“Hence NTC’s price remains stagnant for years now though it is fundamentally one of the five best listed companies,” adds Sijapati. “No wonder that most of the investors wait till the last day before the book closure for NTC’s AGM to buy the scrip.”

Chairperson of Nepal Investors Forum Raj Kumar Timilisina, however, holds that the main reason NTC scrip has not being able to rise is its trend of issuing only cash dividend.

“If you analyze the market trend and sentiment these days, investors have not only been spoilt for choices, but also go for more-risk more-gain approach,” says he. “There for NTC, which opts only for cash dividend does not attract investors who want more of bonus and right shares.”

Nonetheless, institutional investors, which are sitting on top of piles of money, should have opted for this scrip, especially as they do not have enough avenues to diversify their portfolios.

Always a good deal for institutional investors

A number of institutional investors told ShareSansar that NTC does provide a good opportunity to diversify the portfolio for them, and most of such investors, including mutual fund operators, have got good returns from the scrip.  

“But NTC remains a risky deal in a number of ways,” says an official with one of the mutual fund operators in the country. “One of the risks is that it has an overwhelming government holding – a whopping 91.5 percent. Less than 10 percent of NTC scrip has been floated in the stock market, and it already has the largest market capitalization. What if more stocks are injected in the market? There will be a deluge of the stock, and it could badly affect its price.”

It may, however, be argued that the risk of promoter share is somewhat exaggerated in that NTC is not only seeking a big strategic partner to hand over a chunk of its stake, but also has a huge reserve and profit.  

And there are issues with corporate governance of the state-run enterprises. Solid competition from Ncell is another major challenge not matter how much scope there is for the market penetration, the institutional investors add.

But Chief Executive Officer of Nepal Life Insurance Company Limited Vivek Jha insists that NTC is one of the best scrips for the institutional investors as it not just undervalued scrip, but has been giving impressive dividend consistently.

Stating that NLIC has heavily invested in NTC stock and has been getting good returns, the CEO of the top insurance company of the country went on to add, “Return in cash is what institutional investors seek in the longer run.”

“If NTC could just continue to upgrade itself technically, it is going to grow like anything,” Jha added. “And don’t forget that NTC itself has been making very good strategic investment in hydropower and many other sectors, which will eventually benefits all those who hold its scrip.”