Mahanagar Telephone Nigam Limited (MTNL), a government-owned telecom service provider, has announced the introduction of a Voluntary Retirement Scheme (VRS) aimed at reducing its workforce and cutting costs.
The decision, approved by the board of directors on December 23, 2024, is part of a broader strategy to make the organization leaner and more financially sustainable.
MTNL Financial Issues: Background and Rationale
MTNL has been facing significant financial challenges over the years, with its revenue and operating profit weakening considerably.
The company has reported losses every year since FY09, except for FY14, when it posted a net profit of ₹7825 crore.
As of March 2024, MTNL’s total debt stood at ₹30,028 crore, which is 41 times its annual revenue of ₹728 crore.
The high employee costs, which accounted for 78% of the company’s revenue in FY24, have been a major contributing factor to its financial woes.
VRS is open to both executive and non-executive employees aged 45 years and above.
The scheme is based on the ‘Gujarat Model,’ with a reduced ceiling on the ex-gratia payments, which are one-time financial compensations given to employees opting for the scheme.
By implementing this VRS, MTNL aims to reduce staff costs while maintaining operational efficiency.
Impact on Workforce and Financial Performance
MTNL has seen a dramatic reduction in its workforce over the past decade, with its employee strength decreasing by over 90%.
As of March 2024, the company had a headcount of 3,309, compared to 64,623 in FY96 and about 36,500 in FY14.
The introduction of VRS is expected to further reduce the workforce. This will help the company address its financial challenges and improve its operational efficiency.
MTNL shares spiked by 4% in the morning trading session on December 24, 2024.
Since the beginning of 2024, the stock of the telecom provider has rallied as much as 56%, outpacing the broader market.
This positive market reaction reflects investor confidence in MTNL’s cost-cutting strategy and its potential for long-term sustainability.
Despite the positive market response, MTNL faces several challenges in its path to financial recovery.
The company’s high debt levels and ongoing financial losses require a comprehensive restructuring plan to ensure long-term viability.
While VRS is a step in the right direction, MTNL will need to implement additional measures to address its financial challenges.
Additionally, the company must work on improving its operational performance.
Note: We are also on WhatsApp, LinkedIn, Google News, and YouTube. To get the latest news updates, subscribe to our channels. WhatsApp: Click Here, Google News: Click Here, YouTube: Click Here, and LinkedIn: Click Here.
