 "Bharat Sanchar Nigam fortunes turn around")
Public sector telecom company Bharat Sanchar Nigam (BSNL) was one of the companies that Prime Minister Narendra Modi mentioned as an example where his government was able to turn around the ailing company.
From an operating loss of Rs 692 crore in 2013-14, BSNL reported an operating profit (including other income) of Rs 672 crore in FY15, and according to reports, it is expected to post operating profit of over Rs 3,378 crore in FY16.
The company expects revenues of Rs 30,000 crore for FY16, which will mean a growth of over 10 per cent, as compared to FY15. In FY15, the better performance of India’s sixth largest telecom service operator was due to revenue growth of year-on-year 4.2 per cent to Rs 27,242 crore and lower expenditure which were down two per cent. Among its top three expenditure heads, while operating expenses were up 1.5 per cent, employee costs and spectrum and licence fee were down between 3-3.25 per cent.
Its employee strength decreased to 225,000 in March 2015 from 238,000 in March 2014, reducing the burden of employee costs.
Unlike other telcos, BSNL has very little debt (its debt-equity ratio was 0.12 times in FY15), so a higher operating profit may result in improvement at the net profit level as it will not have a high interest burden.
Its net loss increased from Rs 7,020 crore in FY14 to Rs 8,234 crore in FY15 due to a change in accounting policy on depreciation. On a like-to-like basis, its net loss would have been Rs 5,370 crore in FY15.
Notably, other income was down 24 per cent year on year in FY15. The telecom ministry has indicated that BSNL is expected to turn profitable in the next four years and it is taking steps such as augmentation of its mobile network. BSNL installed about 24,000 base transceiver station towers over the last two years and is planning to add another 21,000 over the next year to improve coverage. With the exit of some of the smaller players from various circles, BSNL is adding to its subscriber base. Even while overall wireless subscriber base declined for the first time in May 2016 after a gap of over two and a half years, BSNL/MTNL were the second largest gainers behind Bharti.
BSNL/MTNL added 0.8 million net subscribers as compared to Bharti’s 2.1 million net additions for the month. What could help the company is the network integration with MTNL and the synergies from the arrangement. In addition to the growth in voice services, what is helping BSNL is the rapid increase in broadband connections which are growing at over 50 per cent year on year. Given BSNL’s strong fibre optic network and as well as wireless expansion plans, it could tap into the rapidly growing segment which constitutes just 14 per cent of the total wireless base as of now.
Meanwhile, it is also serious about partnerships with private sector companies. It entered into intra-circle arrangements with Reliance Jio, and the PSU telco also indicated that it was open to spectrum sharing with all operators.
However, its plan to improve financials could face hurdles especially given the phase of heightened competition with the launch of Reliance Jio’s services. Analysts at Deutsche Bank say that weaker players such as BSNL/MTNL would bear the brunt of Jio’s launch before the incumbents (Bharti, Vodafone and Idea) given these companies have a larger share of data revenues.
BSNL has been losing revenue market share. Over the last eight quarters, its revenue market share has been stuck in the 5 per cent mark. Given higher competition, the company will have a tough task protecting its market share, which has reduced from 8.5 per cent in FY11 to 5.3 per cent in FY16. The other area it will have to work on is employee costs.
Unlike larger peers Bharti Airtel, which offer multiple services and whose employee costs are just 5 per cent of revenues, for BSNL it is the biggest cost eating up 55 per cent of revenues. This has to come down substantially for it to improve its financial performance.
