Airtel, Voda Idea, BSNL and MTNL's debt zooms to Rs 3.85 trillion in FY21

Their debt-to-equity ratio shot up to 6.83 times from 2.3 times at the end of March 2020

Mobile operators with the exception of Reliance Jio are in a much worse financial condition than expected earlier.

The combined borrowing of the four incumbent operators — Bharti Airtel, Vodafone Idea, Bharat Sanchar Nigam (BSNL), and Mahanagar Telephone Nigam (MTNL) — reached an all-time high of Rs 3.85 trillion at the end of March this year.

The companies’ combined debt was up 22.4 per cent year-on-year last financial year against 8.3 per cent growth in their borrowing in the previous year.

As a result, the incumbent operators’ debt-equity ratio shot up to an unsustainably high level of 6.83X at the end of March this year from 2.3X at the end of March 2020.

This was largely due to big losses reported by all these companies last financial year. The four incumbent operators racked up combined net losses of Rs 70,000 crore in FY21.

With this, the operators have cumulatively reported a net loss of Rs 2.45 trillion in the last five years, equivalent to nearly a third of their cumulative revenues during the period.

In comparison, these companies’ combined net sales were up just 6.2 per cent in FY21, down from 10.6 per cent growth in the previous year.

In contrast, Reliance Jio is sitting pretty with almost a debt-free balance sheet and a net worth that is now three and a half times the combined equity of its four other competitors. 

The Reliance Industries subsidiary reported net worth of Rs 1.83 trillion, against the incumbents’ combined equity capital of around Rs 56,400 crore at the end of March this year.

In comparison, Reliance Jio Infocomm reported gross debt of Rs 11,196 crore at the end of March this year, down from Rs 23,242 crore a year ago and an all-time high debt of Rs 81,037 crore at the end of March 2019.

Reliance Jio clocked revenues of Rs 70,436 crore in FY21 and net profit of nearly Rs 12,000 crore. As a result, Jio now accounts for nearly 30 per cent of the combined revenues of the five operators and 3 per cent of their combined debt.

Many analysts fear even worse because the financially strongest incumbent, Bharti Airtel, is sitting on a mountain of debt. The company’s consolidated debt reached a record high of Rs 1.63 trillion at the end of March this year while its debt-equity ratio rose to 2.8X at the end of March this year from 1.9X a year ago.

The company financial ratio has worsened though it raised nearly Rs 65,000 crore worth fresh equity capital in the past three years. Its net worth shrunk by 24 per cent in FY21 and, at Rs 59,000 crore, it is the lowest in the past eight years. This, analysts say, may make it tough for the company to make the capex required for a 5G upgrade to its network. This may force it to lose market share to Jio.

The biggest challenge for the incumbents is the growing dissonance between their financial liability and their revenues.

The incumbent operators’ combined revenues have been flat since FY16 but their debt is up 127 per cent while the annual interest payment has tripled in the period. This has pushed these companies deep into losses and weaker operators like Vodafone Idea are on the verge of bankruptcy.

The only silver lining for the incumbents is that Bharti Airtel continues to be EBITDA- and cash profit-positive at the consolidated level and government owned-BSNL reported an operating profit for the first time in the last four years in FY21. 

This was because of a 50 per cent decline in its salary costs because it implemented a mass voluntary retirement scheme (VRS) for its employees.