 "MTNL's journey from cash-rich to debt-rich has become painful")
Today, the cash balance has almost drained out to a mere Rs 110 crore and worse, the company had accumulated borrowings of Rs 11,538 crore at end of March 2013.
The journey from cash-rich to debt-rich has become painful, both for the company and its shareholders. While losses have been mounting, MTNL has lost both in terms of market capitalisation and market share.
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Its market capitalisation has fallen from almost Rs 5,000 crore at the start of 2010 to just Rs 920 currently; the pain would be more if one compares the drop in market value since 2007, when it stood at about Rs 10,000 crore.
Once a cash cow, MTNL is today struggling to retain its market share and bring down its high legacy cost. In the last one decade its sales turnover has halved and the company has been losing business, both in the fixed line and wireless telecom space, to its private sector competitors.
MTNL’s wire-line subscriber base has remained more or less constant in the last three years at around 3.5 million, but since December 2010 its wireless subscriber base has fallen from 5.4 million to 4.51 million in June 2013. More importantly, due to cut throat competition its revenue per subscriber has come under pressure.
For instance, according to the last available figures, in the wire-line business, the fixed rental income has shrunk from Rs 1,100 crore in FY08 to Rs 699 crore in FY11 and further to Rs 617 crore in FY13. Call charges in this period have fallen from Rs 1,873 crore to Rs 1,135 crore and further to Rs 538 crore during this period.
In wireless segment, too, average revenue per user (ARPU) for the prepaid customers have fallen from Rs 175 in FY08 to Rs 54 in first quarter of FY12. For FY13, the wire-line (Basic & other services) revenues stood at Rs 2,696 crore, while cellular revenues were at Rs 759 crore, both almost compared to FY12.
But, as the business shrunk, overall costs have only gone up, leading to huge losses at the operating and net level. For instance, in FY13 company’s total income at Rs 3,714 crore was not even able to absorb the employee’s cost which stood at Rs 4,901 crore.
To add fuel to the fire this deficit (between operating income and expenses) as well as capex requirements were bridged through borrowings. As a result, interest costs have surged from a mere Rs 3 crore in FY09 to Rs 1,181 crore, leading to net loss of Rs 5,300 crore in FY13.
Revival: An uphill task
Though too late, the government is now talking about yet another revival plan for the company. "We have chalked out our plan and expect to become profitable again by 2018. Major issues are finance cost, pension and spectrum issues which is expected to be resolved soon," MTNL’s Chairman and Managing Director, A K Garg, told PTI recently.
But, any meaningful revival will not be ease. It will require substantial cut in debt and employee cost, as well as concrete steps to ensure a rising trajectory in subscriber base. A group of ministers recently decided to refund about Rs 5,700 crore to MTNL for surrendering BWA spectrum. If this money is used to repay debt, the same can half thereby leading to savings in interest cost worth about Rs 500-600 crore annually.
However, the bigger worry stems from employee cost. Bharti Airtel, which has pan India presence and operations in the several African countries, has a workforce of 26,596. This is far lower as compared to MTNL, which is operates in just two circles (Mumbai and Delhi) and has around 40,000 employees.
The government had earlier proposed to offer voluntary retirement scheme to MTNL’s 20,000 employees. The Street believes that implementation of these ambitious plans will be uphill task and a long drawn process.
Importantly, even if it is able to cut employee cost and borrowings, the real question remains on the business front in terms of growth and market share. “As per our estimate, we need to invest around Rs 500 crore annually to maintain our market share,” said Garg to PTI.
If despite all the proposed initiative the company is only talking about maintaining its market share, investors should be extremely cautious while betting on the company’s turnaround. MTNL also has significant real estate which it could use to lower debt further, but it will be a time consuming process and won’t help ease worries on the business front.