Some respite for now to MTNL, BSNL

Relief with govt revival package but debt and losses remain huge

The refund of broadband wireless access (BWA) spectrum money by the Government of India to its financially stressed telecom companies, Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL), might prove only temporary relief. Not only are they sitting on huge debt and accumulated losses; they continue to lose money. MTNL is to now get Rs 4,534 crore and BSNL Rs 6,725 crore (plus interest from January 31, 2013). The funds are expected to be used to bring down the companies’ debt. The refund is to be spread over a period of time, so any gains would accrue in a staggered manner.

MTNL had debt of Rs 11,925 crore at end-September 2013. Even if the company fully uses the refunded money to repay debt, this will fall only 38 per cent, to Rs 7,391 crore. In savings, if one assumes a 10 per cent rate of interest on existing debt, its interest cost will decline by Rs 453 crore (38 per cent of its FY13 interest cost). This is a huge saving but would not make much impact on earnings; MTNL makes loss on operating levels.

In the September 2013 quarter, the company recorded net sales of Rs 808 crore but made an operating loss of Rs 376 crore. Employee cost alone was Rs 817 crore in the quarter. Interest expenses were Rs 347 crore. Hence, the Street believes the cut in debt will not help more than temporarily. Even after earning other income of Rs 139 crore, the net loss was Rs 947 crore for the quarter. For the first half of 2013-14, MTNL reported operating loss of Rs 1,003 crore and net loss of Rs 2,203 crore, on net sales of Rs 1,692 crore. Interest costs were Rs 668 crore. On the flip side, the government has also approved a pension scheme for MTNL staffers. Of the estimated outgo of Rs 500 crore annually, the government will bear Rs 330 crore but MTNL must bear the rest. This will reduce some benefits from the debt reduction.

With the infusion of the refund money, there is hope that MTNL’s liquidity will improve and interest cost will come down. Yet, real recovery requires operating performance to improve significantly. The company is in a highly competitive environment and its net worth is negative. In FY13, on a total income of Rs 3,784 crore, it had a net loss of Rs 5,321 crore, as a result of a huge employee cost, of Rs 4,901 crore, and interest cost of Rs 1,181 crore. At the end of September 2013, its net worth was a negative Rs 5,004 crore. BSNL, once the country’s largest telecom service provider, had accumulated losses of Rs 24,681 crore as on March 31, 2013. The company reported a loss of Rs 7,884 crore for FY13. This was its fourth straight loss-making year, although these were lower by 10.9 per cent compared to the Rs 8,851 crore loss in FY12. There is a proposal to waive the one-time fee for BSNL and MTNL worth about Rs 12,000 crore for the additional spectrum these two state-run companies hold, as well as monetise the land bank owned by the two companies. If approved, the former would mean the companies will not see additional burden on their balance sheet. However, the gains from the latter will depend on the pace of real estate monetisation. Going by the experience of the erstwhile VSNL, the gains are unlikely to accrue soon.

Estimates indicate MTNL could garner Rs 5,000 crore from monetisation of real estate. DTZ and Feedback Infrastructure Services have been appointed as consultants to monetise its 0.78 million sq ft of built-up office space, and land parcels in Mumbai and Delhi. MTNL is likely to develop about 50 land parcels, aggregating 6.10 mn sq ft in Delhi and Mumbai, on its own or in joint ventures with developers. Apart from a package to compensate BSNL for offering a voluntary retirement scheme to about 15,000 employees (less than a tenth of its workforce), the government is considering a land monetisation proposal similar to that for MTNL. Plans to divest the company’s tower assets into a separate company for future monetisation are also under way.