Interesting! Bsnl's Profit Coming From Bank Deposits

[savramesh 37]

Source

NEW DELHI: Bharat Sanchar Nigam Ltd (BSNL) has been making operating losses in the past two years, only managing to stay in the black because of interest income from its accumulated cash reserves its misfortune almost entirely attributed by company insiders and experts to rampant political interference.

BSNL's performance in the lucrative telecom business has been slipping alarmingly in the past two fiscal years amid controversies surrounding telecom minister A Raja, as rival firms thrive taking advantage of the troubles weighing down the government-owned company.

For long regarded as one of the government's 'crown jewels' and a top candidate for disinvestment this year, the company was last year billed as able to command a market value of around $100 biillion.

But for the fiscal year to end-March 2009, Bharat Sanchar Nigam showed a measly Rs 575 crore as profit. Even this was possible only because interest income from its cash reserves was about Rs 3,900 crore.

In 2007-08, its net profit was Rs 3,009 crore on interest income of Rs 4,004 crore, buttressing the case its profits in the last two years have less to do with its telecom business. Income from activities not related to its core business during this period was nearly Rs 5,700 crore. Cash reserves fell to Rs 35,337 crore at the end of March 2009 from over Rs 40,000 crore a year ago.

Top BSNL executives speaking on condition of anonymity say the company has been severely hobbled by political interference. It ran out of capacity to expand cellular services nearly 18 months ago and no new major contracts for mobile networks and equipment have been awarded in the past 24 months.

One of the executives pointed out that in 2006 and 2007, the company matched India's biggest and most valuable phone firm Bharti Airtel in subscriber additions, but meddling since then had resulted in growth stagnating. "BSNL has hardly any capacity addition since 2006-07 and this reflects in our performance," the executive said.

Telecom Minister A Raja was not available for comment. Mr Raja has also been accused of giving wireless spectrum at throwaway prices to nine companies and causing a loss of over Rs 50,000 crore to the state exchequer. He denies the charge.

BSNL chairman & managing director Kuldeep Goyal said the company's earnings before interest, depreciation, taxation and amortisation (EBIDTA) was Rs 7,000 crore in 2008-09 . EBIDTA was almost the same amount in the previous fiscal.

"The lower profitability is due to high provision for depreciation of over Rs 9,696 crore in 2007-08 and almost Rs 8,500 crore in 2008-09 ," he said. Even the Rs 7,000 crore EBIDTA translates into a margin of about 20%, poor by industry standards. Bharti has been maintaining an EBIDTA margin of over 40% since 2007.

BSNL's dismal performance last fiscal resulted in Bharti overtaking it to claim the top slot for sales and profits. It also means that BSNL's valuations will suffer as it prepares for its first ever public share offering.

A measure of the depths to which BSNL has sunk is the fact that its revenues were nearly Rs 40,000 crore in the year to March 2007. Bharti's was at Rs 37,352 crore at the end of March this year.

INCREDIBLE INDIA

BSNL's profits over the last two years have not come from its telephone offerings.

Telco had a cash reserve of over Rs 40,000 crore in 2007-08 , which has come down to Rs 35,337 crore in 2008-09.

In 2008-09, BSNL posted a profit of Rs 575 crore, but its interest income on cash reserves was about Rs 3,900 crore.

MR MINISTER: A RAJA

Mr Raja has been accused of giving wireless spectrum at throwaway prices to nine firms and causing a loss of over Rs 50,000 crore to the state exchequer.

Edited August 4, 2009 by savramesh