BSNL: A Financial Overview

Introduction: Telecom landscape in India has changed completely since liberalisation and monopolies in Telecom sector have been replaced with competitive regime (Oligopolies). It is a well-known fact that BSNL was carved out of erstwhile DOT to provide level playing field to private Telecos. Since then many new business firms have entered in the arena and today there is merciless cutthroat competition in this sector. Even though competition is bonanza for subscribers but for corporates it is the question of survivability. If they are not in a position to earn sufficient revenue from the operations which not only meets their growth and expansion plans but are necessary for paying all Government levies and dues as revenue share, spectrum charges, USO fund contribution etc. as well as meeting internal requirements like Operation and Administration expenditures, Staff costs, Interest and repayment of Debt etc. Corporates are also under tremendous pressure from investors to show better results so that they also get handsome returns on their investments in the form of Dividends or appreciation in share values. To meet all such requirements corporate management some time indulges into creative accounting to artificial boost the profit figures because at the end of day it is the profit, which matters most to any business organization if it is not a non-profit organization. There is mandatory requirement for all companies to file following three audited statements to Company Law Board at the closure of every financial years i.e. Balance Sheet as on the last day of financial year, Profit and loss account for the whole accounting year and Cash flow statement. For stake holders and investors it becomes necessary to look beyond the figures quoted in these statements and carry out the in depth financial analysis to take appropriate decision regarding their investment and other important decisions. In respect of BSNL analysis carried out is based on its audited Balance Sheet and Profit and Loss Accounts taken from its annual reports. Role of Communication services in national growth: Proportion of Communication Services in GDP is increasing at faster rate, as it is evident from the following Table.

Service Sector Share in GDP

Construction Trade Hotels & Restaurants Railway Other Transport Storage Communications Banking & Insurance Real Estate, Business / Legal Services Defence Other Community & social Services Total Service Sector Share % in GDP (2002 -03) 5.4 14.0 1.1 1.1 4.3 0.1 3.5 6.9 6.1 5.9 7.8 56.1 Growth 2002 -03 7.3 4.5 4.0 5.7 6.0 -7.8 22.0 11.6 5.9 5.3 6.2 7.2

From above Table it is clear that growth rate (22%) of communication services in GDP is highest and proportion and importance of communication services is continuously increasing. It is considered as growth engine for overall economic growth. Graph given below indicates the exponential growth of Telecommunication infrastructure in India. As of now total telephones (Basic + Mobile) of all operators put together has crossed 15 Crores. In the month of August-2006 there was addition of 58 lacs of new Mobile subscriber. Such is a growth of Telecommunication in India, even now surpassing to the growth in China.

Growth of Telecommunications in India

Growth of Telecommunications in India
80 70 60 50 40 30 20 10 0
94 M ar -1 99 6 M ar -1 99 8 M ar -2 00 0 M ar -2 00 2 M ar -2 00 4 -1 98 1 r-1 9 92 r-1 9

Fixes Line Telephones Cellular Mobile Telephones Private Basic Telephone Tot al Telephones

M ar

M a

M a

In such a volatile scenario, knowing about the performance of a company becomes very important. Financial performance is a bed rock for overall performance and future growth of any company. Keeping this view in mind I have tried to put some relevant facts through this article. Financial Analysis of BSNL:On October 1st, 2000, BSNL was formed by converting service providing functions of erstwhile DOT to provide level playing field to private Telecos. Since then BSNL has emerged as the 7th largest Telecom Operating Company in the World. BSNL has played major role in spreading telephones to rural areas of the country at affordable rates. As per TRAI report 5.3 lakh villages have been provided access to telecom network through VPTs covering 87% of the villages. Most of the VPTs have been provided by BSNL. BSNL has provided 13.59 million (July 2005) rural DELs in the country. By this statement we can judge the important role played by BSNL right from its inception. Income, Expenditure and Profit: Following Table shows Income, Expenditure and Profit figures of BSNL for the 5 year period since its inception. Table S. YEAR No. INCOME (Rs. in Crores) 11699 24681 25892 33918 36090 EXPENDITUR E (Rs. in Crores) 10669 20461 25078 27163 29401 PROFIT BEFORE TAX (Rs. In Crores) 1030 4220 8136 6755 6689 PROFIT AFTER TAX (Rs. In Crores) 747 6312 1444 5976 10183

1 2 3 4 5

1.10.2000 to 31.3.2001 2002 2003 2004 2005

Government has set ambitious targets for Telecom PSUs (MTNL and BSNL) for providing a total of 12.50 Crore telephones by December 2007 with a targeted market share of 50%. However overall market share of both PSUs, which, was more than 85 % at the time of BSNL formation, has declined to less than 37% as on date. In the financial year 2004-05, the

revenue from 9,447,357 cellular subscribers (as on March 31, 2005) stands at 10.5% of the total revenue. Less than 1% revenue came from WLL services. We got 44.68 % income from Basic Telephone services while PCO business gave another 17.34 % of the income. Revenue from basic services during 2001-05 was Rs 23,080 Crore, Rs 21,545 Crore, Rs 23,954 Crore, and Rs 22,385 Crore. In the financial year 2004-05, the revenue from 35,859,482 basic subscribers (as on March 31, 2005) is 62% of the total revenue. In the last 4 yrs, BSNL has received Rs 15,701 Crore as compensation for maintenance of VPT, ADC, and IUC, which is 85% of BSNLs cumulative Profit Before Tax of Rs 18,477 Crore during the same period. BSNL has received 100% reimbursement of license fee from 2001-02 to 2003-04. For 2004-05, the reimbursement of license fee is restricted to 2/3rd of license fee paid which will be further restricted to 1/3rd in 2005-06. Thereafter, reimbursement will be nil. In the last 4 yrs BSNL has received total license fee refund of Rs 8,665 Crore (BSNL paid Rs 15,498 Crore as license fees) as a compensation for providing telecom services in rural areas. The total income of BSNL for the financial year 2004-05 is Rs 36,090 Crore and Profit Before Tax (PBT) is Rs 6,688 Crore which is almost equal to its IUC of Rs 6,035 Crore. BSNL will have to pay income tax on 70% of its profits and only 30% would be exempted. In the absence of such exemption from this year, BSNL will have to resort to borrowing resulting in substantial interest burden. BSNLs expenses on staff have shot-up by 218.75% in the last four years from Rs 3,848 Crore in 2001-02 to Rs 8,418 Crore in 2004-05. For the financial year 2004-05, expenses on staff are 28.63% of the total expenses. Similarly, the Administration and Operational costs have also increased by 199% from Rs 3,995 Crore in 2001-02 to Rs 7,951 Crore in 2004-05. For the financial year 2004-05, expenses on Administration and Operation are 27.05% of the total expenses. Together these two expenses are 55.68% of the total expenses in 2004-05.

Summary BSNL as a business entity has performed well so far even though there are some disturbing trends also like big increase on staff cost and administrative expenditure. BSNLs Staff cost is highest among industry barring only to MTNL. While industry average of staff cost is about 4-6 % of AGR same figure for BSNL is more than 25 %. Despite all constrains of the legacy network and large staff overall performance of BSNL is

satisfactory. BSNL does not have substantial debt so out go on the part of interest payment is small. BSNLs performance in Mobile business is average. BSNL started getting more than 10 % of its revenue from this segment at the end of year 2005. More efforts are required on this front. Broadband is other promising area where lot of efforts is required. Marketing of services is not up to the mark and some serious steps needs to be taken in this area because customer acquisition and retention is of prime importance in the highly volatile telecom market place where high churning and low customer loyalty are the characteristics. Despite all this growth in the Telecom sector the digital divide is continuously increasing. Gap between urban tele-density and rural tele-density is widening. Private players are less interested in high investment oriented and low return paying rural India but for BSNL there is a big opportunity here because BSNL already has a large network of more than 36000 Digital Exchanges connected by OFC backbone. BSNL can harp on its existing infrastructure to position itself as formidable player.

G.S.Shekhawat, ITS DGM(SW-I), ALTTC, Ghaziabad