VRS IMPACT: BSNL finances show strong improvement

BSNL’s losses are set to fall by almost 70% this year

Bharat Sanchar Nigam Ltd is all set to report its first improvement in finances after the entry of Reliance Jio into the market, and is on track to reduce its operating expenses by around half this year.

For the first nine months of the current financial year, BSNL’s total losses plunged to just Rs 3,607 cr, indicating that the full-year loss is likely to be around Rs 4,800 cr.

If that bears out, it would represent a massive, 69% drop BSNL’s losses this year compared to the last, marking the biggest turnaround in the company’s fortunes in over a decade.

BSNL, which used to be a highly profitable company when it had a near monopoly of wired services in India, first started making losses 11 years ago, posting a loss of Rs 1,800 cr for the year ended March 2010.

The next year, losses zoomed to Rs 6,384 cr, and then continued to increase steadily over the next four years to a peak of Rs 8,234 cr in 2014-15.

However, with a new government in power at the center, and ongoing efforts from the previous administration, the company made a remarkable turnaround in 2015-16, reducing its losses by 41% to Rs 4,875 cr.

It managed to hold on to the improvements for another year, posting a loss of ‘only’ Rs 4,793 cr in 2016-17. However, the journey towards recovery was brutally cut short by the entry of Reliance Jio, currently India’s largest telecom operator, which unleashed massive disruption in the market with cut-throat voice and data services.

Over the next three years, Jio conquered the Indian telecom market, powered by hitherto-unseen scale and technological innovation, pushing BSNL deeper and deeper into a sea of losses.

From Rs 4,993 cr in FY17, BSNL’s losses ballooned to Rs 7,993 cr the next year and to Rs 14,904 cr in the next, and peaked at Rs 15,500 cr in FY20.

This forced the government to come up with a voluntary retirement scheme for employees.

BSNL’s salary costs were roughly equal to its losses (Rs 14,000-15,000 cr) at the time, and the idea was to reduce it by at least half.

The VRS scheme was concluded by end of 2019, and BSNL managed to shed around 80,000 out of an estimated 1.56 lakh employees through the scheme.

BSNL’s employee nos have fallen by almost 70% over seven years

Adding regular attrition and retirement, BSNL’s staff strength fell by 58% to 69,824 as of March 2020 from 1.70 lakh a year earlier.

At the same time, salary costs are unlikely to have fallen by 58%, as non-executive workers were over-represented in the retirees.

As a result, there was a fall of 67.5% in the number of non-executive employees of BSNL during the year, compared to a decline of only around 34.4% in the executive or officer class employees.

As such, by March 2020, the company had 30,887 officer class employees and 38,939 non-executive employees, adding up to a total of 69,824. Six years earlier, the company had 2.38 lakh employees.

Something similar was also taking place in MTNL, the other state-owned telco that operated in Mumbai and Delhi.

MTNL’s total employees fell by a whopping 81% between March 2019 and March 2020, also due to a VRS scheme.

Out of the 4,185 MTNL employees who remained as of March 2020, about 30% (1,288) were officer class, while the remaining (2,897) were non-executive class.

However, despite this, MTNL’s financial recovery has not been to the same extent as is seen in case of BSNL.

While BSNL is all set to report a 69% fall in losses for the ongoing year, MTNL seems set to report a decline of 57% for the full-year, based on trends for the first nine months of the year.

This may be because of the sharper pull back seen in BSNL’s operating expenses compared to those of MTNL.

Even though BSNL’s VRS scheme was estimated to bring down its salary bill by only around half (around about Rs 7,000 cr), the actual reduction in the company’s expenditures for the year is likely to be in the range of around Rs 15,000 cr, going by the trends for the first nine months of the current year. The company reported total expenses of Rs 12,368 cr for the first nine months of the year, which would indicate a full-year figure of Rs 16,450 cr. This represents a reduction of almost Rs 18,000 cr (52%) in the company’s expenses in the current financial year.

However, due to the nature of financial accounting, the final quarter may see some extra expenses added on and the net realized reduction in expenses could be considerably lower than Rs 18,000 cr.

On the other hand, MTNL’s reduction in expenditure has been more modest. Even if the trend for the first nine months hold for the final quarter, the company’s total expenditure will fall by only 30%, or Rs 1,170 cr.