State-run Bharat Sanchar Nigam Ltd’s (BSNL) accumulated losses may have crossed Rs 90,000 crore by December last year, according to Kotak Institutional Equities (KIE). The report also suggested the government should decide whether to consider equity infusion to keep the telco afloat or shut it down and bear a one-time loss to save costs.

The report also underscored a bleak picture of the entire industry which is already ailing due to low tariffs and predicted not enough earnings from the upcoming spectrum auction if it happens. The sector may bleed further if pricing does not move up, it warned.

“We believe the days of supernormal exchequer surplus from the sector may be over. Hyper competition and smart spectrum auction design led to generation of material surplus for the exchequer in the past decade,” IANS quoted the report as saying.

“We see low probability of ‘blockbuster’ spectrum auctions in the next few years,” the report added.

It further stated that the troubles are rising at the telecom company and that BSNL has missed paying February 2019 salaries to its employees on time.

“The government will bear an increasingly larger share of the burden of sector stress, if pricing does not move up soon,” the KIE report said.

It further said the preferential low or no-cost spectrum allocation alone will not solve the problem. The BSNL management had sought preferential equity infusion in the company in lieu of providing 4G spectrum.

Similar to what the owners of other telcos are doing, the government will need to answer consistent, large, equity calls to keep BSNL afloat.

“We wouldn’t bet on larger implications in the form of the government taking a fresh look at ‘sector health’,” the report said.

According to the report, FY 2008 was the last year of positive operating profit (EBIT) for BSNL and since then, the company has posted a cumulative EBIT loss of Rs 82,000 crore from FY 2009 to FY 2018.

“This figure would have crossed Rs 90,000 crore by December 2018 end, in our view. Employee expenses, including retire benefit accruals, stood at 66 per cent of operating revenues in FY 2018 versus 21 per cent in FY 2006 and 27 per cent in FY 2008,” the report underlined.

It added that FY 2018 operating revenues (at Rs 22,700 crore) stood 37 per cent below the peak FY 2006 levels reflecting industry-wide challenges as well as loss of market share for BSNL.

On the balance sheet front, BSNL moved from a peak net cash position of Rs 37,200 crore at end-fiscal 2008 to a net debt position of Rs 8,600 crore at end-2018.

“We believe the current annual cash loss run-rate for BSNL would be in excess of $1 billion (Rs 7,100 crore). These challenges have also meant that BSNL remains far behind the three private operators (Bharti, VIL and R-Jio) on network coverage, capacity and quality,” the broking firm said.

“R-Jio’s imminent FTTH foray will likely impact BSNL’s wireline business soon; this business has been the only growing segment for BSNL the past few years,” it added.

According to Kotak, the end for BSNL is a matter of time. Sector stress has only been rising for the past few years and BSNL’s ability to withstand was always limited given its uncompetitive cost structure and inferior network.