Will high expenses, huge losses drive others the Kingfisher way?

Kingfisher Airlines has been dominating business news in the past few days. A combination of bad management, fierce competition and high operating costs (caused by flawed government policies) have reduced the company to a hand-to-mouth existence.

But Kingfisher is not alone in its woes. There are a number of companies struggling to fight off bankruptcy. Several state-owned entities and some private sector-ones too are potential basket cases.

Here’s a list of the ones most likely to require a bailout of some sort(from private or public sector investors) in the future:

Jet Airways: Like Kingfisher, the cash-strapped airline recently sought government help to secure additional capital loans and an extended credit period from state-run oil marketing companies. The carrier posted its fourth straight loss in the December-ending quarter, bogged down by high fuel costs, high operating costs and a heavy debt burden (Rs 13,700 crore at last count). Since April 2011, the airline has amassed losses of more than Rs 1,100 crore, translating into a loss of Rs 120 per share.

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As this Firstpost story noted, the airline is not even making money from its operations to support its interest payments. Yet, buoyant stock markets have caused its shares to surge, partly because Kingfisher’s loss might turn into Jet Airways’ gain. On Tuesday, the stock ended at Rs 352, up more than 100 percent since its 52-week low of Rs 167 in late December last year.

[caption id=“attachment_221046” align=“alignleft” width=“380” caption=“BSNL has been weighed down by the heavy expenditure it had to make to buy spectrum for 3G and broadband wireless access.”]  [/caption]

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BSNL: In the year ending March 2011, the public-sector telecom company racked up losses of Rs 6,384 crore. BSNL has been weighed down by the heavy expenditure it had to make to buy spectrum for 3G and broadband wireless access, a bloated wage bill that continues to soar and no clear road map for growth. Employee costs are a particular concern.

As this Firstpost story noted, with 3,57,000 employees, BSNL generates about Rs 27,044 crore in annual revenues. Bharti Airtel, with just 5 percent of BSNL’s employee strength, had a turnover that was more than twice its size at Rs 59,467 crore. Vodafone, with more than 12 times its revenues globally, has all of 84,000 employees. With no real future plan, expect this company to approach the government cap in hand for money in the not-so-distant future.

MTNL: This is another state-run telecom company, whose wage bills seem to be spiralling out of control even as net sales keep declining. As this Firstpost story pointed out, the company’s biggest drag is its employees. The company had 43,311 employees at the end of March 2011, and its employee costs have consistently been equivalent to more than 90 percent of sales.

Even in the nine months to December, the company’s wage expenses were equivalent to a whopping 97 percent of sales. This, even as sales dipped by 14 percent from a year ago. Tightening the noose around MTNL’s neck further is its high debt - Rs 7,459 crore - primarily because of its borrowings to pay for spectrum for third-generation (3G) and broadband wireless access (BWA) services. It looks like it will increasingly have to make distress call to the government soon.

SEBs: An assortment of state-electricity boards would already be banging on the government’s door already if not for the fact they have bled so much that they have no energy to ask for a much-needed bailout. State electricity boards, which are primarily power distribution companies, have accumulated losses of more than Rs 1,00,000 crore - and will continue to bleed further if tariffs are not hiked soon.

A decade ago, the government wrote off similar losses for SEBs but those losses have come roaring back again. Like aviation, the sector is riddled with flawed policies, the chief one being that they are unable to charge prices that cover even the cost of their power supplies. For sure, something will have to be done about them. Yes, this sector is tangled up and in need of some shock therapy.

Suzlon: Okay, so this company is unlikely to approach the government for help because one, it’s a private-sector company and two, its problems are entirely self-created. The wind energy company, however, seems to be falling into the ‘Kingfisher’ trap because it too, like the airline, has reached a point where it is struggling for working capital.

High debt and a stretched balance sheet have left the company with very few funding options. Worse, some recalcitrant clients are refusing to pay on time. Last November, Suzlon’s promoter had to sell a 1.8 percent stake to access funds for the company’s operations. Making matters worse, between June and October this year, the company has foreign currency convertible bonds that are set to mature. About Rs 3,000 crore is up for redemption. Does Suzlon have the money to pay up? No. Its auditors have also warned that Suzlon’s ability to continue as a going concern depend on its ability to repay debt.

SKS Microfinance: The troubled microfinance company whose founder Vikram Akula left in November, posted one of the largest losses among companies for the December quarter - Rs 427 crore - which was also its highest loss since listing on the exchange.

The company has been struggling to survive after having to write-off a major chunk of its portfolio in Andhra Pradesh: provisions for bad loans in the December quarter rose to Rs 358.66 crore from Rs 100.75 crore in the year-ago period.

The company has booked losses of Rs 1,100.8 crore since March 2011, which has wiped out nearly 60 percent of the funds raised during its initial public offer of Rs 1,628.78 crore. The company has persistently lost borrowers, employees and faced a shrinking loan portfolio for a while now.

Is it any wonder that the stock has plummeted by a massive 84 percent in the past year? A company that set out to benefit the very poor looks badly in need of funds - and a credible makeover - itself.