-250.

00%
-200.00%
-150.00%
-100.00%
-50.00%
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Working Capital (% Change Y-O-Y)
-120.00%
-100.00%
-80.00%
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Working Capital [% Change (Base Year 2005-06)]
Analysis
It has been duly noted that the situation of working capital of Bharat Sanchar Nigam Limited has
deteriorated from the financial year 2009-10 and the firm is yet to recover.
From 2005-06 onwards till 2008-09, the current assets and current liabilities were healthy in a
way that organization could run a positive working capital. It has been since 2009-10 that the
situation has deteriorated with current assets dropping and current liabilities increasing.

Figure 1

Figure 2
Interestingly, the period from which working capital started deteriorating is also the year when
the world was hit by the financial recession. Looking at the various components of working
capital it is very evident as to how percentage of certain elements have shot up particularly from
2009-10. This, I feel can be attributed to the financial crisis of 2009.
To understand these changes we need to understand the particular sections of working capital i.e.
Current Assets and Current Liabilities. Starting with current assets, the table below shows how it
has changed over the years in absolute terms.

-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
CA & CL (% Change Y-O-Y)
Current Assets Current Liablities
-80.00%
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Working Capital [% Change (Base Yr - 2005/06)]
Current Assets Current Liabilities
In the current assets, inventory as a whole has been swinging from up to down and then from
down to up in absolute terms. But inventory as a percentage of current assets has been charting a
growth path since 2005-06.

This increase in inventory has not contributed much towards sales, as over the same time period
has gone down from a healthy 14.36 to 6.96, which simple means that the amount of time
inventory stays in BSNL warehouses has doubled. Inventory turnover ratio indicates as to how
many times a company sells and replaces its inventory.

On the contrary, there was an equivalent drop in the cash and bank balances of BSNL,
effectively from 2010-11 financial year. There was a sudden dip in cash and bank balances as a
percentage of current assets and this dip has contributed most to the fall in current assets which
has led to the fall in working capital.

It is also particularly interesting to note how short term loans and advances jacked up soon after
the financial crisis but has been bought down even below the pre financial crisis years. This
combined with the lowering of cash and bank balances ensured that current assets remain
plummet year after year. The figure below indicates how short term loans and advances swing
during the years under consideration.


Current Assets over the same time period has managed to increase well beyond the current
assets. In 2005-06, BSNL had Rs. 1.981 worth of assets for every Re. 1 of liability which went
on to become Rs. 2.250 worth of assets for every Re. 1 of liability, in 2009-10. From then on it
slid down to become Rs. 0.851 for Re. 1 of liability. The spike in current liability is also to be
blamed equally as the drop in current assets for this downturn in working capital. The following
table shows the rise in current liabilities.

There are many components of current liabilities, some which were not there in 2005-06 and
were added later, claims for USO and liabilities for construction account, and some which were
there in 2005-06 but later disappeared, like claims to the Government of India. Therefore, for the
purpose of understanding current liabilities, I have took into consideration only those liabilities
which contribute the most towards the total sum.
It is the sundry creditors who forms the lions share of current liabilities. From forming 35% of
CL in 2005-06 this section has grown to contribute 60%, and it has grown 37.73% over the
figure of 2005-06.

Over here as well, as it can be seen from the table, there was a sudden jump in sundry creditors
in 2009-10, which has then simple refused to go down to pre-recession years and the PSU is now
constantly bringing the figures down, even though it is still way high compared to 2005-06.
Another change, which is in effect positive is in the rise in the income received in advance
against services which has constantly gone up since 2005-06. This shows that the firms business
is increasing even in the face of adversity.

The biggest changes has happened in Provisions. This section of current liabilities has soared
very high from 2005-06. Two main provisions that the company makes on yearly basis is the
leave encashment provision and gratuity liability. An employee is entitled to take certain number
of leaves, if he/she does not avail them, then he/she would be paid for those foregone leaves.
That payment is known as leave encashment. Over the years provisioning for leave encashment
has constantly increased and todays it is 80% more than what it used to be in 2005-06. This has
spiked the current liabilities thus effectively decreasing the working capital available with the
company.

Gratuity Liability on the other hand, has seen wild growth even though in absolute terms it just
represents 1% of leave encashment provisions. Gratuity is a part of salary that is received by an
employee from his/her employer in gratitude for the services offered by the employee in the
company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by
the employer to the employee upon leaving his job. The figure set aside in 2012-13 for liabilities
arising due to gratuity is more 1366% more than what it used to be in 2005-06.

All the above mentioned areas were the major fluctuations happened, which I believe led to the
current situation in which the working capital of BSNL in 2012-13 is even less than one-tenth of
what it used to be in the pre-recession years. The operating cycle of BSNL had also changed
from 89.07 days in 2005-06 to as high as 146.18 days in 2010-11. The company has been
successful in bringing down the operating cycle since then but it is yet to reach back to the 2005-
06 figures.


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