Friday, 2 June 2017

Telcos in India deep trouble

  • Until a year ago, all Telcos in India were fairly well off making impressive profits with stock prices attracting investors.
  • With Reliance Jio launching its operations, a year ago, with its inaugural FREE offers compelled the existing Telcos to spend massive amounts in advertising and customer retention activities that resulted in erosion of their handsome profits and landing them with huge losses.
  • The data with us suggests that the total EBITDA (earnings before interest, taxes, depreciation and amortization) of the sector on an annualized basis is Rs 65,000 crore, which is clearly unsustainable for debt of more than Rs 4 lakh crore," the SBI chairperson said.
  • Now Indian banking sector already reeling under insurmountable NPAs of over Rs.7 lakh crores stands exposed to another huge risk of over Rs.4 lakh crores.
  • While Mukesh Ambani's borrowings from Banks is over Rs.1,80,000 crores and his investment in Reliance Jio is estimated at Rs.1,50,000 crores against its original estimate of Rs.85,000 crores. His strategy was to destroy competitors and monopolize Telco business with its advanced VOLTE technology is dealing deadly blow to existing Telcos namely Airtel, Vodafone, Idea, Reliance Communications, BSNL etc.
  • The ongoing consolidation in Telco sector in India will result in job losses to the extent of 40,000 this year.
  • Mukesh Ambani used Bank's money to push Banks to the brink of collapse. It is a matter of time Telcos loans of Rs. 4 lakh crores will become NPAs. How Reliance Jio will pay back its Rs.1.5 laks crores is  a million dollar question.
  • The loans to Mukesh Ambani were granted by Banks during Modi's tenure i.e. during past three years as quid pro quo for funding his 2014 election campaign expenditure.
  • Whether Mukesh Ambani will be able to make profits for Reliance Jio amidst chaos in Telco sector and repay banks is another million dollar question. How many more years he will hang on, we will have to wait and see.
  • In all Indian Banks stands exposed to monumental risk of Rs. 5.50 lakh crores in Telco segment, in addition to existing NPAs of over Rs.7 lakh crores.
  • Since three years Banks were unable to invest in infrastructure segment and other high value projects due to paucity of funds. This has resulted in GDP growth looking southward in addition to the deadly blow dealt by mindless demonetization 2016.
  • Meager budget support for inducing additional capital, public sector banks are simply biting time and recent ordinance with code for NPAs recovery being worthless and with discouraging global parameters, Indian economy today is spiraling down at breakneck speed with all economic indices looking southward there is no magic wand to halt this except looking towards sky for 'ache din'. But 'ache din' will come only when decisions are sound and implementation is faultless but not for rhetoric and high decibel shouting.

My View:
A decade ago while launching Reliance Infocom services Mukesh Ambani's statement is paraphrased as "I wouldn't be interested in a bigger piece of smaller pie but would rather aim at smaller piece of larger pie". But today he stands exposed to bulldozing competitors with his money power and establish monopoly in Telco market and eventually loot the consumers. All this facilitated by none other than Modi. While bank NPAs are result of reckless activities by UPA regime, destruction of Telco sector and monopolizing by Reliance Jio and further burdening of Banks and job losses is the creation by Modi himself.

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