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Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
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Kingfisher isn't the only black sheep 
(Thu, 23 Feb Pre-Open) 
 
Kingfisher Airlines recently received a life line from some banks according to certain newspaper reports. This will probably help the carrier to temporarily tide over some of its problems. But the company remains cash strapped and is on the brink of collapse. Flights have been cancelled by the score and dozens of pilots have left the airline in disgust. In existence since 2005, the airline has been bleeding red ink and now has a debt burden of US$ 1.3 bn.

However, Kingfisher isn't the only company facing problems. There are a whole host of companies in India that are finding themselves in a fix. Jet Airways is also facing similar trouble in a tough operating environment. High fuel costs, a mounting debt burden and consecutive quarterly losses are putting the company in a tight spot.

BSNL, a public sector telecom company has racked up cumulative losses of Rs 64 bn till March 11 and the story has stayed the same this year as well. The heavy capital expenditure it had to make for 3G spectrum has bogged the company down. The company also has a bloated, unproductive employee base and correspondingly a very high wage bill. Other telecom players like Bharti Airtel and Vodafone are in comparison very efficient on an operating basis and make do with a fraction of the employees. It is a similar story with the other state telco Mahanagar Telephone Nigam Limited (MTNL). According to Firstpost, its employee costs are equal to more than 90% of its sales. High debt and inefficient operations may cause these two companies to ask the government to loosen its purse strings.

The Indian power sector is also not without its own set of problems. State electricity boards (SEBs) across various states have accumulated losses of Rs 1 trillion. Fuel costs have escalated but tariffs have stayed pretty much the same. Without policy reforms and tariff hikes even at the risk of stoking inflation this sector will continue to see trouble.

The Indian government can ill afford bailouts of its cash strapped utilities. Banks can also ill afford an increase in their bad assets. While interest rates are expected to soften and reduce the interest burden for some companies, this is not enough. Policy reform is the need of the hour in certain sectors. But inefficient companies should not be given life line after life line. Rather they should die a natural death.

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