BSNL reports two straight profitable quarters after 18 years. Its auditor has some concerns
BSNL Ltd reported its second straight quarterly profit after 18 years. Yet, this was aided by accounting adjustments, non-core income and changes to how it reduces the value of its spectrum
Bharat Sanchar Nigam Ltd reported its second straight quarterly profit after 18 years, a milestone suggesting that the state-owned telecom operator’s fortunes are changing. Yet, this performance was largelydriven by accounting adjustments that even its auditor has flagged. What also helped is the sale of land, buildings and other infrastructure, and a change in how it depreciates the cost of airwaves.
For BSNL, employee costs are a key factor as these accounted for over 34% of its ₹20,841 crore revenue from operations in FY25. A decline here supports its profit.
In FY25, the company moved ₹1,042 crore of its employee expenses towards ‘Capital Work-in-Progress’ (CWIP), much higher than ₹114 crore in FY24 and ₹57.5 crore in FY23, according to its financial statements. The bulk of this, or ₹997 crore, was shifted in the past two profitable quarters.
Operating expenses or day-to-day costs of running the business (including salaries and rent) reduce profit in the short term. These are transferred to CWIP when a company is building long-term assets such as a new factory or, in the case of a telecom operator, installing 4G equipment and laying fibre.
In an emailed response to Mint’s queries, BSNL clarified that “it is common in the telecom industry to capitalize relevant overheads during periods of large network expansion. BSNL’s approach in FY25 is consistent with this industry practice."
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BSNL said the practice is not new, and relevant accounting standards permit the capitalization of direct attributable costs (including employee overheads) to the cost of fixed assets or intangible assets under development.
“In prior years with more modest capex, the proportion of expenses booked to CWIP was smaller. Non-allocation of such capital expenses (overheads, etc.) will result in undervaluation of the capitalization of the asset created," the company said, adding that its management and board are confident that the fundamentals of the turnaround are solid.
In FY25, the company added ₹26,022 crore worth of assets–the largest annual capex in its history, supported by the government's revival package–so proportionately higher staff involvement in capital projects was expected, it said.
BSNL shifted these costs to CWIP, bringing its employee benefit expenses down by 14% to ₹7,173 crore in FY25. As a result, its net loss narrowed to ₹2,247 crore in the fiscal from ₹5,371 crore in the previous year.
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Auditor raises concerns
“When any company identifies a particular project of capital nature, all expenses related to that are capitalised. It will move to profit and loss statement (P&L) under depreciation only after the project starts generating revenue," said J.N. Gupta, founder and managing director of Stakeholders Empowerment Services (SES), a proxy advisory and corporate governance firm.
However, BSNL’s auditor flagged concerns.
“In absence of proper documented procedure, we are unable to comment upon the correctness of allocation of employee related overhead of ₹103,153 lakh ( ₹1,031.5 crore) to Capital Work in Progress," BSNL’s auditor VK Jindal & Co. said in the company’s financial statements. A copy of the statement was reviewed byMint.
In its response, BSNL said, “All circles have provided all relevant data at the circle level to auditors".
The auditor also highlighted the underfunding of employee benefits. “The obligation of the company for employee retirement benefits (under employee expenses) is shortfunded by ₹50,146 lakh ( ₹501.5 crore) towards gratuity and by ₹8221 lakh ( ₹82.2 crore) towards leave encashment," the auditor said.
However, the company said, “BSNL has not ignored these obligations; rather, the term “shortfunded" indicates a funding gap, not an omission of liability. This funding shortfall is not new—it has been a recurring issue over the past years in BSNL."
The company added that the liabilities for these retirement benefits have been recognized in the financial statements as per Ind AS 19 (employee benefits).
The auditor also found that the reconciliation of the balance in accounts linked to government projects is pending.
Citing information and explanations given by the company, the auditor wrote BSNL has an unutilized balance of ₹3,018 crore out of the funds received from the Government of India for various projects on its books. However, bank accounts under this head showed a balance of ₹1,138 crore, suggesting the company has utilised funds. However, auditor VK Jindal & Co. was unable to assess its impact on the statement of financial results.
“In FY25, we have executed 11,000 towers under 4G saturation, in a single year, the largest in a year, for Government project. Because of the time lag between work completion and settlement of invoices, the amount will be reconciled and this is an ongoing and continuous exercise," BSNL said.
The company executes telecom projects funded by the government, including BharatNet rural broadband, network for spectrum (defence communications project), connectivity projects subsidized under the Universal Service Obligation Fund, and other state or central government initiatives.
Non-crore profit boosters
BSNL also reported a 31% increase in non-operating income to ₹2,586 crore, helping it trim losses in FY25. By contrast, BSNL’s revenue from operations rose 8% during the fiscal versus 1.1% growth in FY24 and 13.8% in FY23.
BSNL's primary business--mobile operations and selling internet services– “did not grow at the level it grew in FY23", said Parag Kar, an independent telecom analyst in a video on YouTube. “It looks like the ₹280 crore profit (in the January-March quarter) is a result of revenue from other income, which is asset monetisation, not the operations."
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A write-back of excess provisions and asset monetisation–sale of land and renting assets–contributed to higher non-operating income. Asset monetization, in particular, rose 77% over a year earlier to ₹1,120 crore in FY25, according to a release by the ministry of communications.
Intangible assets
Another factor that allowed BSNL to narrow down its loss during the previous fiscal and report a profit in Q4 is the change in the way it amortises or accounts for intangible assets over their useful life.
BSNL moved from a straight-line method of evenly reducing the value of its spectrum fees to unit-based amortization (linked to the actual usage of airwaves) from the beginning of 2024-25, the company had said in its statements for the third quarter ended December.
As a result, BSNL reversed ₹102 crore in amortisation on intangible assets, in addition to reduced depreciation on its property and plant in Q3 FY25. That brought down its amortisation by 48% quarter-on-quarter and 44% year-on-year (y-o-y), helping shore up its bottom line during the quarter.
However, in the fourth quarter ended March, the company’s depreciation and amortisation expenses rose 41.5% y-o-y to ₹2,375 crore. For FY25, these expenses stood at ₹6,283 crore, an increase of 9%, attributed to the recent spectrum acquisitions and increase in the capitalization of assets for 4G.
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Overall, according to the BSNL’s auditors, adopting a unit-based amortisation method reduced the company’s losses by ₹1,186 crore in FY25.
“The UBAM (unit-based amortization) is expected to provide more accurate reflection of cost allocation, matching with the consumption of economic benefits derived from the Spectrum utilization," the company said in its financial statements.
The telecom operator expects higher depreciation and amortization to continue weighing on its profits. “While acknowledging that quarterly profits may fluctuate in the near term due to high depreciation and interest costs from the recent investments, the company asserts that these investments are laying the groundwork for future growth," BSNL said.
The company’s core consumer mobility revenue rose 23.4% year-on-year to ₹8,708 crore in FY25, with BSNL improving its network after 4G launch. Revenue from the enterprise segment declined 1.4% to ₹5,090 crore, while consumer fixed access revenue fell 1% to ₹7,044 crore.
In the January-March quarter, BSNL posted a ₹280 crore net profit compared with a ₹849 crore loss a year earlier. In the preceding October-December quarter, the company reported its first profit since 2007 at ₹262 crore.
BSNL has so far deployed 93,450 towers to provide its 4G services.
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According to the Telecom Regulatory Authority of India (Trai), BSNL lost 669,073 subscribers in the January-March quarter, taking its base to 91.06 million.
BSNL said the strategy is to sustain revenue momentum and margin improvements so that, once past the heavy capex phase, the company can deliver consistent net profits and fulfil its role as a strategic state-owned telecom operator.
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