Footwear major Liberty seems to be the only company in the running to acquire a controlling stake in the ailing public sector undertaking (PSU), Indian Telephone Industries (ITI). Liberty placed its bid for a 51 per cent stake in ITI on the closing day of the Department of Telecommunications' (DoT) fourth extended deadline to find a buyer. However, the company was late by a few hours from the stipulated bid closing time, and so it is now up to DoT to decide whether Liberty's bid is acceptable.

The latest entrant in the telecom space, the Liberty Group has tied up with Israel-based Runcom Technologies to start a joint venture (JV) – Sunfest Runcom Technologies – to offer Wi-Max mobile broadband and other broadband communications solutions. The JV  has already set up a plant in Bawal, Haryana, to manufacture base stations, customer premises equipment (both indoor and outdoor) and USB Tongs for broadband wireless access as well as mobile and fixed 4G networks (Wi-Max-LTE). Liberty is keen on acquiring ITI's Bangalore, Rae Bareli and Naini units, which manufacture Wi-Max modems and optical transmission equipment.

For DoT, it is worth considering Liberty's offer given that ITI has so far failed to find a buyer.

Incorporated in 1948 for manufacturing telecom equipment, ITI has provided telecom gear for over 50 per cent of the country's network. Though the company was making money through the 1980s and the early 1990s, it has not been able to hold its own in the face of intense competition in the past decade. The company has been in the red since 2003.

As a part of its revival efforts, the 60-year-old company was put on the block for divestment in October 2009. The government invited bids for the Bangalore, Rae Bareli and Naini units. At that time, the communications ministry announced its plans to offload between 51 per cent and 74 per cent in each of these three factories to Indian or international companies interested in operating them as JVs.

However, despite the initial interest from vendors such as Huawei, Tejas Networks, Intel and UTStarcom, there were no takers for ITI. The deadline for the bids expired in April 2010, after which the government offered four extensions, the last one ending in end-August 2010, in the hope of attracting an investor.

The reason why investors have stayed away from committing on their initial interest is perhaps the stringent norms stipulated by the government, which, according to ITI officials, would stymie any possible turnaround of the company. The government, taking cognisance of the issues, recently announced that it was open to inviting fresh bids for ITI. And this time, it will concede most of the demands made by prospective bidders. For instance, it is willing to allow investors to reduce ITI's extensive workforce and waive the technology transfer fees. The government is also open to mandating state-owned telecom companies Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) to acquire 30 per cent of their equipment from ITI.

For the government, which has a 92.87 per cent stake in the company, it is important that ITI gets back on its feet again. Saddled with a huge surplus manpower (even after offering voluntary retirement to 6,365 employees), it has been registering crippling losses and borrowing from the market at high interest rates. Today, the company survives largely on contracts from BSNL and MTNL. In fact, ITI recently bagged an order worth Rs 2.3 billion from BSNL.

The government's bailout package drafted over the past few years to revive ITI includes aid worth Rs 10.25 billion in 2005-06; Rs 25 billion in 2008-09 to write off losses worth Rs 28.2 billion; and Rs 1.25 billion to enable ITI to pay salaries in January 2009. In June 2009, the government sanctioned a package of Rs 28.2 billion to take care of the company's liabilities and enable it to start on a clean slate.

On the disinvestment front, three units are already up for sale (ITI has six plants – in Bangalore in Karnataka; Rae Bareli, Naini and Mankapur in Uttar Pradesh; Srinagar in Jammu & Kashmir; and Palakkad in Kerala – producing the entire range of telecom switching, transmission and terminal equipment). For the remaining three, different business models including outright sale, stake sale and collaborations are being explored.

Meanwhile, the measures and bailouts undertaken in the past few years have helped the company report better results in the quarter ended June 2010. From a net loss of Rs 1.07 billion in June 2009, ITI has brought down its losses to Rs 638 million. The PSU also registered the highest sales of Rs 46.6 billion for the year ended March 31, 2010, up 167.6 per cent compared with the previous year's turnover of Rs 17.41 billion.

The company is trying its best to ensure that its losses are contained in the current fiscal year. "Our priority is to look for new orders and diversification of products to turn the company around," notes K.L. Dhingra, CMD of ITI Limited.

While these priorities are well placed, quick decisions on the stake sale are required to turn around the fortunes of one of the country's oldest PSUs.