Corporate Financial Analysis Report

BHARTI AIRTEL

Report Submitted By Group 2 – Batch 19 - B

Group Members:

1. AdeeyaPrabhakaran (FK-2181)
2. AnirbanSarkar (FK-2053)
3. JojiIssac P (FK-2167)
4. Josna Joseph (FN-158)
5. Keerthi T C (FK-2204)
6. Krishna Chaitanya M (FN-171)
7. Krishna Chandran R (FK-2070)
8. Mirian Leah Roy (FN-141)
9. G J SrinivasSai (FK-2196)
10. VivekAvanoor (FO-75)
11. Vineeth A (FN-120)

TABLE OF CONTENT

OBJECTIVE

The basic objective of doing the report is to analyse the financial statements of a Bharti Airtel, analyse the environment in which it is operating and evaluate its performance over the last three years and compare the performance with the industry peer groups. Hence a thorough Environment Industry & Company analysis is done to understand the external factors influencing the company. The financial report analyses and interprets using tools like comparative analysis, common size analysis and ratio analysis. Using these tools the performance of the company over the last three years is evaluated.

Introduction To The Industry

The history of telecommunication industry started with the first public demonstration of Morse’s electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham Bell filed his patent application and the first telephone patent was issued to him on 7th of March. In 1913, telegraph was popular way of communication. AT&T commits to dispose its telegraph stocks and agreed to provide long distance connection to independence telephone system. In 1956, the final judgment limited the Bell System to Common Carrier Communications and Government projects but preserving the long-standing relationships between the manufacturing, researches and operating arms of the Bell System. In this judgment AT&T retained bell laboratories and Western Electric Company. This final judgment brought to a close the justice departments seven –year-old antitrust suit against AT&T and Western Electric which sought separation of the Bell Systems Manufacturing from its operating and research functions. AT&T was still controlling the telecommunication industry.

In 1982 , AT&T was requested to divestiture its stock ownership in Western Electric;termination of exclusive relationship between AT&T and Western Electric; divestiture by Western Electric of its fifty percent interest in Bell Telephone Laboratories, AT&T ‘s telecommunication research and development facility, is a jointly owned subsidiary in which AT&T and Western Electric each own 50% of the stock; separation of telephone manufacturing from provision of telephone service and the compulsory licensing of patents owned by AT&T on a non-discriminatory basis. It was telecommunication act of 1996 that true competition was allowed. The act of 1996 opened the market to all competitors. AT&T being the first telecommunication company paved the road for the telecommunication industry as well as set the policy and standards for others to follow.

Beginning of telecommunication in India

The era of telecommunication in India started from the year of 1851 with the initiative from govt. of India near the city of Calcutta now known as Kolkata. However the rapid growth in telecom industry came into picture after the year of 2002-03 onwards as the more number of service providers came into existence. Since 2002-03 there is rapid change in the technology and increase in numbers of subscribers in the Indian telecom industry till now. The following are the milestones in the Indian telecom industry.

• 1851 First operational land lines were laid by the government near Calcutta.
• 1881 Telephone services introduced in India.
• 1883 Merger with postal system.
• 1923 Formation of Indian radio Telegraph Company.
• 1932 Merger of ETC and IRT into Indian Radio and Cable Communication Company.
• 1947 Nationalization of all foreign telecommunication companies to form the posts, telephone and telegraph, a monopoly run by the government’s ministry of communications.
• 1985 Department of telecommunication established an exclusive provider of domestic and long-distance services that would be its own regulator.
• 1986 Conversion of dot into two wholly government – owned companies the VSNL for international telecommunication and MTNL for services in metropolitan areas.
• 1997 Telecom regulatory authority created.

Telecommunication is important not only because of its role in bringing the benefits of communication to every corner of India but also in serving the new policy objectives of improving the global competitiveness of the Indian economy and stimulating and attracting foreign direct investment. Indian Telecom industry is one of the fastest growing telecom markets in the world. In telecom industry, service providers are the main drivers; whereas equipment manufacturers are witnessing growth and decline in successive quarters as sales is dependent on order undertaken by the companies. Today the Indian telecommunications network with over 375 Million subscribers is second largest network in the world after China. India is also the fastest growing telecom market in the world with an addition of 9- 10 million monthly subscribers. The teledensity of the Country has increased from 18% in 2006 to 33% in December 2008, showing a stupendous annual growth of about 50%, one of the highest in any sector of the Indian Economy. The Department of Telecommunications has been able to provide state of the art world-class infrastructure at globally competitive tariffs and reduce the digital divide by extending connectivity to the unconnected areas. India has emerged as a major base for the telecom industry worldwide. Thus Indian telecom sector has come a long way in achieving its dream of providing affordable and effective communication facilities to Indian citizens. As a result common man today has access to this most needed facility. The reform measures coupled with the proactive policies of the Department of Telecommunications have resulted in an unprecedented growth of the telecomsector. There is a cut-throat competition in the Telecom industry as more and more advanced technology is developed in very short time. Once the people get addicted to 2G technology by the time new players come up with latest technology called 3G and EDGE. The thrust areas presently are:

• Building a modern and efficient infrastructure ensuring greater competitive environment
• With equal opportunities and level playing field for all stakeholders.
• Strengthening research and development for manufacturing, value added services.
• Efficient and transparent spectrum management
• To accelerate broadband penetration
• Universal service to all uncovered areas including rural areas.
• Enabling Indian telecom companies to become global players.

Day by day, both the Public Players and the Private Players are putting in their resources and efforts to improve the telecommunication technology so as to give the maximum to their customers.

Recent things to watch in Indian telecom sector are:

• 3G and BWA auctions
• MVNO
• Mobile Number Portability
• New Policy for Value Added Services
• Market dynamics once the recently licensed new telecom operators start rolling out
• Services.
• Increased thrust on telecom equipment manufacturing and exports.
• Reduction in Mobile Termination Charges as the cost per line has substantially reduced
• Due to technological advancement and increase in traffic.

India's telecom sector has shown massive upsurge in the recent years in all respects of industrial growth. From the status of state monopoly with very limited growth, it has grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an essential necessity for the people of India. This changing phase was possible with the economic development that followed the process of structuring the economy in the capitalistic pattern.Removal of restrictions on foreign capital investment and industrial de-licensing resulted in fast growth of this sector. At present the country's telecom industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone companies were present, fixed landlines were popular in most parts of the country, with government of India setting up the Telecom Regulatory Authority of India, and measures to allow new players country, the featured products in the segment came in to prominence. Today the industry offers services such as fixed landlines, WLL, GSM mobiles, CDMA and IP services to customers. Increasing competition among players allowed the prices drastically down by making the mobile facility accessible to the urban middle class population, and to a great extend in the rural areas. Even for small shopkeepers and factory workers a phone connection is not an unreachable luxury. Major players in the sector are

• BSNL
• MTNL
• Reliance
• Bharti Teleservices
• Vodafone
• Tata Teleservices
• Idea
• Aircel
• Videocon
• MTS

With the growth of telecom services, telecom equipment and accessories manufacturing has also grown in a big way. Indian Telecom sector, like any other industrial sector in the country, has gone through many phases of growth and diversification. Starting from telegraphic and telephonic systems in the 19th century, the field of telephonic communication has now expanded to make use of advanced technologies like GSM, CDMA, and WLL to the great 3G Technology in mobile phones. Day by day, both the Public Players and the Private Players are putting in their resources and efforts to improve the telecommunication technology so as to give the maximum to their customers.The wireless subscriber crossed the 261 million subscriber mark at the end of the financial year in comparison to the subscriber base of 165.11 million at the end of March, 2009. It added 95.9 million subscribers in the financial year 2008-09 registering an annual growth rate of about 58.12%. The total subscriber base of wireless services has grown from 33.69 million in March, 05 to 261.07 million in March, 09 which is shown in fig.

Growth of telecom industry in India

Indian telecom industry continued to register significant growth in 2008-09. Indian telecom network, with about 414 million connections in February 2009, is the third largest in the world, while it is credited with the second largest wireless network in the world. At the current pace, the target of 500 million connections by 2010 is well within reach. The Government of India has reiterated its commitment to reach out to the remote and uncovered areas and to augment the broadband facilities in rural areas.

Economic Survey 2008-09 Growth

Source: Department of Telecommunications

Financial Year 2010

• FY10 saw the continuance of strong growth for the Indian telecom market, which witnessed a 45% YoY increase in its subscriber base during the 12-month period. At the end of March 2010, the country's total telecom subscriber base (fixed plus mobile) stood at about 621 m. The tele-density level stood at about 53% by the end of the fiscal.
• Growth remained robust in the GSM mobile space. GSM added 87 m subscribers during the year. After a strong 50% YoY increase in subscriptions during FY09, the GSM industry recorded another good performance during FY10, growing subscriber base by 22% YoY to about 479 m.
• During FY10, India's mobile subscriber base grew by 49% YoY, from 392 m to 584 m, while the fixed subscriber base declined by about 3%, from 37.9 m to about 36.9 m.

Prospects

• As far as the fixed line business goes, the low penetration levels in the country and the increasing demand for data based services such as the Internet will act as major catalysts in the growth of this segment. The PSUs will however continue to retain their dominant position. This is on account of high capital investments required in setting up a nationwide network. As a result, the private sector players will have to rely on key business centres and pockets of high urbanisation for their growth.
• Increasing choice and one of the lowest tariffs in the world have made the cellular services in India an attractive proposition for the average consumer. The segment's subscriber base has grown by over 49% YoY in FY10. As per Pricewaterhouse Coopers, India's mobile subscriber base is expected to exceed 1 billion by 2014 and will be driven by additions in the rural areas. India's rural tele-density for mobile subscribers currently stands at 32.7%.
• During FY10, the Government completed the auction of 3G as well as the Broadband Wireless Access (BWA) spectrum auctions. The final price for a pan India 3G spectrum stood at a whopping '16,751 Crores. As a result, there was no single operator with a pan India license. The maximum circles that an operator got 3G spectrum was for 13 circles. For BWA, the final auction price for a pan India license was '12,848 Crores. There emerged a new competitor in this field with Reliance backed Infotel being the only operator to win a pan India BWA license.
• During the year the Telecom Regulatory Authority of India (TRAI) also proposed new guidelines for charging spectrum fee and for mergers and acquisitions in the sector. On the face of it these guidelines appear to be more detrimental for the sector rather than helpful. If applied, these guidelines would increase the financial burden for the GSM operators by making them pay higher spectrum charges as well as humongous fee for holding higher quantities of spectrum. The guidelines also pose hurdles for mergers and acquisition activities, which are essential for reducing the overheated competition in the sector which currently has about 15 operators.
• During the current fiscal, a lot of focus will be given to new policy initiatives in the industry. The telecom regulator TRAI has set October 31st as the date for implementing mobile number portability (MNP) which allows subscribers to switch networks without changing the number. This would definitely lead to an increase in churn in the sector with each operator vying for subscriber attention to their own networks. In addition to this, the government is supposed to allocate 3G spectrum later during the year. Therefore, by the end of this fiscal, the operators would start rolling out 3G services in some circles at least.

An Introduction to the Company - Bharti Airtel

Incorporated on July 7, 1995, Bharti Airtel Ltd is a division of BhartiEnterprises. The businesses of Bharti Airtel are structured into two main strategic groups - Mobility and Infotel. The Mobility business provides GSM mobile services in all23 telecommunications circles in India, while the Infotel business group provides telephone services and Internet access over DSL in 15 circles. The company complements its mobile, broadband, and telephone services with national and international long-distance services. The company also has a submarine cable landing station at Chennai, which connects the submarine cable connecting Chennai and Singapore. Bharti Tele-Ventures provides end-to-end data and enterprise services to corporate customers by leveraging its nationwide fibre-optic backbone, last mile connectivity in fixed line and mobile circles, VSATs, ISPand international bandwidth access through the gateways and landing station. Allof Bharti Tele-Ventures' services are provided under the Airtel brand.As of September 2005, Bharti Tele-Ventures was the only company to providemobile services in all 23 telecom circles in India.By the end of October 2005, Bharti Tele-Ventures was serving more than 14.74 million GSM mobile subscribers and 1.10 million broadband and telephone (fixed line) customers.The equity shares of Bharti Tele-Ventures are currently listed on the NationalStock Exchange of India Ltd (NSE) and the Stock Exchange, Mumbai (BSE). As of September 30, 2005, the main shareholders of Bharti Tele-Ventures were: Bharti Telecom Ltd (45.65%), a subsidiary of Bharti Enterprises;Singapore Telecom (15.69%), through its investment division Pastel Ltd; and, Warburg Pincus (5.65%), through its investment company Brentwood Investment Holdings Ltd). Other shareholders with more than a 1% stake were: Citi Group Global Markets Mauritius Pvt Ltd (2.99%); Europacific Growth Fund (2.04%); Morgan Stanley & Co International Ltd (1.93%); CLSA Merchant Bankers Ltd A/C Calyon (1.33%); Life Insurance Corporation of India (1.34%); and, The Growth Fund of America Inc. (1.11%). Sunil Bharti Mittal, the founder-chairman of Bharti Enterprises (which owns Airtel), is today, the most celebrated face of the telecom sector in India. He symbolises the adage that success comes to those who dream big and then work assiduously to deliver it. Sunil Bharti Mittal began his journey manufacturing spare parts for bicycles in the late 1970s. His strong entrepreneurial instincts gave him a unique flair for sensing new business opportunities. In the earlyyears, Bharti established itself as a supplier of basic telecom equipment. His true calling came in the mid-1990s when the government opened up the sector and allowed private players to provide telecom services.Bharti Enterprises accepted every opportunity provided by this new policy to evolve into India's largest telecommunications company and one of India's most respected brands. Airtel was launched in 1995 in Delhi. In the ensuing years, as the Airtel network expanded to several parts of India, the brand came to symbolise the very essence of mobile services. Product Airtel provides a host of voice and data products and services, including high- speed GPRS services. Airtel also offers a wide array of 'post-paid' and 'prepaid' mobile offers, with a range of tariff plans that target different segments. A comprehensive range of value-added, customised services are part of the unique package from Airtel. The company's products reflect a desire to constantly innovate. Some of these are reflected in the fact that Airtel was the first to develop a 'single integrated billing system' Airtel comes to you from Bharti Airtel Limited - a part of the biggest private integrated telecom conglomerate, Bharti Enterprises. Bharti is the leading cellular service provider, with an all India footprint covering all 23 telecom circles of the country. It has over 21 million satisfied customers. Bharti Enterprises has been at the forefront of technology and has revolutionized telecommunications with its world class products and services. Established in 1976, Bharti has been a pioneering force in the telecom sector with many firsts and innovations to its credit. Bharti has many joint ventures with world leaders like Singtel (Singapore Telecom); Warburg Pincus, USA; Telia, Sweden; Asian infrastructure find, Mauritius; International Finance Corporation, USA and New York Life International, USA. Bharti provides a range of telecom services, which include Cellular, Basic, Internet and recently introduced National Long Distance. Bharti also manufactures and exports telephone terminals and cordless phones. Apart from being the largest manufacturer of telephone instruments in India, it is also the first company to export its products to the USA. Airtel's journey to leadership began in Delhi in 1995. Since then, Airtel has established itself across India in sixteen states covering a population of over 600 million people. Airtel will soon cover the entire country through a process of acquisitions and green field projects. With a presence in over 1,400 towns, Airtel today has the largest network capacity in the country. In the last nine years Airtel has achieved many firsts and unique records: it was the first to launch nationwide roaming operations, it was the first to cross the one million and the five million customer marks. It was also the first to launch services overseas. There are other 'firsts' credited to Airtel - many of them in the area of innovative products and services. Today, Airtel innovates in almost everything that it presents to the market. An excellent example is Easy Charge - India's first paperless electronic recharging facility for prepaid customers. As evidence of its fine record, Airtel has also been conferred with numerous awards. It won the prestigious Techies Award for 'being the best cellular services provider' for four consecutive years between 1997 and 2000 - a record that is still unmatched. And in 2003, it received the Voice & Data Award for being 'India's largest cellular service provider', amongst others. As part of its continuingexpansion, Airtel has invested over Rs. 1,065 billion in creating a new telecom infrastructure. In 2003/04, Bharti Tele-Ventures earned a gross profit of Rs. 16 billion on revenues of Rs. 50 billion. Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises. The Bharti Group has a diverse business portfolio and has created global brands in the telecommunication sector. Bharti has recently forayed into retail business as Bharti Retail Pvt Ltd. under a MoU with Wal-Mart for the cash & carry business. It has successfully launched an international venture with EL Rothschild Group to export fresh agri- products exclusively to markets in Europe and USA and has launched Bharti AXA Life Insurance Company Ltd under a joint venture with AXA, world leader in financial protection and wealth management. Airtel comes to you from Bharti Airtel Limited, India’s largest integrated and the first private telecom services provider with a footprint in all the 23 telecom circles. Bharti Airtel since its inception has been at the forefront of technology and has steered the course of the telecom sector in the country with its world class products and services. The businesses at Bharti Airtel have been structured into three individual strategic business units (SBU’s) – Mobile Services, Airtel Telemedia Services &Enterprise Services. The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles while the Airtel Telemedia Services business offers broadband & telephone services in 94 cities. The Enterprise services provide end-to-end telecom solutions to corporate customers and national &international long distance services to carriers. All these services are provided under the Airtel brand. Bharti Airtel is one of India's leading private sector providers of telecommunications services based on an aggregate of 71.77 million customers as on June 2008, consisting of 69.38 million GSM mobile customers and 2.39 Bharti Telemedia Customers. Bharti Airtel Limited, a group company of Bharti Enterprises, is India’s leading integrated telecom services provider with an aggregate of 71.77 million customers as of end of June 2008, consisting of 69.38 million mobile customers. Bharti Airtel has been rated among the best performing companies in the world in the Business Week IT 100 list 2007. Bharti Airtel is structured into three strategic business units - Mobile services, Telemedia services and Enterprise services. The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles. The Telemedia business provides broadband and telephone services in 94 cities and is foraying into the IPTV and DTH segments. The Enterprise business provides end-to-end telecom solutions to corporate customers and national and international long distance services to carriers. All these services are provided under the Airtel brand. Airtel’s high-speed optic fibre network currently spans over 78,540 kilometres covering all the major cities in the country. The company has two international landing stations in Chennai that connects two submarinecable systems - i2i to Singapore and SEA-ME-WE-4 to Europe.Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National Stock Exchange of India Limited (NSE).

Vision

By 2010 Airtel will be the most admired brand in India:

• Targeted by top talent
• Loved by more customers
• Benchmarked by more businesses

We at Airtel always think in fresh and innovative ways about the needs of our customers and how we want them to feel. We deliver what we promise and go out of our way to delight the customer with a little bit more

Mission

• Recruit & Maintain Calibre Working Staff
• Provides Customer Specific Software Solution
• Continues Improvement in Software Quality
• Not remain as Only Software Solution Provider, but be as Continues Service Provider
• To empower stakeholders in services and inventories to deal with associated

Quality Policy

We will deliver error free service to our customer by doing our jobs rightand first time every time.

Market share and revenues of the telecom companies

A total of 391.76 wireless subscribers were split between top wireless telecom operators. Bharti Airtel leads the way with 93.92 million followed by Reliance (GSM + CDMA).

Of the 391.76 wireless subscribers GSM has a market share of 76% and here is how they are split:

Introduction to Financial Analysis

Financial statements are a picture of a company's financial health. Outside investors and stakeholders use financial statements to determine how well a business is doing and if they should invest money into its operations. Most investors expect companies to have strong financials to mitigate potential investment risk.The section of report embodies the calculation and analysis of selected variables taken into reflection for the report purpose. The analysis uses raw data available on the concerned website. The raw data encompasses Yearly Results, balance sheet and income statement of the company. After calculation, analysis of individual tool is being done. Analysis is performed by using software known as Microsoft Excel.

Income Statement

The income statement reports all sales, cost of goods (COGS) and expenses. A general accounting rule is that COGS should be 75 percent or less of gross sales; expenses, 20 percent or less; and income, 5 percent of gross sales. This general guideline ensures that companies are not overpaying for COGS or other expenses listed on the income statement. A trend of income statements (measured over months or quarters) should be reviewed to see if sales or expenses are rising or falling throughout the previous periods.

Balance Sheet

The corporate balance sheet contains all assets and liabilities of a company. The assets should be reviewed to see if large amounts of inventory or accounts receivable (A/R) are listed in the asset section. High inventory indicates slow sales or obsolete goods still owned by the company; large amounts of A/R indicate slow collections by the company, slowing down cash flow. High liabilities mean that a company has several debt obligations that it must meet each accounting period. If current liabilities are especially high, it means that the company is avoiding payments to suppliers due to slow cash flow.

Cash Flows

A cash flow statement fills in the gaps regarding the incomes statement and balance sheet reviews; it shows how well a company generates cash flows from operations and financing activities. Strong cash flows help a company pay for the goods and services it needs to run the business. Sluggish cash flow indicates a company may have poor internal accounting operations and is unable to collect cash or pay vendors on time.

Financial Ratios

Another way to review corporate financial statements is to use financial ratios to calculate how well the company is performing. A few common financial ratios are as follows: Current ratio = current assets / current liabilities. Measures how well a company can pay liabilities with only short-term assets. A/R turnover = net sales / total accounts receivable. Measures how well a company receives payment on A/R through the accounting period. Gross profit margin = gross profit / total sales. Measures how much profit a company earns on sales for the accounting period. Debt ratio = total debt / total assets. Measures how much leverage is used to purchase operating assets.

Comparison

When using financial ratios, investors and stakeholders must compare an individual company's ratios against competitors or industry standards. This comparison will indicate if a company is operating at a level that will provide growth opportunities from future operations. If the numbers are weak compared to the industry, the company may be forced out of its industry as an inefficient producer in the marketplace.

Tools used for Analysis

• Ratio Analysis
• Comparative Analysis
• Common Size Analysis

The used of Financial analysis are the following:

(A) Management use of Ratio Analysis

• Helps in Decision making
• Helps in Financial forecast and planning
• Helps in Communicating
• Helps in Co-ordination
• Helps in Control

(B) Utility to shareholders and investors

(C) Utility to Creditors

(D) Utility to Employees

(E) Utility to Government

Traditional ratio analysis, a process used for many years by many financial analysts and Project Managers, looks at financial information in terms of liquidity, activity, profitability, and debt management, considering each measurement by itself. This analysis method helps the analyst develop an assessment of the company at the time of the statements analysed. Non-traditional ratio analysis considers the relationships between financial data from an interpretive perspective, permitting the analyst or Project Manager to make judgments or decisions related to operations. Non-traditional ratio analysis recognizes that some information is as indicative of future performance as it is of past performance.Financial analysis incorporates some of the tools used by analysts and Project Managers to assess the financial status and the financial condition of a company. Such analysis, utilizing financial ratios and analytical logic, provides information for assessment and is used by a wide range of interested parties. Sources of comparative information are identified and use of the analytical tools is explained in depth.

Everyone in business wishes they had a crystal ball and could anticipate future challenges and opportunities, allowing them to take appropriate and effective Project Managerial action. Through the careful application of the tools of financial analysis, the Project Manager can gain insight that is close to that crystal ball.

Financial analysts, in conducting a financial analysis, generally compute and interpret several ratios, which are drawn from financial statements, followed by a written interpretation of the results of the computations. Ratios can be represented in one of the following ways:Comparative analysis, often called cross-sectional analysis or industry analysis, may provide some meaningful benchmarks for performance. Trend analysis, also known as historical Analysis, compares a company against itself over time. Ratios may be a combination of both of the above. Ratios are grouped as follows:

Liquidity—assessing the ability to meet maturing obligations
Activity—assessing the effective utilization of assets
Profitability—assessing operating performance
Debt—assessing the management of borrowed funds, sometimes known as “coverage” ratios

 Specifically, we will look at a group of ratios that have been described as Effect Ratios:[*] the Current Ratio, the Quick Ratio, Net Working Capital, Accounts Receivable to Working Capital, Inventory to Working Capital, Debt to Assets, Debt to Equity, Short-Term Debt to Equity, and Short-Term Debt to Total Liabilities. We will also look at period-to-period change in these measurements. These ratios highlight the application of financial analysis tools and the types of information that such an analysis provides. As we will see, they also give the analyst or Project Manager a good idea of where to look for additional information.

 In addition to ratios and relationships within the two key financial statements, many ratios relate an element of the Income Statement to an element of the Balance Sheet. These ratios are also very valuable tools for assessing management and for identifying actions or situations that will affect future results. Among these ratios is Return on Assets, Return on Equity, Average Collection Period, Inventory Turnover, Fixed Asset Turnover, Total Asset Turnover, and Sales to Net Worth.

Comparative Analysis of Bharti Airtel

Comparative Analysis of Income Statement of Bharti Airtel for the years 2008-2010

Interpretation:

Operating income – 4% increase in 09-10

                                32% increase in 08-09

Operating profit -     5% increase in 09-10.

                                24% increase in 08-09.

Net profit -               22% increase in 09-10.

                                24% increase in 08-09.

Cost of Sales -        4% increase in 09-10.

                               38% increase in 08-09.

While there has been marginal increase in operating income, operating profit and net profit in 2009-10, it is less than 2008-09. This is possibly because of entry of new players in mobile connections in India. But what Airtel has done well is that they have reduced cost of sales, which somewhat compensates the competitive pressure. Manufacturing expenses have also increased due to their  acquisition of Zain telecom in Africa. They have also acquired 60% stake in Warid telecom in Bangladesh, and thus is expanding its business in Asia. Its wireless operating margin would get negatively affected due to increase in spectrum charges in 3g, but that is still uncertain. Depreciation charges increased a lot from 2009 to 2010, but considering the company’s  aggressive mode, these minor obstacles will not hinder them much. Overall, it is a good but not the best performance by the market leader.

Comparative Analysis of Balance Sheet of Bharti Airtel for the years 2008-2010

Interpretation:

Reserves ans Surplus – 26% increase in 09-10.

                                        40% increase in 08-09

Investments –                  25% increase in 09-10

                                           7% increase in 08-09

Secured loans –               31% decrease in 09-10

                                      1.32% decrease in 08-09

Unsecured loans –           53% decrease in 09-10

As obvious, reserves have decreased and investments have increased in 2010. The domestic

 telecom sector has been negatively impacted due to irrational pricing, forcing telecom operators

with strong balance sheets like Airtel, to go for acquisitions in emerging markets. Net block has

decreased from 31% to 10% increase over the years, also because of this. Investors, hence have to take a long term perspective rather than short term gains. If a company has decided to go global with emerging markets, then such fluctuations are bound to occur. But profit will come in future. It is a strong balance sheet because they have paid their most of the loans in 09-10 as compared to 08-09. Although unsecured loans have an increase in 08-09, but they decreased it in 09-10, which shows the company has strong reserves to go for investments as well as pay the due loans. Hence the company has a strong performance inspite of competitive pressure.

Comparative Analysis of Balance Sheet of Airtel with Competitors

Interpretation:

Intense pressure from competitors especially from Reliance,  in terms of net worth and

the amount of reserves. But in terms of debt and liabilities pay off to assets, Airtel still

maintains its top position. Hence its aggressive expansion strategy will make it difficult

for other players to catch up with it.

Comparative Analysis of Income Statement of Airtel with Competitors

Interpretation:

Airtel beats its competitors by a long margin when it comes to sales turn over. This has resulted

in a huge gain in total income since excise duty was zero for all companies. However, due to its

huge employee base, its employee expenses are also the highest. Hence, its total expenses

have also reported the highest among its competitors. But since its net profit is way ahead from

 other players due to its huge customer base, so Airtel maintains its number one position in

telecom sector in India. Also, earnings per share has a very good value of Rs 24, which beats

the others comfortably. So, although expenses have increased but still the market share is very

good.

Common Size Analysis of Bharti Airtel

The common-size statement is a financial document that is often utilized as a quick and easy reference for the finances of a corporation or business. Unlike balance sheets and other financial statements, the common-size statement does not reflect exact figures for each line item. Instead, the structure of the common size statement uses a common base figure, and assigns a percentage of that figure to each line item or category reflected on the document.

A company may choose to utilize financial statements of this type to present a quick snapshot of how much of the company’s collected or generated revenue is going toward each operational function within the organization. The use of a common-size statement can make it possible to quickly identify areas that may be utilizing more of the operating capital than is practical at the time, and allow budgetary changes to be implemented to correct the situation.

The common size statement can also be a helpful tool in comparing the financial structures and operation strategies of two different companies. The use of percentages in the common size statements removes the issue of which company generates more revenue, and brings the focus on how the revenue is utilized within each of the two businesses. Often, the use of a common-size statement in this manner can help to identify areas where each company is utilizing resources efficiently, as well as areas where there is room for improvement.

Common Size Analysis of Income Statement of BhartiAirtel from 2008 to 2010

Interpretation:

Although manufacturing expenses have increased over the years due to expansion from 08-10,

Airtel has managed to report 26% profits of net sales in 2010, as compared to 24% in 2008 and

22% in 2009. This is good for the company as it means that it has successfully managed to

increase its customer base profitably. Manufacturing expenses have increased from 38% to

 44%, due to high prices, but that is compensated by net profit. Interest expense has lessened

which is a good sign. Overall, the income statements for three years account for a gradual

improvement in the performance of the company.

Common Size Analysis of Balance Sheet of Bharti Airtel for the years 2008-2010

Interpretation:

Short Term Solvency: By comparing the current Asset and Current Liabilities of the company it appears that the company is not able to pay the day to day obligations. But from the Reserve (Rs 34650.19 Crores) has increased to 82.94% of Total Assets with the company. The company may use this reserve to pay the day to day obligations.The debt (Secured & Unsecured Loans) is decreasing; this may be due to the fact that the company is able to generate cash through the sale of services. From the increase in the Reserve fig., it may be assumed that the Airtel is making huge profits.

Long Term Solvency: While comparing the fixed Asset and the Long Term Liabilities, as long as the Airtel makes profit the company is able to attract more shareholders. Company is decreasing or selling some of the fixed assets, this may be due to the efficient use of Indus Towers.Company shows a negative balance in the Current Asset but while comparing the performance from 2008 to 2010, the Airtel is able to have a good position in Current Assets in the year 2010.

The overall profitability of Airtel is better when comparing the previous years, this may be due to the Sales of services, increase in customer base (an increase of 65%), reduction in operating expenses by the use of Indus Tower ( sharing the towers with other major players) etc.

Common size Analysis Balance Sheet of Bharti Airtel with Idea for the year 2010

Interpretation:

Share capital of Idea is more than Airtel, but Airtel has more Reserves than Idea. This is because the introduction of new circles has caused an overshoot in the expense of Idea, thereby reducing the profit. Short Term Solvency of Airtel when compared to Idea is poor as Idea can pay the day to day obligations, but both service sectors lack to cover the current liabilities.Idea has more fixed Assets than Airtel this may be due to the introduction of new circles to provide better services to the exiting/ new customers.

RATIO ANALYSIS

Ratio analysis is the powerful tool of financial statements analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. The absolute figures reported in the financial statement do not provide meaningful understanding of the performance and financial position of the firm. Ratio helps to summaries largequantities of financial data and to make qualitative judgment of the firm’s financial performance.

Ratio analysis helps to appraise the firms in the term of their profitabilityand efficiency of performance, either individually or in relation to other firmsinsame industry. Ratio analysis is one of the best possible techniques availabletomanagement to impart the basic functions like planning and control. As futureis closely related to the immediately past, ratio calculated on the basis historicalfinancial data may be of good assistance to predict the future. E.g. On the basisof inventory turnover ratio or debtor s turnover ratio in the past, the level ofinventory and debtors can be easily ascertained for any given amount of sales.Similarly, the ratio analysis may be able to locate the point out the various ariaswhich need the management attention in order to improve the situation. E.g. Current ratio which shows a constant decline trend may be indicate the need forfurther introduction of long term finance in order to increase the liquidityposition. As the ratio analysis is concerned with all the aspect of the firm’sfinancial analysis liquidity, solvency, activity, profitability and overallperformance, it enables the interested persons to know the financial andoperational characteristics of an organization and take suitable decision.

Current Ratio:

Current Ratio is the indicator of the firm’s commitment to meet its short-term liability. Current Assets mean assets that will either be used up or converted into cash within a year’s time. Current liabilities mean liabilities payable within a year or during the operating cycle, whichever is longer.

Interpretation:

There is no hard or fast rule, conventionally, a current ratio of 2:1 (current assets twice the current liabilities) is considered satisfactory. The logic underlying the convention rule is that even with a dropout of 50% in value of current assets a firm can meet its obligations, i.e., 50% margin of safety is assumed to be sufficient to ward off the worst situation. Generally the levels of current ratio vary from industry to industry depending on specific industry characteristics. Also firm differs from the industry ratio because of its policy. In Bharti Airtel Limited, the current ratio is 0. 72 times i.e. the current asset is less than current liabilities. The current liability is high because of sundry creditors. This is due to strategic partner.

Chart showing the Current Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

Quick Ratio:

The Quick ratio is also termed as “Acid-Test Ratio”. This ratio is ascertainedby comparing the liquid assets (i.e., assets which are immediately convertible in to cash without much loss) to current liabilities. Prepaid expenses and stock are not taken as liquid assets. This may be expressed as:

Quick Ratio =    Liquid Assets

                -----------------------

                Current Liabilities

Interpretation:

Generally Quick Ratio of 1:1 is considered satisfactory as a firm can easily meet all current claims. It varies from industry to industry depending on specific industry characteristics. Also differ from the industry ratio because of its policy.In Bharti Airtel Limited, the Quick Ratio is below the standard no of 1:1 in all the years during the period of study (2008 – 2010). It is because of strategic partnership with Ericsson.

Chart showing the Quick Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

Gross Profit Ratio:

These ratios express the relationship between gross profit and net sales.

Gross Profit= Sales – Cost of goods sold (Including Operating Expenses) – Depreciation – Amortization

Gross Profit

Gross Profit Ratio = -------------------- X 100

Net Sales

Interpretation:

In interpreting the gross profit ratio at is important to observe any trend, but in making comparison between companies at is vital to appreciate that the gross profit ratio varies considerably from industry to industry. In telecom Gross profit is very high considering Low operating cost and high depreciation on capex led by them. Gross profit of 45-50% is highest among all the industries. In Bharti Airtel, the Gross Profit Ratio is high during the year 2008 and low during the year 2010. As major expense is towards depreciation which is fixed cost. Company will loss more with decrease in business. It is visible from above trend. Gross Profit ratio will increase with increase in business due to benefit of scale. In interpreting the gross profit ratio at is important to observe any trend, but in making comparison between companies at is vital to appreciate that the gross profit ratio varies considerably from industry to industry. In telecom Gross profit is very high considering Low operating cost and high depreciation on capex led by them. Gross profit of 45-50% is highest among all the industries. In Bharti Airtel, the Gross Profit Ratio is high during the year 2008 and low during the year 2010. As major expense is towards depreciation which is fixed cost. Company will loss more with decrease in business. It is visible from above trend. Gross Profit ratio will increase with increase in business due to

benefit of scale.

Chart showing the Gross Profit Ratio of Bharti Airtel Limited for the year ended 2008– 2010

Net Profit Ratio:

This ratio helps in determining the efficiency with which affairs of the businessare being managed. An increase in ratio over previous period indicates improvement in the operational efficiency of the business provided the gross profit ratio is constant.

Net Profit after tax

Net Profit Ratio = --------------------------------- X 100

Net Sales

Interpretation:

In interpreting the Net Profit Ratio at is important to bear in mind that suchratio varies from firm to firm. When we compare the gross and the net profit margins we can gain a good impression of their non-production and non-directcosts such as administration, marketing and finance costs. The Net Profit Ratio provides clear picture of how efficiently the firm maintains control over its total expenses. The Net Profit Ratio of Bharti Airtel Limited is high during the year 2010 &low during the year 2008. The net profit ratio has gone up to 26.40% in 2010 compared to 2008 & 2009, respectively. It indicates the efficiency of the management in increasing the profit. As mentioned above the benefit is for increase in scale of business. Fixed cost will get observed over more revenue hence there will be increase in Net profit ration with increase in revenue.

Chart showing the Net Profit Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

Operating Ratio:

This ratio is complementary of Net Profit Ratio. In case Net Profit is 20 %, it means Operating Ratio is 80 %.

Cost of goods sold + Operating Expenses

Operating Ratio = --------------------------------------------------------------------- X 100

Net Sales

Interpretation:

Operating Ratio monitor the various expenses incurred related to sales. A highoperating ratio would indicate low profitability, while a low ratio is an indication for high profitability. The Operating Ratio should be low to leave a portion of sales to give fair return to the investors. The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take into account debt repayment or expansion Bharti Airtel Limited has 60 % margin on operating expenses. The Operating Ratio is 41.37 % in 2008 which is less than the margin. This shows the Airtel has well managed the operating cost.

Chart showing the Operating Ratio of Bharti Airtel Limited for the year ended 2008– 2010

Debtor Turnover Ratio:

Debtors constitute an important constituent of current assets and therefore the quality of debtors to a great extent determines a firm’s liquidity. Debt collection period indicates the extent to which the debts have been collected in time. It gives the average debt collection period.

Sales

Debtor Turnover Ratio = --------------------------------

Closing Debtors

Interpretation:

Receivable Turnover Ratio which indicates the number of times that theaverage outstanding net receivables is turned over, or converted into cash through collections during the year. Receivables turnover is the period required for one complete cycle; from the time receivables are recorded through collection, to the time new receivables are recorded. On the other hand, a longer credit period granted to creditors would adversely affect the firm’s liquidity position. The debtor turnover ratio has increased in all the years during the period under study. Though it has increased, still with the growth in the business &receivables, it indicates that the company’s strength in debtor management. The operation of debtors is through channel partners in post-paid. The debtor is zero in prepaid operation because they are paid through demand draft. The operation of prepaid is through Distributors – Retailers – Customers.

Chart showing the Debtors Turnover Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

Inventory Turnover Ratio:

This ratio is also known as stock turnover ratio establishes the relation between the cost of goods sold during the year and average inventory held during the year. It calculates as follows:

Cost of goods sold

Inventory Turnover Ratio = -------------------------------

Average Inventory

Interpretation:

The liquidity of inventories is measured by the number of times per year thatinventory is converted into cost of goods sold. Hence it is a device to measure the efficiency of the inventory management. Inventory turnover ratio rates vary tremendously by the nature of the business.

In Bharti Airtel Limited, average inventory holding period is one day. In telecom inventory will only include sim inventory which will be nominal incomparison to revenue. . Capex inventory will be grouped under fixed assets. Inventory analysis clearly indicates the trend.

Chart showing the Inventory Turnover Ratio of Bharti Airtel Limited for the yearended 2008 – 2010

Fixed Assets Turnover Ratio:

A high fixed assets turnover ratio indicates efficient utilization of fixed assetsin generating sales. A firm whose plant and machinery are old may show higher fixed assets turnover ratio than the firm which has purchased them recently.

Sales

Fixed Assets Turnover Ratio = --------------------------------

Net Fixed Asset

Interpretation:

This ratio measures the efficiency in utilization of fixed assets. The ratio of        sales to fixed assets measures the turnover of plant and machinery. A high fixed assets turnover ratio indicates efficient utilization of fixed assets in generating sales. There has been constant decrease in fixed assets turnover ratio of Bharti Airtel Limited though absolute figure of sales have down up. There is an decrease year after year. In 2010, it has increased by 19 %. The sales include the capital work in not progress. It means decrease in the investment in fixed assets has brought about commensurate loss.

Chart showing the Fixed Assets Turnover Ratio of Bharti Airtel Limited for the yearended 2008 – 2010

Debt Equity Ratio:

The Debt Equity Ratio is determined to ascertain the soundness of the long term financial policies of thecompany. It is also known as “External – Internal” Equity Ratio. It may be calculated as follows:

External Equity

Debt Equity Ratio = -------------------------------

Shareholders Fund

Interpretation:

Either too high or too low a ratio may be disadvantageous. Too high suggests that management is not taking advantages of opportunities to maximize its profit through borrowings. Too low suggests undue exposure to risks of bankruptcy and to a fixed burden of interest expenses in the event of period of relatively low profit. As a rule of thumb, debt equity ratio of less than 1 is taken as acceptable, but this is not based on any scientific analysis. In Bharti Airtel Limited, the Debt Equity Ratio is almost close to 1 which is good for company. The debt is 0.92 times in total equity. The management has taken advantage of the opportunities to maximize profit through borrowings.

Chart showing the Debt Equity Ratio of Bharti Airtel Limited for the year ended 2008 – 2010

Earnings perShare:

The profitability of the firm from the point of view of ordinary shareholders can be measured in terms of number of equity shares. This is known as Earningsper Share. It is calculated as follows:

Net Profit after Tax

Earnings per Share = -----------------------------------------------

No. of Equity Shares outstanding

Interpretation:

This is well known and widely used indicator of profitability because it can easily be compared to the previous EPS figure. The earnings per share represent average amount of net income earned by single equity share. Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component of the price-to-earnings valuation ratio. The Earnings Per Share of Bharti Airtel Limited is has been consistently increasing in 2009and it decreased in 2010. This shows the equity share capital is being effectively used in 2009 but not in 2010. This is also getting impacted with No-dividend policy of Bharti. Bharti has never declared dividend so shareholder is not getting benefited with the deprecation in EPS.

Chart showing the Earnings Per Share of Bharti Airtel Limited for the year ended 2008 – 2010

Findings in Ratios:-

• The current ratio is 0. 72 times i.e. the current asset is less than current liabilities. The current liability is high because of sundry creditors.
• Quick Ratio of 1:1 is considered satisfactory as a firm can easily meet allcurrent claims. It varies from industry to industry depending on specificindustry characteristics. Also differ from the industry ratio because of itspolicy.In Bharti Airtel Limited, the Quick Ratio is below the standard noof 1:1 in all the years during the period of study (2008 – 2010).
• The Net Profit Ratio of Bharti Airtel Limited is high during the year2010 & low during the year 2008. The net profit ratio has gone up to26.40% in 2010 compared to 2008 & 2009, respectively. It indicates theefficiency of the management in increasing the profit. As mentionedabove the benefit is for increase in scale of business.
• The debtor turnover ratio has increased in all the years during the periodunder study. Though it has increased, still with the growth in thebusiness & receivables, it indicates that the company’s strength in debtormanagement. The operation of debtors is through channel partners inpost-paid.
• There has been constant decrease in fixed assets turnover ratio of BhartiAirtel Limited though absolute figure of sales have down up. There is andecrease year after year. In 2010, it has increased by 19 %. The salesinclude the capital work in not progress. It means decrease in theinvestment in fixed assets has brought about commensurate loss.
• The Debt Equity Ratio is almost close to 1 which is good for company.The debt is 0.92 times in total equity. The management has takenadvantage of the opportunities to maximize profit through borrowings.
• The Earnings Per Share of Bharti Airtel Limited is has been consistentlyincreasing in 2009and it decreased in 2010. This shows the equity sharecapital is being effectively used in 2009 but not in 2010.

Ratio Analysis of Bharti Airtel with Competitors

Debt-Equity Ratio:

Interpretation:

The data in Table reveals that IDEA has achieved the highest Debt-Equity Ratio every year for the data taken for the period of 2007 to 2009 and is followed by RELIANCE between 2008-09. TATA alone has registered the lowest ratio. Even the three year average Debt-Equity Ratio of IDEA is significantly higher (1.656667) than that of RELIANCE (0.6166667), AIRTEL (0.406667) and TATA (0.11). Thus, it is inferred that IDEA has the least proportion of debt fund in its total capital and hence is the most efficient telecommunication company among all other companies. IDEA has the highest portion of its self-owned funds in the capital structure followed by RELIANCE, AIRTEL and TATA.

Long Term Debt-Equity Ratio

Interpretation:

The data in Table reveals that IDEA has achieved the highest Long Term Debt-Equity Ratio every year for the data taken for the period of 2007 to 2009 and is followed by RELIANCE between 2008-09. TATA alone has registered the lowest ratio. Even thethree year average Long Term Debt-Equity Ratio of IDEA is significantly higher (1.323333) than that of RELIANCE (0.45666667), AIRTEL (0.376667) and TATA (0.066667). Thus, it is inferred that IDEA has the least proportion of debt fund in its total capital and hence is the most efficient telecommunication company among all other companies. IDEA has the highest portion of its self-owned funds in the capital structure followed by RELIANCE, AIRTEL and TATA.

Current Ratio:

Interpretation:

The data in Table reveals that RELIANCE has achieved the highest Current Ratio every year for the data taken for the period of 2007 to 2009 and is followed by TATA, IDEA and AIRTEL.AIRTEL alone has registered the lowest ratio. Even the three year average Current Ratio of RELIANCE is significantly higher (1.423333) than that of TATA (1.273333), IDEA (0.753333) and AIRTEL (0.52). Hence we can say that RELIANCE has enough resources to pay its debts over the next 12 months as compared with the other companies.

Fixed Asset Ratio:

Interpretation:

The data in Table reveals that AIRTEL has achieved the highest Average Fixed AssetRatio for the data taken for the period of 2007 to 2009 and is followed by TATA, RELIANCE and IDEA. The three year average Fixed Asset Ratio of AIRTEL is significantly higher (0.926667) than that of TATA (0.773333), RELIANCE (0.73) and IDEA (0.626667). The table shows that AIRTEL has shown increase in the Fixed Asset Ratio year by year as compared to any other sample company. Moreover RELIANCE has year by year decrease in its Fixed Asset Ratio. It means that AIRTEL has less money tied up in fixed assets and RELIANCE has over-invested in plant, equipment, or other fixed assets. However the changes in this ratio for IDEA and TATA shows that they are not efficient to use their fixed assets.

EPS (Earnings per Share):

Interpretation:

The data in Table reveals that AIRTEL has achieved the highest Average EPS for thedata taken for the period of 2007 to 2009 and is followed by RELIANCE, TATA and IDEA. The three year average EPS of AIRTEL is significantly higher (31.54) than that of RELIANCE (14.963333), TATA (14.3133333) and IDEA (3.04333333). However both AIRTEL and RELIANCE has shown constant growth in EPS respectively between years 2007 to 2009 which is shown in the table. The EPS of IDEA is the lowest in all years as well as its average is the lowest as compared with other sample companies. The higher the ratio means the better is the share price of the company and the shareholders can earn more from their shares. Hence the AIRTEL is more efficient than other companies.

MAJOR FINDINGS:

• The average Debt-Equity Ratio of IDEA is significantly higher (1.656667) thanthat of RELIANCE (0.6166667), AIRTEL (0.406667) and TATA (0.11).
• Average Long Term Debt-Equity Ratio of IDEA is significantly higher (1.323333)than that of RELIANCE (0.45666667), AIRTEL (0.376667) and TATA(0.066667).
• The average Current Ratio of RELIANCE is significantly higher (1.423333) thanthat of TATA (1.273333), IDEA (0.753333) and AIRTEL (0.52).
• The average Fixed Asset Ratio of AIRTEL is significantly higher (0.926667) thanthat of TATA (0.773333), RELIANCE (0.73) and IDEA (0.626667).
• The average EPS of AIRTEL is significantly higher (31.54) than that ofRELIANCE (14.963333), TATA (14.3133333) and IDEA (3.04333333). Hencemaking AIRTEL one of the most efficient companies in the terms of generatingearnings.

REFERENCES

1. www.moneycontrol.com
2. www.airtel.in
3. www.equitymaster.com
4. www.angelsecurities.in
5. www.icicidirect.com