Airtel Financial Analysis

Financial Accounting
Bharti Airtel/u107092/u107093/u107094
Project Report on
Bharti Airtel Limited
Nidhi Agarwal (u107092) Niraj Kumar Mall (u107093) Nishith Sahu(u107094)
Submitted by:
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Table of Contents
1. 2. 3. 4. ACKNOWLEDGEMENTS OBJECTIVE EXECUTIVE SUMMARY ENVIRONMENT ANALYSIS 4.
1 GOVERNMENT POLICIES 4.2 NEW TELECOM POLICY, 1994 4.3 NEW TELECOM POLICY, 1999
4.4 BROADBAND POLICY, 2004 5. INDIAN ECONOMY AND THE TELECOM SECTOR 5.1 GUIDELIN
ES FOR FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR 5.2 TRAI GUIDELINES AND OBJEC
TIVES 5.3 TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL (TDSAT) 5.4 CELLULAR
OPERATORS ASSOCIATION OF INDIA (COAI) 6. COMPANY ANALYSIS 6.1 ABOUT THE COMPANY
6.2 CAPITAL STRUCTURE OF BHARTI-AIRTEL 6.3 FINANCIAL STATEMENTS 6.4 ACCOUNTING P
OLICIES 7. Ratio Analysis 7.1 LIQUIDITY RATIOS 7.1.1 Current Ratio 7.1.2 Liquid
Ratio 7.1.3 Absolute Cash Ratio 7.1.4 Debtor Days 7.1.5 Creditor Days 7.1.6 Inve
ntory Days 7.2 SOLVENCY RATIOS 7.2.1 Debt Ratio 7.2.2 Equity Ratio 7.2.3 Debt to
Equity Ratio 7.2.4 Interest Coverage Ratio 7.2.5 Debt Service Coverage Ratio 7.
3 PROFITABILITY RATIOS 7.3.1 Gross Profit (PBDITA) / Sales Ratio 7.3.2 Operating
Profit (PBIT) / Sales Ratio 7.3.3 Net Profit (PAT) / Sales Ratio 7.4 RETURN ON
INVESTMENT 7.4.1 RONW 7.4.2 ROCE 7.4.3 ROTA 7.4.4 EPS 7.5 EFFICIENCY RATIOS 4 5
5 6 6 6 7 8 11 18 20 21 21 22 22 27 30 32 38 38 38 39 40 40 41 42 42 43 43 44 45
46 47 47 48 49 50 50 51 51 52 53
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7.5.1 Total Assets Turnover Ratio 7.5.2 Debt Turnover Ratio 7.5.3 Fixed Asset Tu
rnover 7.5.4 Current Asset Turnover 7.5.5 Inventory Turnover 8. DUPONT ANALYSIS
8.1 THE DUPONT RATIO DECOMPOSITION 8.1.1 Profitability: Net Profit Margin (NPM:
PBIT/Sales) 8.1.2 Operating Efficiency or Asset Utilization: Total Asset Turnove
r (Sales/Total Assets) 8.1.3 Leverage: The Leverage Multiplier (Total Assets/Cap
ital Employed) 8.2 HIGHLIGHTS OF DUPONT ANALYSIS 9. CASH FLOW ANALYSIS 10. CALCU
LATION OF EVA 11. CONCLUSION 12. APPENDIX 13. REFERENCES
53 54 55 56 57 59 60 60 60 61 62 67 70 71 73 75
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1. ACKNOWLEDGEMENTS
We wish to express our heartfelt gratitude and immense respect to Dr. D.V.Ramana
, our Faculty and Mentor in Financial Accounting. His threadbare explanation of
the minutest of concepts helped in generating a lot of interest in the subject.
We would also like to thank XIMB for providing the necessary infrastructure whic
h made our work easier.
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2. OBJECTIVE
The basic objective of doing the project is to analyze the financial statements
of a company, analyze the environment in which it is operating and evaluate its
performance over the last 3 years. Hence a thorough Environment Industry & Compa
ny analysis is done to understand the external factors influencing the company.
3. EXECUTIVE SUMMARY
The environmental analysis would include analyzing the Indian economy, governmen
t policies, FDI norms with regard to telecom sector, TRAI’s objectives & guideline
s, COAI data and demography related to cellular coverage.
Industry covered Factors behind the telecom growth, Industry Structure (services
), Technologies, recent growth trends in the Telecom Sector, GSM Coverage in Ind
ia and Outlook for the Sector.
Then we moved to company analysis where we studied that its strategic business g
roup primarily consists of two services namely mobile and infotel services. Info
tel services can further be classified into Broadband & Telephone services, Ente
rprise services and Long distance services. We also studied the shareholding pat
tern, recent developments in the company and the accounting policies of the comp
any.
To analyse the performance of the company specifically we covered the following
topics: 1. Ratio Analysis 2. Du Pont Analysis 3. Cash Flow Analysis
We also did a thorough analysis of its competitors like BSNL & VSNL to get a fee
l of how the company is doing though in some places we were handicapped by the u
navailability of financial statements of the competitors.
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4. ENVIRONMENT ANALYSIS
4.1 GOVERNMENT POLICIES
The telecom sector in India is at present governed by the legislations viz, The
Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933. The ref
orms process in the telecom sector in India began in early 80s with allowing man
ufacture of customer premise equipment by private sector.
Telecom Services in the Metro cities of Delhi & Mumbai were corporatised under M
ahanagar Telephone Nigam Ltd. (MTNL) and International Telecom Services were cor
poratised under Videsh Sanchar Nigam Ltd (VSNL). Subsequently, Center for Develo
pment of Telematics (C-DOT) was set up in 1984 to develop indigenous technology.
While the initial mandate of C-DOT in 1984 was to design and develop digital ex
changes and facilitate their large scale manufacture by the Indian Industry, the
development of transmission equipment was also added to its scope of work in 19
89. To accelerate decision making Government also set up a High Powered Telecom
Commission in 1989.
To meet the resource requirement and achieve the nation’s telecom targets, the gov
ernment decided to invite the participation of private players, and the telecom
sector was opened up in 1992. The policy abolished the regime of public sector s
upremacy and paved the way for private participation in the economy. Gone were t
he days of 2 year waiting period to get a telephone connection.
4.2 NEW TELECOM POLICY, 1994
In 1994, the Government announced the National Telecom Policy which defined cert
ain important objectives, including availability of telephone on demand, provisi
on of world class services at reasonable prices, ensuring India’s emergence as maj
or manufacturing /
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export base of telecom equipment and universal availability of basic telecom ser
vices to all villages. It also announced a series of specific targets to be achi
eved by 1997. The NTP 1994 targeted 1 PCO per 500 urban population and coverage
of all 6 lac villages.
NTP 1994 also recognized that the required resources for achieving these targets
would not be available only out of Government sources and concluded that privat
e investment and involvement of the private sector was required to bridge the re
source gap. The Government invited private sector participation in a phased mann
er from the early nineties, initially for value added services such as Paging Se
rvices and Cellular Mobile Telephone Services (CMTS) and thereafter for Basic Te
lephone Services (BTS). After a competitive bidding process, licenses were award
ed to 8 CMTS operators in the four metros, 14 CMTS operators in 18 state circles
, 6 BTS operators in 6 state circles and to paging operators in 27 cities and 18
state circles. VSAT services were liberalized for providing data services to cl
osed user groups. Licenses were issued to 14 operators in the private sector.
4.3 NEW TELECOM POLICY, 1999
Since some of the targets set in the telecom policy of 1994 remained unfulfilled
, a new Telecom policy was brought about in 1999. The New Policy Framework focus
ed on creating an environment, which enabled continued attraction of investment
in the sector and allowed creation of communication infrastructure by leveraging
on technological development. The main objectives of NTP-1999 were: Availabilit
y of affordable and effective communications for the citizens. To achieve a tele
-density of 7 by the year 2005 and 15 by the year 2010; to improve rural tele-de
nsity from the level of 0.4 to 4 by the year 2010. Create a modern, efficient an
d world class Telecommunications infrastructure taking into account the converge
nce of IT, Media, Telecom and Consumer Electronics.
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Convert Public Call Offices (PCOs) into Public Tele-info Centers having multimed
ia capability like ISDN Services, Remote Database Access, Government and Communi
ty Information Systems etc. Transform in a time-bound manner, the Telecommunicat
ions Sector to a greater competitive environment in both urban and rural areas p
roviding equal opportunities and level playing field for all players. Strengthen
Research and Development efforts in the country and provide an Impetus to build
world class manufacturing capabilities. Protect Defense and Security interest o
f the country. Enable Indian Telecom Companies to become truly Global Players.
Towards this end, the New Policy Framework divided the telecom service sector as
follows – Cellular Mobile Service Providers, Fixed Service Providers and Cable Se
rvice Providers, collectively referred to as ‘Access Providers’ Radio Paging Service
Providers Public Mobile Radio Trunking Service Providers National Long Distance
Operators International Long Distance Operators Other Service Providers Global
Mobile Personal Communication by Satellite (GMPCS) Service Providers V-SAT based
Service Providers The policy led to rapid expansion of telecom services, steep
reduction in tariffs, advancement of technology etc.
4.4 BROADBAND POLICY, 2004
Recognising the potential of ubiquitous Broadband service in growth of GDP and e
nhancement in quality of life through societal applications including tele-educa
tion, telemedicine, e-governance, entertainment as well as employment generation
by way of high speed access to information and web-based communication, Governm
ent finalized a
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policy to accelerate the growth of Broadband services. Some of the major points
taken up in the policy on the technology front were: Greater emphasis on optical
fibre-technologies & Digital-subscriber lines(DSL) on copper loop Cable TV netw
ork can be used as franchisee network of the service provider for provisioning B
roadband services. Very Small Aperture Terminals (VSAT) and Direct-to-Home (DTH)
services would be encouraged for penetration of Broadband and Internet services
with the added advantage to serve remote and inaccessible areas. Invest in newe
r technologies and incorporate them at the earliest.
National Internet Exchange of India (NIXI) was set up by DIT, Government of Indi
a to ensure that Internet traffic, originating and destined for India, should be
routed within India. The policy targets 20m broadband subscribers by 2010.
The government policies over the period can be summed up and shown as below:
Pre-reform Pre-1994
Partial Deregulation
Further Deregulation 1999 - 2002
Take-off 2002 onwards
1994-1999
•
• •
MTNL Mumbai and Delhi; DTS elsewhere No mobile service NLD - DoT per/ BSNL ILD V
SNL
•
• • • •
4 private fixed service providers with less than 1% market share 2 GSM mobile pl
ayers in each circle 13 players start mobile service National Telecom Policy (NT
P) 1994 TRAI constituted 1997
• • • • • • • • •
Licenses converted to revenue sharing Private sector share less than 5% in reven
ue terms Competition in NLD and ILD Licenses on Revenue share 4 mobile operators
/ circle NTP 1999 BSNL formed 2001 Internet Telephony 2002 FDI - 49 % New Telec
om Policy, 1999
• • • • • • •
Calling Party Pays CDMA launch 3-6 operators in each circle Intra-circle merger
guidelines Unified Licensing
Broadband policy 2004 FDI - 74% 2005
National Telecom Policy, 1994
Unified Licensing Regime
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Some of the other policy initiatives are: Deregulation virtually complete and Un
ified Licensing regime Interconnection Usage Charge framework in place Exemption
from customs duty for import of Mobile Switching Centres Comprehensive Spectrum
policy and 3G policy on the anvil
Independent regulation has been a critical factor in the growth.
2006 Number portability Convergence TRAI’s recommendations 2005 Unified Licensing
Quality of Service regulation Rural Telephony 2004 Intra-circle merger guideline
s Internet / broadband penetration 2003 Calling Party Pays Regime Unified Access
Licensing Reference Interconnect Order 2002 • ILD opened to competition • Internet
Telephony allowed. • Reduction in License fees
Mature regulatory regime and an enabling policy framework already in place
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5. INDIAN ECONOMY AND THE TELECOM SECTOR
1. The Indian Economy is galloping at a fast pace over the last few years. 2. It
has clocked over 9% growth for the last many years. 3. Such a growing economy o
ffers vast growth opportunities for the telecom industry. The telecom market has
grown rapidly in the last few years.
Subscriber growth
180 164
In Millions
120 53
CAGR– 38%
98 76 44
60
0 2002 2003 2004 2005 Aug-06
Revenue growth
20 15 $B illio n 10 5 0 2002 2003 2004 2005 9 10
20 15
CAGR - 21%
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2006
Revenues ~ USD 19.5 bn (FY 2006)
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o CAGR (FY 2002-06) - 21% o Have doubled in last 3 years
Subscribers ~ 160 million (Aug 2006) o CAGR (FY 2002-06) - 38 % o Nearly quadrup
led since FY 02 o 5-6 million being added every month
Tele-Density - 14.8 (Aug 2006) o Has doubled in 3 years o Target set for 2007 un
der NTP 1999 achieved during FY 2005 And is poised to be the second-largest netw
ork globally by 2008
800
China 743
Telecom Subs cribe rs - Country w ise Decem ber 2005
m subscribers n.
600 USA 360 Japan 153 Germany 134 Rus 130 Ind 125
400
200
0
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Mobile telephony continues to be the key growth driver.
Subscriber Growth - Mobile vs Fixed
175 Mn. subscribers 140 105 70 35 0
2002 2003 2004 2005 2006
143
38 7
42 13
43 34
52 41 41
Fixed (mn. subs)
Mobile (mn. subs)
Wireless emerging as the preferred mass market format service providers focus on
Internet / broadband access to improve fixed line ARPU Progressive regulation o
Migration to revenue sharing o Calling Party Pays (CPP) regime o Unified access
licensing o Intra-circle merger guidelines Intensifying competition o 3 to 6 pl
ayers per circle o Presence of CDMA and GSM providers o Significant share of pri
vate sector Growing affordability o ARPUs among lowest in the world
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o Lower cost of ownership due to Low cost / used handsets o Success of the pre-p
aid format
Growing network coverage is triggering further market expansion
Segment
Cellular reach (2003-04) Locations Population 200 million
Cellular reach (End 2006 - Est.) Locations ~ 4900 towns out of nearly 5200 towns
Population 300 million
Urban
~ 1700 of 5200 towns
Rural
Negligible
Negligible
~ 350,000 out of 607,000 villages
450 million
Support from Universal Service Obligation Fund envisaged for shared network infr
astructure creation in uncovered rural areas
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Vibrant and competitive telecom market
Subscribers Company Presence Fixed Government owned. Has ramped up BSNL GSM serv
ices. National presence (except Mumbai and Delhi) MTNL Government owned. Operate
s in Delhi and Mumbai. Integrated operator, with presence in Bharti all sectors.
Largest mobile services provider. Integrated operator. Plans expansion Reliance
of GSM network apart from being the largest private CDMA operators. Hutch IDEA
Pure play GSM operator in 11 circles. Pure play GSM operator in 6 circles Integr
ated operator (along with TTS VSNL) with presence in all segments. Provides CDMA
services in 20 circles Operates in 2 circles. Announced Aircel Plans to expand
GSM footprint in North and North east Spice Others Total Pure play GSM player in
2 circles 0.4 50 4.0 3.0 1.4 3.8 37.4 (mn)
Jul 06
Share (%)
Mobile
Fixed
Mobile
17.7
74.7%
19.6%
2.0
7.7%
2.3%
19.6
2.7%
21.7%
17.3
6.0%
19.2%
15.4 7.4
17.0% 8.2%
4.9
8.0%
5.4%
2.6
2.9%
1.9 1.4 90
2.1%
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Broadband and internet connectivity are on the verge of take-off. Broadband subs
criber growth 2.00
Mn. subscribers
1.5 6-fold growth 0.75 0.18 0
Mar-05
1.38
Mar-06
Nov-06
Several Indian firms are gaining a foothold in the global market. Many Indian se
rvice providers are acquiring scale in the International Long Distance market th
rough acquisitions o Acquisitions - FLAG by Reliance, Tyco and Teleglobe by Vide
sh Sanchar Nigam Limited o VSNL is now the world s fifth largest carrier of voic
e globally o Reliance’s FLAG network connects with 28 countries. FLAG’s FALCON cable
system when completed would connect 12 countries with international cable landi
ng stations Investments in Infrastructure o Bharti-Singtel and VSNL investments
in undersea cable Emerging as Integrated telco, positioning themselves as full s
ervice providers o Tata teleservices-VSNL, Bharti, Reliance have end-to-end pres
ence in ILD, NLD and Access; BSNL has announced plans to get into ILD o Focus on
corporate connectivity - IPLCs, Frame relay, VPNs o Strong thrust on internet a
nd broadband - both corporate and retail segments 25
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Key Indian Companies
•
•
BSNL - Incumbent service provider and World s 7th largest Telecommunications Com
pany providing comprehensive range of telecom services in India Services include
Wire line, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-
VPN, VSAT, VoIP services, IN Services etc.
• •
MTNL - State owned operator covering the cities of Mumbai an Delhi Provides both
fixed and mobile services
• •
Bharti Airtel - Integrated operator with presence in all segments Leads the mobi
le segment in the country
• •
Reliance Communications - Largest player in India in the CDMA segment Plans a GS
M network
• •
Tata Teleservices - Integrated operator (with VSNL) with presence in all segment
s Provides CDMA services in 20 circles
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5.1 GUIDELINES FOR FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR
The government has liberalized the FDI rules in the telecom sector. The FDI ceil
ing has been raised from 49% to 74% in certain telecom services (such as Basic,
Cellular, Unified Access Services, National/International Long Distance, V-Sat,
Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communicati
ons Services (GMPCS) and other value added services). The remaining 26 per cent
will be owned by resident Indian citizens or an Indian Company (i.e. foreign dir
ect investment does not exceed 49 percent and the management is with the Indian
owners). 100% FDI permitted under automatic route in the manufacturing sector Th
e majority Directors on the Board including Chairman, Managing Director and Chie
f Executive Officer (CEO) shall be resident Indian citizens, enforced through li
cence agreement.
1. Singapore Telecom (SingTel) made an investment of US$1.07 B through a Mauriti
us entity for a stake in Bharti Televentures. 2. Vodafone acquired a 10% stake i
n Bharti Televentures for 6700 crore rupees( approximately US$ 1.5B) 3. Subseque
ntly, Vodafone made an investment of $12 US B when it acquired a controlling 67%
stake in Hutch Essar.
All these have helped the Indian telecom market grow at an astonishing pace. It
is the fastest growing market in the world About 6 million mobile subscribers ar
e added every month The mobile sector has grown from around 10 million subscribe
rs in 2002 to reach 150 million subscribers by early 2007 registering an average
growth of 90% yoy. The overall fixed and mobile subscribers have risen to more
than 200 million by the first quarter of 2007.
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Currently, the Indian Telecom market is valued at US$100 B. Two telecom players
dominate this market- Bharti Airtel with 27% market share and Reliance Communica
tion with 20% market share.
In the mobile phone market there are basically two technologies that are used: G
SM and CDMA. GSM is the dominant technology that is used.
GSM and CDMA subscription numbers: GSM GSM Annual CDMA Subscribers Subscribers g
rowth (millions) (millions) 3.1 94% 5.05 76% 10.5 91% 0.8 22.0 110% 6.4 37.4 70%
10.9 58.5 57% 19.1 105.4 80% 44.2 180.0 71% 85.0 CDMA Annual growth 700% 70% 75
% 131% 92%
Year 2000 2001 2002 2003 2004 2005 2006 2007
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5.2 TRAI GUIDELINES AND OBJECTIVES
The Telecom Regulatory Authority of India (TRAI) was formed in January 1997 with
a view to providing an effective regulatory framework and adequate safeguards t
o ensure fair competition and protection of consumer interests. The Government i
s committed to a strong and independent regulator with comprehensive powers and
clear authority to effectively perform its functions.
Objectives Access to telecommunications is of utmost importance for achievement
of the country’s social and economic goals. Availability of affordable and effecti
ve communications for the citizens is at the core of the vision and goal of the
telecom policy Strive to provide a balance between the provision of universal se
rvice to all uncovered areas, including the rural areas, and the provision of hi
gh level services capable of meeting the needs of the country’s economy Encourage
development of telecommunication facilities in remote, hilly and tribal areas of
the country Create a modern and efficient telecommunications infrastructure tak
ing into account the convergence of IT, media, telecom and consumer electronics
and thereby propel India into becoming an IT superpower Convert PCOs, wherever j
ustified, into Public Teleinfo centres having multimedia capability like ISDN se
rvices, remote database access, government and community information systems etc
Transform in a time bound manner, the telecommunications sector to a greater co
mpetitive environment in both urban and rural areas providing equal opportunitie
s and level playing field for all players Strengthen research and development ef
forts in the country and provide an impetus to build world class manufacturing c
apabilities Achieve efficiency and transparency in spectrum management Protect d
efense and security interests of the country 20
5.3 TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL (TDSAT)
With a view to further strengthen the regulator the TRAI Act, 1997 was amended i
n the year 2000 and a separate body viz., The Telecom Dispute Settlement and App
ellate Tribunal (TDSAT) was constituted for resolution of disputes in Telecom Se
ctor. The appellate tribunal consists of a chairperson and two members appointed
by the Indian Parliament. The selection of Chairperson and members of the Appel
late tribunal is made by the Central Government in consultation with the Chief J
ustice of India.
The TDSAT is empowered to adjudicate any dispute between: Licensor and a License
e. Two or more Service Providers. A Service Provider and a Group of Consumers.
5.4 CELLULAR OPERATORS ASSOCIATION OF INDIA (COAI)
The Cellular Operators Association of India (COAI) was constituted in 1995 as a
registered, nonprofit, nongovernmental society dedicated to the advancement of c
ommunication, particularly modern communication through Cellular Mobile Telephon
e Services.
With a vision to establish and sustain a world-class cellular infrastructure and
facilitate affordable mobile communication services in India, COAI’ main objectiv
es are to protect the common & collective interests of its members. Keeping the
mandate given to it, COAI is the official voice for the Indian Cellular industry
and on its behalf it interacts with: the policy maker, the licensor, the regula
tor, the spectrum management agency and the industry (telecom / nontelecom) asso
ciations.
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6. COMPANY ANALYSIS
6.1 ABOUT THE COMPANY
Company Profile Bharti Airtel is one of India s leading private sector providers
of telecommunications services based on an aggregate of 48,853,758 customers as
on August 31, 2007, consisting of 46,814,745 GSM mobile and 2,039,013 broadband
& telephone customers.
The businesses at Bharti Airtel have been structured into three individual strat
egic business units (SBU’s) - mobile services, broadband & telephone services (B&T
) & enterprise services. The mobile services group provides GSM mobile services
across India in 23 telecom circles, while the B&T business group provides broadb
and & telephone services in 94 cities. The enterprise services group has two sub
-units - carriers (long distance services) and services to corporates. All these
services are provided under the Airtel brand.
Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National S
tock Exchange of India Limited (NSE).
Vision & Promise By 2010 Airtel will be the most admired brand in India: Loved b
y more customers Targeted by top talent Benchmarked by more business
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Company History Bharti Tele-Ventures was incorporated on July 7, 1995 as a compa
ny with limited liability under the Companies Act, for promoting telecommunicati
ons services. Bharti Tele-Ventures received certificate for commencement of busi
ness on January 18, 1996. The Company was initially formed as a wholly-owned sub
sidiary of Bharti Telecom Limited. The chronology of events since Bharti Tele-Ve
ntures was incorporated in 1995 is as follows: Calendar year & Events
1995 Bharti Cellular launched cellular services AirTel in Delhi 1997 British T
elecom acquired a 21.05% equity interest in Bharti Cellular 1998 Bharti Telecom
and British Telecom formed a 51%: 49% joint venture, Bharti BT Internet for prov
iding Internet services 2002 Comes out with issue of 18.53 crore equity shares t
hrough book building route with a floor price of Rs 45 per share, received bid f
or 18.55 crore shares. Through the issue, it becomes the first company in India
to come out with 100% book building issue 2004 Bharti Tele-Ventures enters into
a three year service agreement with Ericsson 2005 Bharti inks $125-m deal with N
okia for rural network expansion Bharti Tele Ventures announces agreement with V
odafone 2007 Bharti Airtel, telecom major, has come out with a slew of initiativ
es including buying out SingTel s 50 per cent stake in joint venture under sea c
able company Network i2i for $110 million.
23
Organization Structure
24
Awards and Recognition Wireless service provider of the year 2005 at the Frost a
nd Sulivan AsiaPacific ICT awards Competitive service provider of the year 2005
at the Frost and Sulivan AsiaPacific ICT awards The Forbes Global 2000 list for
the year 2007 ranked Bharti at 1149
Market Performance Market Capitalization (as on July 13, 2007) Approx. Rs. 1,670
billion Closing BSE share price = Rs. 880.75 Sales Profits Assets Market Value
: $2.62 Billion : $0.46 Billion : $4.46 Billion : $41 Billion
Highlights for Full Year ended March 31, 2007 Overall customer base crosses 3.9
crore. Highest ever-net addition of 1.8 crore customers in a year. Market leader
with a market share of all India wireless subscribers at 22.9% (20.4% last year
) Total Revenues of Rs. 18,520 crore (up 59% Y-o-Y) EBITDA of Rs. 7,451 crore (u
p 72% Y-o-Y). Cash Profit of Rs. 7,307 crore (up 79% Y-o-Y). Net Profit of Rs. 4
,257 crore (up 89% Y-o-Y).
25
In News: Recently Sunil Bharti s Airtel launched its calling card in America esp
ecially for the NRI (Non-resident Indians) and people calling from America to In
dia at a cheaper rate as compared to the tariff offered by other providers. On F
ebruary 12, 2007 Vodafone sold its 5.6% stake in AirTel back to AirTel for US $1
.6 billion; and purchased a controlling stake in rival Hutchison Essar. In its m
onthly press release, following statistics have been presented for end of April
2007. Bharti Airtel added the highest ever net addition of 53 lakh customers in
a single quarter (Q4-FY0607) and also the highest ever net addition of 1.8 crore
total subscribers in 2006-07 The company will invest up to $3.5 billion this fi
scal (07-08) in network expansion. It has an installed base of 40,000 cellsites
and 59% population coverage After the proposed network expansion, an additional
30,000 towers will result in the company achieving 70% population coverage Bhart
i has over 39 million users as on March 31, 2007 It has set a target of 125 mill
ion subscribers by 2010 Prepaid customers account for 88.5% of Bharti’s total subs
criber base, an increase from 82.7% a year ago ARPU has dropped to Rs 406 Non-vo
ice revenues, (SMS, voice mail, call management, hello tunes and Airtel Live) co
nstituted 10% of total revenues during Q4, lower than 10.7% in the Q4 of the pre
vious year Blended monthly minutes of usage per customer in Q4 was at 475 minute
s Has completed 100% verification of its subscribers and in the process disconne
cted three lakh subscribers
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6.2 CAPITAL STRUCTURE OF BHARTI-AIRTEL
1. Capital The capital structure of Bharti-Airtel is explained below:
(In ‘000 Rs.) Authorised Capital Issued Capital Paid up Capital
2007 25,000,000 18,959,342 18,959,342
2006 25,000,000 18,938,793 18,938,793
2005 25,000,000 18,533,668 18,533,668
Share-holding Pattern:
% of share holding
25.05% 45.48% Promoter holding Institutional investor Others 29.47%
2. Nominal Value of Capital • •
Face Value – The face value of shares remains constant at Rs. 10 throughout this p
eriod. Change in Face value- There is no change in the face value.
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3. Issue Price of shares
Share Premium
The Share premium at the beginning of financial year 2005 is Rs. 31,254,879,000.
It changed to Rs. 38,754,546,000 by the end of the financial year and to Rs. 39
,259,225,000 at the end of financial year 2006. While no new shares were issued
the change is due to other reasons which are illustrated below.
4. Dividend Distribution
For the year ending 2005-2006 The directors believe that there are tremendous gr
owth opportunities available to the telecom sector and the Company should levera
ge these by further expanding and strengthening its existing network. This will
enhance shareholder value in the long-term. Accordingly, the directors did not r
ecommend any dividend for the year ended March 31, 2006, in view of the proposed
investments in network expansion and operations.
However this does not explain the change in share capital. The change in share c
apital can be explained by the following: The Company allotted 2,722,125 Equity
Shares of Rs. 10/- each upon merger of Bharti Cellular Limited (BCL) into the Co
mpany. During the year the Company allotted 18,242,237 equity shares upon conver
sion of Foreign Currency Convertible Bonds (FCCBs) by their holders. During the
year ended March 31, 2006 the Company had also issued 20,088,445 equity shares o
f Rs. 10/- each fully paid up to M/s. Shyam Cellular Infrastructures Projects Li
mited upon conversion of Optionally Convertible Redeemable Debentures (OCRDs).
28
For the year ending 2006-2007
The company did not declare any dividends because of the reasons as mentioned pr
eviously. But during the year, The Company allotted 165400 equity shares on exer
cise of stock options to the employees of the company under the Company’s ESOP Sch
eme 2005. The Company also allotted 1889453 equity shares upon conversion of For
eign Currency Convertible Bonds (FCCBs) by their holders.
Due to these the corporate actions, the issued, subscribed and paid-up equity sh
are capital increased from 1,893,879,304 (March 31, 2006) to 1,895,934,157 equit
y shares as of March 31, 2007.
5. Rights Issue
No rights issue was brought out for the period 2005-2007.
6. Market Capitalisation The company had a market capitalization of over Rs. 760
billion for the year ending 31st March 2006 and was among the top 10 listed ent
ities in India. For the year ending 31st March 2007, the Company had a market ca
pitalisation of USD 38 bn and is among the top 5 listed entities in India.
29
7. MV/BV Ratio 31st March 2007 Capital +Reserves (in Rs) (A) No. Of Equity Share
s(B) Book Value(BV) = A/B Market Value(MV) MV/BV 12.05 10.62 7.21 730.60 412.85
206.85 60.59 38.87 28.70 1,895,934,157 1, 893,879,304 1,853,366,767 1,148,883,83
8,000 31st March 2006 73,623,863,000 31st March 2005 53,200,292,000
Thus we see that the MV/BV ratio has shown a positive increase over the period c
onsidered.
6.3 FINANCIAL STATEMENTS
Consolidated Balance Sheet All Figures in ‘000
2007 Capital Reserves LTL CL Total Fixed Assets Investments CA Total 19,259,346
95,173,342 55,474,673 98,446,711 268,354,072 216,814,497 7,058,179 44,454,766 26
8,327,442 2006 19,060,053 54,395,531 49,853,367 66,991,634 190,300,585 153,481,2
69 7,196,981 29,622,335 190,300,585 2005 18,560,889 34,639,403 50,951,920 43,199
,744 147,351,956 107,594,459 9,318,953 30,438,533 147,351,945
30
Consolidated Income Statement All Figures in ‘000
2007 Sales COGS Operating Expenses Depreciation PBIT Interest PBT Tax PAT 177,94
4,343 220,849 105,121,756 23,533,010 43,455,272 2,558,440 46,013,712 6,055,561 4
0,332,265 2006 112,905,793 674,043 71,445,970 14,323,385 25,113,966 2,256,011 22
,857,955 2,737,160 20,120,794 2005 79,441,940 721,037 48,780,762 10,193,626 18,1
01,946 2,459,184 15,642,762 3,536,023 12,106,739
Consolidated Cash Flow Statement All Figures in ‘000
2007 Opening CIH CFF CFI CFO Closing CIH 3,074,285 3,401,320 -79,750,547 81,079,
547 7,804,605 2006 3,841,352 3,763,474 -50,843,891 46,313,349 3,074,284 2005 1,3
16,310 -4,230,893 -23,303,010 30,058,945 3,841,352
31
6.4 ACCOUNTING POLICIES
1. BASIS OF PREPARATION
These financial statements have been prepared under the historical cost conventi
on on the accrual basis of accounting, in accordance with the generally accepted
accounting principles in India and the provisions of the Companies Act, 1956 as
adopted consistently by the Company.
2. FIXED ASSETS
Fixed Assets are stated at cost of acquisition and subsequent improvements there
to, including taxes, duties, freight and other incidental expenses related to ac
quisition and installation. Capital work-in-progress is stated at cost. Site res
toration cost obligations are capitalized when it is probable that an outflow of
resources will be required to settle the obligation and a reliable estimate of
the amount can be made. The fixed component of license fee payable by the Compan
y for cellular and basic circles, upon migration to the National Telecom Policy
(NTP 999), i.e. Entry Fee and the one time license fee paid by the Company for a
cquiring new licenses (post NTP-99) has been capitalized as an asset.
3. DEPRECIATION / AMORTISATION
Depreciation is provided on straight-line method at the rates and in the manner
prescribed in Schedule XIV to the Companies Act, 1956 on all assets, except for
the following on which depreciation is provided on straight line method to write
off the cost of the fixed assets over their estimated useful lives as below:
Useful lives Building Building on Leased Land 20 years 20 years 32
Office Equipment Computer / Software Vehicles Furniture and Fixtures Plant & Mac
hinery Leasehold Land Leasehold Improvements
5 years/2 years 3 years 5 years 5 years 3 years / 5 years/ 10 years / 15 years P
eriod of lease Period of lease or 10 years whichever is less
Software up to Rs. 500,000 is written off in the year placed in service. Bandwid
th capacity is amortized over the period of the agreement subject to a maximum o
f 15 years.
Additional depreciation is provided as appropriate, towards diminution in value
of assets. The Entry Fee capitalised is being amortised equally over the period
of the license and the one time licence fee is being amortized equally over the
balance period of licence from the date of commencement of commercial operations
.
The site restoration cost obligation capitalized is being depreciated over the p
eriod of the useful life of the related asset.
4. REVENUE RECOGNITION AND RECEIVABLES
Mobile Services: Service revenue is recognised on completion of provision of ser
vices. Service revenue includes income on roaming commission and access charges
passed on to other operators, and are net of discounts and waivers. Revenue, net
of discount, from sale of goods is recognised on transfer of all significant ri
sks and rewards to the customer and when no significant uncertainty exists regar
ding realisation of the consideration. Processing fees on recharge coupon is bei
ng recognised over the estimated customer relationship period or coupon validity
period, as applicable.
Telephone and Broadband and Enterprise Services Carriers
33
Service revenue is recognised on completion of provision of services. Revenue on
account of bandwidth service is recognised on time proportion basis in accordan
ce with the related contracts. Service Revenue includes access charges passed on
to other operators, and is net of discounts and waivers. Revenue, net of discou
nt, from sale of goods is recognized on transfer of all significant risks and re
wards to the customer and when no significant uncertainty exists regarding reali
sation of consideration.
Enterprise Services Corporate Revenue, net of discount, from sale of goods is re
cognised on transfer of all significant risks and rewards to the customer and wh
en no significant uncertainty exists regarding realisation of consideration.105
Service Revenues includes revenues from registration, installation and provision
of Internet and Satellite services. Registration fees is recognised at the time
of dispatch and invoicing of Start up Kits. Installation charges are recognised
as revenue on satisfactory completion of installation of hardware and service r
evenue is recognized from the date of satisfactory installation of equipment and
software at the customer site and provisioning of Internet and Satellite servic
es. Revenue from prepaid dialup packs is recognised on the actual usage basis an
d is net of sales return and discount.
Activation Income Activation revenue and related direct activation costs, not ex
ceeding the activation revenue, are deferred and amortized over the related esti
mated customers relationship period, as derived from the estimated customer chur
n period.
Investing and other activities Income on account of interest and other activitie
s are recognised on an accrual basis. Dividends are accounted for when the right
to receive the payment is established.
Provision for doubtful debts The Company provides for amounts outstanding for mo
re than 90 days in case of active subscribers and for all amounts outstanding fr
om customers who have been deactivated
34
as reduced by security deposits or in specific cases where management is of the
view that the amounts are not recoverable. For receivables due from the other op
erators on account of their NLD and ILD traffic, IUC and roaming charges, the Co
mpany provides for amounts outstanding for more than 120 days from the date of b
illing net of any amounts payable to the operators or in specific cases where ma
nagement is of the view that the amounts are not recoverable.
5. INVENTORIES
Inventories are valued at the lower of cost and net realisable value. Cost is de
termined on First in First out basis.
6. INVESTMENT Current Investments are valued at lower of cost and fair market va
lue. Long term Investments are valued at cost. Provision is made for diminution
in value to recognise a decline, if any, other than that of temporary nature.
7. LEASES
a) Operating Lease Lease rentals in respect of assets taken on Operating Lease
are charged to the Profit and Loss Account on a straight-line basis over the le
ase term.
b) Finance Lease Assets acquired on Finance Lease which transfer risk and rewa
rds of ownership to the Company are capitalized as assets by the Company at the
present value of the related lease payments Amortization of capitalized leased a
ssets is computed on the Straight Line method over the useful life of the assets
. The finance charge is allocated over the lease term so as to produce a constan
t periodic rate of interest on the remaining balance of liability.
35
8. TAXATION
Tax expense for the period, comprising current tax, deferred tax and fringe bene
fit tax is included in determining the net profit/ (loss) for the period. Deferr
ed tax assets are recognised for all deductible timing differences and carried f
orward to the extent there is reasonable certainty that sufficient future taxabl
e profit will be available against which such deferred tax assets can be realise
d. Deferred tax is not recognized for such timing differences which reverse duri
ng tax holiday period. Deferred tax assets to the extent they pertain to brought
forward losses and unabsorbed depreciation, are recognized only to the extent t
hat there is virtual certainty of realisation, based on expected profitability i
n the future as estimated by the Company. Deferred tax assets and liabilities ar
e measured at the tax rates that have been enacted or substantively enacted by t
he balance sheet date.
9. BORROWING COST
Borrowing cost attributable to the acquisition or construction of a qualifying a
sset is capitalised as part of the cost of that asset. Other borrowing costs are
recognised as an expense in the period in which they are incurred.
10. IMPAIRMENT OF ASSETS
Assets that are subject to amortization are reviewed for impairment whenever eve
nts or changes in circumstances indicate that the carrying amount may not be rec
overable. An impairment loss is recognized for the amount by which the assets c
arrying amount exceeds its recoverable amount. The recoverable amount is the hig
her of the assets fair value less costs to sell and value in use. For the purpo
se of assessing impairment, assets are grouped at the lowest levels for which th
ere are separately identifiable cash flows (cash generating units).
36
11. EARNING PER SHARE
The earnings considered in ascertaining the Company s Earnings per Share ( EPS )
comprise the net profit after tax. The number of shares used in computing basic
EPS is the weighted average number of shares outstanding during the year. The d
iluted EPS is calculated on the same basis as basic EPS, after adjusting for the
effects of potential dilutive equity shares unless impact is anti dilutive.
12. PROVISIONS
Provisions are recognised when the Company has a present obligation as a result
of past events; it is more likely than not that an outflow of resources will be
required to settle the obligation; and the amount has been reliably estimated.
37
7. Ratio Analysis
Various Financial Ratio Analysis are used to analyse the financial performance o
f Bharti Airtel Ltd. Its performance is also compared against BSNL and VSNL for
3 years from 2005 to 2007. Since the financial figures of BSNL was not available
for the year 20062007, so we tracked back a year and showed its figures for the
year 2003-2004.
7.1 LIQUIDITY RATIOS
Liquidity ratios help in determining the ability of a firm to meet its short ter
m obligations.
7.1.1 Current Ratio
Current Ratio = Current Asset / Current Liability It is a simple guide to the ab
ility of a company to meet its short term obligations. The current ratio is a go
od diagnostic tool as it measures whether or not your business has enough resour
ces to pay its bills over the next 12 months. Higher the ratio higher is the liq
uidity.
Current Ratios
2.5 2 Current Ratio 1.5 1 0.5 0 2003-2004 2004-2005 Period 2005-2006 2006-2007 B
harti Airtel Ltd VSNL BSNL
Current Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 1.36
2004-2005 0.70 1.99 1.79
2005-2006 0.44 1.32 2.02
2006-2007 0.45 1.25 NA
38
The current ratio of Bharti Airtel Ltd has consistently remained less than 1. So
its current liability is greater than the current assets which implies that its
short term liquidity requirements might be financed by long term sources. In co
mparison, the current ratios of VSNL and BSNL are better.
7.1.2 Liquid Ratio
Liquid Ratio = (Current Asset – Inventory) / Current Liability A better approach t
o measure the ability of a company to meet its short term liability is by exclud
ing the inventory from the current asset. This is done because it is unlikely to
turn inventory to cash immediately. It is thus a measure of how quickly a compa
ny’s asset can be converted to cash. This ratio is also called the acid test and q
uick ratio.
Liquid Ratios
2.5 2 Liquid Ratio 1.5 1 0.5 0 2003-2004 2004-2005 Period 2005-2006 2006-2007 Bh
arti Airtel Ltd VSNL BSNL
Liquid Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 1.24
2004-2005 0.7 1.98 1.69
2005-2006 0.44 1.31 1.91
2006-2007 0.45 1.25 NA
Since the companies are all service oriented, they do not have inventories and h
ence the liquid ratios are almost similar to the current ratios calculated above
. The liquid ratio of
39
Bharti Airtel Ltd is well below 0.5 which indicates that it is able to meet only
half of the current obligations from its current assets. The liquid ratios of V
SNL and BSNL are much healthier than Bharti Airtel Ltd.
7.1.3 Absolute Cash Ratio
Absolute Cash Ratio = (Cash + Near Cash Items) / Current Ratio This ratio is sti
ll better in calculating the liquidity as it does not take into the debts in the
current asset.
Absolute Cash Ratios
1.4 Absolute Cash Ratio 1.2 1 0.8 0.6 0.4 0.2 0 2003-2004 2004-2005 Period 2005-
2006 2006-2007 Bharti Airtel Ltd VSNL BSNL
Absolute Current Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 0.58
2004-2005 0.09 0.08 1
2005-2006 0.05 0.06 1.22
2006-2007 0.08 0.14 NA
Absolute Current Ratio is very low for Bharti Airtel Ltd and VSNL. This shows th
at very little cash reserve is being maintained to meet the short term obligatio
ns.
7.1.4 Debtor Days
Debtor Days = Debtors / Sales per day This ratio measures the number of times th
at receivables turn over during the year. The lower the turnover of receivables,
the shorter the time between sale and cash collection. If 40
a company s debtor days is significantly higher than industry norms, the underly
ing reason (poor collection methods, high risk customers, low sales) needs to be
pinpointed. Debtor Days measures the average time in days that receivables are
outstanding. The higher the number of days outstanding, the greater the collecti
on risk. Debtor days may suggest a concern over credit control and collections
Debtor Days
90 80 70 60 50 40 30 20 10 0 2003-2004 2004-2005 Period 2005-2006 2006-2007
Debtor days
Bharti Airtel Ltd VSNL BSNL
Debtor Days Bharti Airtel Ltd VSNL BSNL
2003-2004 42.82
2004-2005 32.89 57.30 67.12
2005-2006 34.79 67.14 57.25
2006-2007 29.10 81.96 NA
The Debtor days for Bharti Airtel Ltd has decreased over the last year. In a yea
r credit sales takes place only for 29 days and it is much lower as compared to
its competitors thus indicating it has healthy debt collection practices.
7.1.5 Creditor Days
Creditor Days = Creditors / Purchase of goods per day This ratio measures the nu
mber of times that Accounts Payable turns over during the year relative to the S
ales. Lower turnover rates suggest a shorter time period between purchase
41
and payment. Higher than industry rates may suggest cash shortages, or expansion
of trade credit. Creditor days tells the average length of time trade debt is o
utstanding.
Creditor Days Bharti Airtel Ltd
2003-2004 -
2004-2005 40.31
2005-2006 82.98
2006-2007 133.20
Creditor days for VSNL and BSNL could not be calculated because COGS is not avai
lable for them. Bharti Airtel Ltd follows a trend of increasing Creditor days th
us indicating it takes longer to pay to its creditors. In a year it makes purcha
ses on credit for 133 days.
7.1.6 Inventory Days
Inventory Days = Inventory / COGS per day A financial measure of a company s per
formance that gives an idea of how long it takes a company to turn its inventory
into sales. Generally, the lower (shorter) the Inventory days the better, but i
t is important to note that the average varies from one industry to another.
Inventory Days Bharti Airtel Ltd
2003-2004 -
2004-2005 159.88
2005-2006 96.09
2006-2007 790.24
Inventory days for VSNL and BSNL could not be calculated because COGS is not ava
ilable for them. Bharti Airtel Ltd being a telecom service based company has ver
y little inventory. In 2006-2007 the inventories were doubled but the COGS were
halved.
7.2 SOLVENCY RATIOS
It’s the company’s ability to meet its long term obligations. Also called the capita
l structure it is one of the major financing decisions for the company. A proper
mix of debt and equity is said to be always beneficial for the company rather t
han pure equity. Existence of debt disciplines the management to some extent.
42
7.2.1 Debt Ratio
Debt Ratio = Debt / Total Assets This ratio shows how much the business is in de
bt, making it a good way to check the business’s long-term solvency. The lower the
debt ratio, the less total debt the business has in comparison to its asset bas
e. On the other hand, businesses with high debt ratios are in danger of becoming
insolvent and/or going bankrupt.
Debt Ratios
0.4 0.35 0.3 Debt Ratio 0.25 0.2 0.15 0.1 0.05 0 2003-2004 2004-2005 2005-2006 2
006-2007 Period Bharti Airtel Ltd VSNL BSNL
Debt Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 0.14
2004-2005 2005-2006 2006-2007 0.35 0.01 0.11 0.26 0.02 0.08 0.21 0.03 NA
The Debt ratio of Bharti Airtel Ltd is higher as compared to VSNL and BSNL but i
t has a decreasing trend over the past 3 years and is at a healthy level.
7.2.2 Equity Ratio
Equity Ratio = Equity / Total Assets It helps in determining the extent of fundi
ng from equity channel.
43
Equity Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 0.66
2004-2005 0.36 0.75 0.69
2005-2006 0.39 0.75 0.7
2006-2007 0.43 0.75 NA
Bharti Airtel Ltd uses a good mix of Reserves, Equities and Debts to fund its bu
siness.
7.2.3 Debt to Equity Ratio
Debt to Equity Ratio = Debt / Equity The debt to equity ratio is a financial rat
io indicating the relative proportion of equity and debt used to finance a compa
ny s assets. It is considered to be a good practice to use both Debt (financial
leverage) and Equities to finance the assets.
44
Debt Equity Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 0.21
2004-2005 0.97 0.01 0.16
2005-2006 0.67 0.03 0.11
2006-2007 0.49 0.04 NA
Bharti Airtel Ltd has reduced the Debt to Equity ratio consistently. This is bec
ause of the company is reinvesting the Profits into the business. This shows the
strong confidence on the future outlook of the business.
7.2.4 Interest Coverage Ratio
Interest Coverage Ratio = PBIT / Interest Expense A ratio used to determine how
easily a company can pay interest on outstanding debt. The lower the ratio, the
more the company is burdened by debt expense. When a company s interest coverage
ratio is 1.5 or lower, its ability to meet interest expenses may be questionabl
e. An interest coverage ratio below 1 indicates the company is not generating su
fficient revenues to satisfy interest expenses.
45
Interest Coverage Ratio Bharti Airtel Ltd BSNL
2003-2004 10.29
2004-2005 7.36 271.4
2005-2006 11.13 8.75
2006-2007 16.99 NA
The Interest Coverage Ratio of VSNL is not shown because its interest expense is
very low as compared to its PBIT. Bharti Airtel Ltd has healthy Interest Covera
ge Ratio because of increased profits.
7.2.5 Debt Service Coverage Ratio
DSCR = PBIT / Total Debt Service It is the amount of cash flow available to meet
annual interest and principal payments on debt. Debt service coverage ratio is
used by financial lenders as a rule of thumb to give a preliminary assessment of
whether a potential borrower is already in too much debt. More specifically, th
is ratio shows the proportion of income that is already spent on loan service pa
yments.
DSCR Bharti Airtel Ltd VSNL
2004-2005 1.16 16.72
2005-2006 0.68 5.21
2006-2007 0.91 7.35
DSCR of BSNL could not be calculated since the loan repayments were not availabl
e. DSCR of Bharti Airtel Ltd is low because of the high loan repayments. The Lon
g term loans are increasing every year and are being used for funding expansion
plans. There is consequently a higher repayment of loans every year.
46
7.3 PROFITABILITY RATIOS
Profitability ratios are used to analyse the profitability of the company. Diffe
rent stakeholders will have different perspective on the profitability ratios. S
hareholders: They may be concerned about the ability of the company to maintain
and improve the value of their investments. They look to the company to generate
sufficient profits for dividend payments and increase in market value of the sh
ares they own. Lenders: They will be interested to see whether the company has t
he ability to pay the interests of the debts. Management and employees: They wil
l be interested in knowing the performance of the company and its future outlook
and profitability gives a good idea about the same.
7.3.1 Gross Profit (PBDITA) / Sales Ratio
Gross Profit / Sales = Profit before Depreciation Interest Tax and Amortisation
/ Sales This ratio helps in determining extent to which the sales are greater th
an the operating expenses.
47
Gross Profit/Sales Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 55.89%
2004-2005 35.62% 33.46% 48.70%
2005-2006 34.93% 26.13% 47.08%
2006-2007 37.65% 26.11% NA
The gross profit for Bharti Airtel Ltd has improved as compared to the last year
. The profitability is extremely good as it is sustained with growing sales.
7.3.2 Operating Profit (PBIT) / Sales Ratio
Operating profit / Sales = Profit before Interest Tax / Sales Operating profit i
s obtained by deducting the Depreciation and Amortisation from Gross profit.
Operating Profit / Sales Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 26.78%
2004-2005 22.79% 27.17% 22.03%
2005-2006 22.24% 17.17% 23.74%
2006-2007 24.42% 16.91% NA
48
The Operating profit of Bharti Airtel has improved over last years. The deprecia
tion has more than doubled over last 2 years because of increase in Assets but t
he sales has increase in sales has ensured a healthy profit.
7.3.3 Net Profit (PAT) / Sales Ratio
Net Profit / Sales = Profit After Tax / Ratio Net profit is obtained by deductin
g the Tax from the operating profit. This is finally the profit that the company
gets to earn after incurring all kinds of expenses.
PAT/Sales Ratios
0.3 PAT/Sales Ratio 0.25 0.2 0.15 0.1 0.05 0 2003-2004 2004-2005 2005-2006 2006-
2007 Period Bharti Airtel Ltd VSNL BSNL
Net Profit / Sales Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 17.62%
2004-2005 15.24% 19.50% 28.22%
2005-2006 17.82% 11.96% 22.25%
2006-2007 22.67% 11.01% NA
The PAT of Bharti Airtel Ltd has significantly improved in the last year. This i
s significant especially when the call tariffs are reducing. Increase in sales i
s the main contributing factor for increase in profits.
49
7.4 RETURN ON INVESTMENT
Return on Investment shows the profits earned from investments in different pers
pective like Networth, Capital employed and Total assets.
7.4.1 RONW
RONW = PAT / (Capital + Reserve) This is the best measure of profitability to ev
aluate overall return. This ratio measures return relative to investment in the
company. Return on Net Worth indicates how well a company leverages the investme
nt in it.
RONW Bharti Airtel Ltd VSNL BSNL
2003-2004 9.00%
2004-2005 23.00% 13.00% 14.00%
2005-2006 27.00% 8.00% 11.00%
2006-2007 35.00% 7.00% NA
RONW for Bharti Airtel Ltd. is much higher as compared to its competitors. This
is mainly because the company finances its future investments from its own profi
ts and the PAT has increased by 233% over last 2 years.
50
7.4.2 ROCE
ROCE = PBIT / (Capital + Reserve + Long Term Liability) ROCE should always be hi
gher than the rate at which the company borrows, otherwise any increase in borro
wing will reduce shareholders earnings.
ROCE
0.3 0.25 0.2 ROCE 0.15 0.1 0.05 0 2003-2004 2004-2005 2005-2006 2006-2007 Period
ROCE Bharti Airtel Ltd VSNL BSNL
2003-2004 12.00%
2004-2005 17.00% 18.00% 9.00%
2005-2006 20.00% 11.00% 11.00%
2006-2007 26.00% 11.00% NA
Bharti Airtel Ltd’s ROCE is much higher than the borrowing rate which is around 10
%. So the shareholders’ earnings are not reduced.
7.4.3 ROTA
ROTA = PBIT / Total Assets A ratio that measures a company s profits before inte
rest and taxes (PBIT) against its total assets. The ratio is considered an indic
ator of how effectively a company is using its assets to generate earnings befor
e contractual obligations must be paid. The greater a company s profits in propo
rtion to its assets, the more effectively that company is said to be using its a
ssets.
51
ROTA
0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2003-2004 2004-2005 2005-2006 2006
-2007 Period
ROTA
ROTA Bharti Airtel Ltd VSNL BSNL
2003-2004 0.09
2004-2005 0.12 0.14 0.07
2005-2006 0.13 0.09 0.08
2006-2007 0.16 0.08 NA
Bharti Airtel has the highest ROTA as compared to its competitors which indicate
s that it uses its assets most efficiently. Another positive is that it’s constant
ly in an increasing trend.
7.4.4 EPS
EPS = PAT / No of shares The portion of a company s profit allocated to each out
standing share of common stock. EPS serves as an indicator of a company s profit
ability. Earnings per share is generally considered to be the single most import
ant variable in determining a share s price. An important aspect of EPS is that
the capital that is required to generate the earnings (net income) in the calcul
ation is often ignored. Two companies could generate the same EPS number, but on
e could do so with less equity (investment) - that company would be
52
more efficient at using its capital to generate income and, all other things bei
ng equal, would be a "better" company. Investors also need to be aware of earnin
gs manipulation that will affect the quality of the earnings number. It is there
fore important not to rely on any one financial measure, but to use it in conjun
ction with statement analysis and other measures.
Earnings per Share
30 Earnings per Share (Rs) 25 20 15 10 5 0 2003-2004 2004-2005 Period 2005-2006
2006-2007 Bharti Airtel Ltd VSNL BSNL
EPS Bharti Airtel Ltd VSNL BSNL
2003-2004 4.78
2004-2005 6.39 26.54 8.15
2005-2006 10.61 16.83 7.15
2006-2007 21.27 16.44 NA
The EPS for Bharti Airtel Ltd has significantly increased as compared to the las
t year. This is because of the doubling of the profits in just 1 year. Since ROT
A of Bharti Airtel Ltd is also higher as compared to its competitors so it is mo
st efficient and profitable of the three companies.
7.5 EFFICIENCY RATIOS 7.5.1 Total Assets Turnover Ratio
Total Assets Turnover Ratio = Sales / Total Assets
53
This ratio tells us how efficiently the company uses its assets to generate sale
s.
Total Assets Turnover Ratios
Total Assets Turnover Ratio 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2003-2004 2004-2005 20
05-2006 2006-2007 Period Bharti Airtel Ltd VSNL BSNL
Total Assets Turnover Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 0.35
2004-2005 0.54 0.51 0.34
2005-2006 0.59 0.5 0.35
2006-2007 0.66 0.5 NA
The above ratios indicate that Bharti Airtel Ltd is the most efficient in genera
ting sales. This ratio has consistently increased over the last 3 years.
7.5.2 Debt Turnover Ratio
Debt Turnover Ratio = Sales / Debt This ratio would be of greater significance t
o the lenders as it indicates how sales of a company against the debts.
54
Debt Turnover Ratios
45 40 35 30 25 20 15 10 5 0 2003-2004 2004-2005 Period 2005-2006 2006-2007
Debt Turnover Ratio
Debt Turnover Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 2.6
2004-2005 1.56 38.92 3.2
2005-2006 2.26 23.13 4.47
2006-2007 3.21 15.8 NA
Bharti Airtel Ltd has been able to increase its Debt Turnover ratio due to sharp
increase in its sales as compared to its borrowings.
7.5.3 Fixed Asset Turnover
Fixed Asset Turnover Ratio = Sales / Fixed Assets This ratio gives an indication
of how efficiently a company uses its fixed assets in doing its business.
55
Fixed Assets Turnover Ratios
Fixed Assets Turnover Ratio 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2003-2004 2004-2005
2005-2006 2006-2007 Period Bharti Airtel Ltd VSNL BSNL
Fixed Assets Turnover Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 0.49
2004-2005 0.74 1.36 0.54
2005-2006 0.74 1.27 0.63
2006-2007 0.82 1.22 NA
Bharti Airtel Ltd has improved its Fixed Turnover ratio primarily by increasing
its sales as compared to the increase in Fixed assets. It’s more efficient in util
izing its Fixed assets than BSNL but less as compared to VSNL.
7.5.4 Current Asset Turnover
Current Asset Turnover = Sales / Current Assets
56
Current Assets Turnover Ratios
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2003-2004 2004-2005 2005-2006 2006-2007 Period Cur
rent Assets Turnover Ratio
Current Assets Turnover Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 1.24
2004-2005 2.61 1.09 0.92
2005-2006 3.81 1.66 0.8
2006-2007 4 1.84 NA
7.5.5 Inventory Turnover
Inventory Turnover = Sales / Inventory This financial ratio measures the number
of times inventory is turned over during the year. High inventory turnover sugge
sts good levels of liquidity. Conversely it can indicate a shortage of needed in
ventory for sales. Low inventory turnover can indicate poor liquidity, overstock
ing, or, more optimistically, a planned inventory buildup.
57
Inventory Turnover Ratios
2500 Inventory Turnover Ratio 2000 1500 1000 500 0 2003-2004 2004-2005 2005-2006
2006-2007 Period Bharti Airtel Ltd VSNL BSNL
Inventory Turnover Ratio Bharti Airtel Ltd VSNL BSNL
2003-2004 14.47
2004-2005 251.53 1974.03 16.07
2005-2006 636.29 1055.19 14.4
2006-2007 372.16 901.27 NA
Since the three companies are in Telecom Service providers so they do not mainta
in a high inventory. This is the reason why the inventory ratios are very high f
or Bharti Airtel Ltd and VSNL.
58
8. DUPONT ANALYSIS
Financial statement analysis is employed for a variety of reasons. Outside inves
tors are seeking information as to the long run viability of a business and its
prospects for providing an adequate return in consideration of the risks being t
aken. Creditors desire to know whether a potential borrower or customer can serv
ice loans being made. Internal analysts and management utilize financial stateme
nt analysis as a means to monitor the outcome of policy decisions, predict futur
e performance targets, develop investment strategies, and assess capital needs.
As the role of the credit manager is expanded crossfunctionally, he or she may b
e required to answer the call to conduct financial statement analysis under any
of these circumstances. The DuPont ratio is a useful tool in providing both an o
verview and a focus for such analysis
A comprehensive financial statement analysis will provide insights as to a firm
s performance and/or standing in the areas of liquidity, leverage, operating eff
iciency and profitability. A complete analysis will involve both time series and
cross-sectional perspectives. Time series analysis will examine trends using th
e firm s own performance as a benchmark. Cross sectional analysis will augment t
he process by using external performance benchmarks for comparison purposes. Eve
ry meaningful analysis will begin with a qualitative inquiry as to the strategy
and policies of the subject company, creating a context for the investigation. N
ext, goals and objectives of the analysis will be established, providing a basis
for interpreting the results. The DuPont ratio can be used as a compass in this
process by directing the analyst toward significant areas of strength and weakn
ess evident in the financial statements.
ROCE = (PBIT/Sales) X (Sales/Total Assets) X (Total Assets/Capital Employed)
The ratio provides measures in three of the four key areas of analysis, each rep
resenting a compass bearing, pointing the way to the next stage of the investiga
tion.
59
8.1 THE DUPONT RATIO DECOMPOSITION
The DuPont ratio is a good place to begin a financial statement analysis because
it measures the return on investment (ROI). A for-profit business exists to cre
ate wealth for its owner(s). ROI is, therefore, arguably the most important of t
he key ratios, since it indicates the rate at which owner wealth is increasing.
While the DuPont analysis is not an adequate replacement for detailed financial
analysis, it provides an excellent snapshot and starting point, as will be seen
below.
The three components of the DuPont ratio, as represented in equation (1), cover
the areas of profitability, operating efficiency and leverage (liquidity analysi
s needs to be conducted separately). Thus we will examine the meaning of each of
these components by calculating and comparing the DuPont ratio using the financ
ial statements for Bharti Airtel Ltd. We will be doing this by employing ROCE th
at is Return on Capital Employed. Then carrying out decomposition we can study t
he finer implications.
8.1.1 Profitability: Net Profit Margin (NPM: PBIT/Sales)
Profitability ratios measure the rate at which either sales or capital is conver
ted into profits at different levels of the operation. The most common are gross
, operating and net profitability, which describe performance at different activ
ity levels. Of the three, net profitability is the most comprehensive since it u
ses the bottom line net income in its measure.
8.1.2 Operating Efficiency or Asset Utilization: Total Asset Turnover (Sales/Tot
al Assets)
Turnover or efficiency ratios are important because they indicate how well the a
ssets of a firm are used to generate sales and/or cash. While profitability is i
mportant, it doesn t always provide the complete picture of how well a company p
rovides a product or service. A company can be very profitable, but not too effi
cient. Profitability is based 60
upon accounting measures of sales revenue and costs. Such measures are generated
using the matching principle of accounting, which records revenue when earned a
nd expenses when incurred. Hence, the gross profit margin measures the differenc
e between sales revenue and the cost of goods actually sold during the accountin
g period. The goods sold may be entirely different from the goods produced durin
g that same period. Goods produced but not sold will show up as inventory assets
at the end of the year. A firm with abnormally large inventory balances is not
performing effectively, and the purpose of efficiency ratios is to reveal that f
act.
The total asset turnover ratio measures the degree to which a firm generates sal
es with its total asset base. As in the case of net profitability, the most comp
rehensive measure of performance in this particular area is being employed in th
e DuPont ratio (other measures being fixed asset turnover, working capital turno
ver, and inventory and receivables turnover). It is important to use average ass
ets in the denominator to eliminate bias in the ratio calculation.
8.1.3 Leverage: The Leverage Multiplier (Total Assets/Capital Employed)
Leverage ratios measure the extent to which a company relies on debt financing i
n its capital structure. Debt is both beneficial and costly to a firm. The cost
of debt is lower than the cost of equity, an effect which is enhanced by the tax
deductibility of interest payments in contrast to taxable dividend payments and
stock repurchases. If debt proceeds are invested in projects which return more
than the cost of debt, owners keep the residual, and hence, the return on equity
is "leveraged up." The debt sword, however, cuts both ways. Adding debt creates
a fixed payment required of the firm whether or not it is earning an operating
profit, and therefore, payments may cut into the equity base. Further, the risk
of the equity position is increased by the presence of debt holders having a sup
erior claim to the assets of the firm.
61
8.2 HIGHLIGHTS OF DUPONT ANALYSIS
Sound financial statement analysis is an integral part of the management process
for any organization. The DuPont ratio, while not the end in itself, is an exce
llent way to get a quick snapshot view of the overall performance of a firm in t
hree of the four critical areas of ratio analysis, profitability, operating effi
ciency and leverage. By identifying strengths and/or weaknesses in any of the th
ree areas, the DuPont analysis enables the analyst to quickly focus his or her d
etailed study on a particular spot, making the subsequent inquiry both easier an
d more meaningful. Some caveats, however, are to be noted.
The DuPont ratio consists of very general measures, drawing from the broadest va
lues on the balance sheets and income statements (e.g., total assets are the bro
adest of asset measures). A DuPont study is not a replacement for detailed, comp
rehensive analysis. Further, there may be problems that the DuPont decomposition
does not readily identify. For example, an average outcome for net profitabilit
y may mask the existence of a low gross margin combined with an abnormally high
operating margin. Without looking at the two detailed measures, understanding of
the true performance of the firm would be lost. The ROCE first can be broken do
wn into the three segments we already looked at. Then each of these can be broke
n up further to study the finer details. Each component comprises of several sub
-components which give a complete holistic view of the workings of a company com
prising its investment, financing and operating decisions. A proper decompositio
n is very important to actually pin-point the exact area which are outperforming
or underperforming, this analysis gives us a better idea as to where exactly is
the company lacking, is it something very superficial or fundamental. Thus all
this can be used to understand the future prospects as well its current efficien
cy. Down below we have carried out the DuPont analysis for Bharti Airtel for thr
ee years. The time-series analysis in terms of ratios has already been studied i
n the previous segments, here we are focusing more on the finer implications of
the ratios and seeing how one derives from the other and finally where does it f
it in the larger picture.
62
Return on Capital Employed 2007
ROCE 0.28 PBIT/Sales 0.28 Sales/TA 0.66 TA/CE 1.58
COGS/Sales 0.0012
Oper Exp./Sales
Sales/FA 0.92
Sales/CA 4 Sales/Stock 372.16
TA/OF 2.35
TA/LTL 5.05 TA/Capital 13.9 TA/RS 2.82
0.59 Salary/Sales 0.07
Other exp/ Sales
Sales/Debtor 12.54 Sales/Cash 22.8
0.52 Dep/Sales 0.130 Amort/Sales 0.010
Implications: As we can see from the above analysis, the company has decent prof
itability and efficiency figures. Also one very interesting thing to note here i
s that the sales turnover with relation to stock is pretty high, that tells us t
hat the company does not maintain very huge inventories. Also the sales as a pro
portion of debtors are also quite high, that could also mean that the company is
efficient enough in collecting its debt. And a large chunk of its sales must co
mprise of cash sales. Also if we see the break-up of the Sales/TA, we figure out
that the Sales as a component of CA is almost four times as compared to that of
FA. This can mean that the proportion of CA in comparison with FA is very less,
which as we have seen earlier could be attributed to low inventories and less c
redit sales.
63
Return on Capital Employed 2006
ROCE
0.19
PBIT/Sales
0.22
Sales/TA
0.37
TA/CE
2.46
COGS/Sales
0.006
Oper Exp./Sales 0.63
Sales/FA
0.74
Sales/CA
3.81
TA/OF
4.13
TA/LTL
6.08
Sales/Stock
636.29
TA/Capital
15.9
Salary/Sales
0.071
Other exp/ Sales 0.56
Sales/Debtor
10.49
TA/RS
5.57
Sales/Cash
36.73
Dep/Sales
0.127
Amort/Sales
0.011
Implications:
This year can be studied in relation to 2007. Doing that we note that in 2006 th
e sales as a proportion of Stock was double of what it became in 2007. And the g
eneral trend of the company, which was high reliance on current assets as compar
ed to Fixed Assets, can be very well traced from 2006 to 2007.
64
One thing to note here is the break-up of Total-assets as a function of Owner’s Fu
nd. We see that the TA/Capital ratio is almost triple of the TA/RS ratio. This m
eans that the owner’s fund comprises mainly of profits i.e. is reserves and surplu
s and that the capital is almost thrice of the total reserves.
Return On Capital Employed 2005
ROCE
0.15
PBIT/Sales
0.23
Sales/TA
0.35
TA/CE
2.18
COGS/Sales
0.0091
Oper Exp./Sales
Sales/FA
0.74
Sales/CA
2.61
TA/OF
4.26
TA/LTL
4.45
0.61
Sales/Stock
251.53
TA/Capital
12.2
Salary/Sales
0.065
Other exp/ Sales
Sales/Debtor
11.1
TA/RS
6.55
0.55
Sales/Cash
20.68
Dep/Sales
0.128
Amort/Sales
0.015
65
Implications:
All the general trends which have been discussed in the DuPont Analysis of 2007
and 2006 were found to hold good for 2005 as well. Thus we can conclude that, al
l these have been lasting trends and reflect the general working style of the co
mpany.
One thing we can highlight especially for this year is that, the COGS seems to f
orm the lowest composition of the total expenses as it has been observed that CO
GS as a percentage of Sales is the least. This trend is also found in the subseq
uent years. We can interpret it by having an integrated approach. If we study th
is ratio in relation with the Sales/Stock ratio, we find that since the company
maintains such a low inventory thus its resulting COGS is also very small.
Also if we study the work-type of the company, it is basically a services based
company, thus it does not have a relevant COGS as part of its total expenses.
66
9. CASH FLOW ANALYSIS
Cash Flow Analysis
10,000.0 8,000.0 6,000.0 V a lu e (in c ro re s ) 4,000.0 2,000.0 0.0 -2,000.0 -
4,000.0 -6,000.0 -8,000.0 -10,000.0 -423.1 2004-2005 -2,330.3 2005-2006 2006-200
7 3,005.9 376.3 340.1 CFF CFI CFO 4,631.3 8,107.9
-5,084.4 -7,975.1
Cash Flow in 2004-2005
The cash flow due to financing activities is negative. This is primarily due to
interest paid towards short-term borrowings. On the investment front, there is a
net cash outflow. This is primarily due to purchase of investments and certain
fixed assets. A small proportion is also due to license fee paid for new circles
. A small percentage was also towards acquisition of subsidiaries. The operating
activities are generating good revenues. They are able to meet the cash outflow
required by investing & financing activities.
67
CFF 7%
CFF CFI CFO 53% CFI 40% CFO
Cash Flow in 2005-2006 The cash flow from financing activities becomes positive
which was negative the previous year. The biggest sucker of cash outflow was pay
ments made towards long-term borrowings. This was followed in close tandem by in
terest paid towards short-term borrowings. There was substantial increase in inv
esting activities. There was a quantum jump in purchase of fixed assets. Since t
he company was going through a high-growth phase huge investments were made by t
he company. However the company is able to meet its financing activities with th
e cash generated from operating activities. This is a good sign of the growth of
the company.
68
CFF 4% CFO 46% CFI 50%
CFF CFI CFO
Cash Flow in 2006-2007 The cash flow from financing activities is positive again
. But the overall percentage of financing activities as a percentage of the over
all cash has fallen down. The company is surging ahead in purchase of fixed asse
ts. There is lot of cash outflow towards purchase of investments. High-growth pe
riods demand high investments which mean high cash outflows. For meeting its inv
esting activities the company has good operating revenues. This enables the comp
any to utilize its current profits towards future growth.
CFF 2%
CFO 49% CFI 49%
CFF CFI CFO
69
10. CALCULATION OF EVA
We have calculated the EVA of the company over the last 3 years. In 2006 due to
the huge surge in the stock markets the cost of equity became costly and this ha
s led to the negative EVA.
Rupees in 000 Rs. 2007 Interest rate(I) Tax ratio(t) 1-t Cost of Debt,Kd=I*(1-t
) Risk free return(Rf) Beta(β) Market opening in the new financial yr Market closi

ng in the new financial yr Market Return(Rm) Cost Of Equity,Ke =Rf+β(Rm-Rf) De t E
quity Capital Employed,CE WaCC Capital Charge,CC=WaCC*CE PAT Interest Tax Benefi
ts NOPAT EVA=NOPAT-CC 0.0461 0.1316 0.8684 0.04 7.46% 1.09 11279.96 13072.1 0.15
89 0.1665 55474673 114432688 169907361 0.1252 21272401.6 40,332,265 2558440 3366
90.704 42,554,014 21,281,613
2006 0.0453 0.1197 0.8803 0.0399 7.46% 1.09 6492.82 11279.96 0.7373 0.7969 49853
367 73455584 123308951 0.4908 60520033.15 20120794 2,256,011 270044.5167 22,106,
760 -38,413,273
2005 0.0483 0.226 0.774 0.0374 7.46% 1.09 5590.6 6492.82 0.1614 0.1692 50951920
53200292 104152212 0.1047 10904736.6 12,106,739 2,459,184 555775.584 14,010,147
3,105,411

Note: Interest rate = Interest/Long-term lia ilities Tax rate= Totaltax/PBT Ris
k-free rate of return is the return offered for a 1 year government ond (T-Bill
)
70
11. CONCLUSION
Based on the detailed analysis of Indian Telecom Industry, Bharti Airtel Limited
and its competitors we conclude the following regarding the financial health of
Bharti Airtel Limited:
Growth: The company’s sales have grown over 70% CAGR in the last 2 years. It stand
s at Rs 17,794 Crores in 2007
up from Rs 7,944 Crores in 2005. Bharti Airtel Ltd
is the
market
leader in mo
ile phone services
with
over
22%market share in ter
ms su scri er ase. With a out 6 million mo ile su scri ers eing added every mo
nth in India, the future growth of Bharti Airtel Ltd looks very strong.

Profita ility: The PAT/Sales of the company stands at 22.67% in 2007 and has gro
wn from 15.24% in 2005. In 2007, RONW stood at 35%, ROCE was 26% and ROTA was 16
%. This indicated the return on investment was extremely healthy. The EPS was Rs
21.27 in 2007 up from Rs 6.39 in 2005. All these
parameters suggest that the co
mpany is achieving increased levels of profita ility in spite of massive growth.

Solvency: The De t Ratio has decreased from 0.35 in 2005 to 0.21 in 2007. The DE
R has also decreased from 0.97 in 2005 to 0.49 in 2007. The Interestcoverage ra
tio has improved from 7.36 to 16.99 which is a positive sign. The De t service
c
overage ratio however stands at 0.91 in 2007 and needs improvement. The usiness
expansion is eing funded more y the Profits rather than external orrowings.
Liquidity: Liquidity is a cause of concern. Current Ratio and Liquid Ratio in 20
07 stands at 0.45.
71

A solute cashratio is much less at 0.08. However the De tor days are 29.10 whic
h show the de t collection practices of Bharti Airtel Ltdis muchmore effective
as compared to its competitors. The low liquidity could e attri uted to the fa
ct that the company invests heavily in growth.
Efficiency:Total Assets Turnover Ratio has increased from 0.54 in 2005 to 0.66
in 2007. De t Turnover Ratio, Fixed Assets Turnover Ratio and Current Assets Tur
nover Ratio have all improved and are higher as compared to its competitors. Thi
s points that Bharti Airtel Limited is more efficient in using its resources.
Overall the company has very strong fundamentals for future performance.
72
12. APPENDIX

Current Ratio Liquid Ratio A solute
Current Ratio Inventory
Days De tor Days Cre
ditor Days WorkingCapital
Days De t Ratio Equity Ratio De t Equity Ratio Interes
t Coverage Ratio De t Service Ratio Operating Profit/Sales (%) PBIT/Sales (%) PB
DITA/Sales (%) PAT/Sales (%) Depreciation/Sales (%) Interest/Sales (%) PBIT/TA P
BIT/CE PAT/OF PAT/no of shares Price to Earning Ratio Market Value/Book ValueRat
io CFO/Total Cash Generated during the year CFF/TCG CFI/TCG CFO/PBIT
Ratio Analysis Bharti Airtel Ltd VSNL 2005 2006 2007 2005 2006 0.7 0.44 0.45 1.9
9 1.32 0.7 0.44 0.45 1.98 1.31 0.09 159.88 32.89 40.31 152.46 0.35 0.36 0.97 7.3
6 1.16 0.05 96.09 34.79 82.98 47.9 0.26 0.39 0.67 11.13 0.68 0.08 790.24 29.1 13
3.2 686.14 0.21 0.43 0.49 16.99 0.91 0.08 NA 57.3 NA NA 0.01 0.75 0.01 28798.33
16.72 0.06 NA 67.14 NA NA 0.02 0.75 0.03 382.51 5.21
2007 1.25 1.25 0.14 NA 81.96 NA NA 0.03 0.75 0.04 104.13 7.35
2004 1.36 1.24 0.58 NA 42.82 NA NA 0.14 0.66 0.21 10.29 NA
BSNL 2005 1.79 1.69 1 NA 67.12 NA NA 0.11 0.69 0.16 271.4 NA
2006 2.02 1.91 1.22 NA 57.25 NA NA 0.08 0.7 0.11 8.75 NA
35.62% 22.79% 35.62% 15.24% 12.83% 3.10% 0.12 0.17 0.23 6.39 114.41 12.05
34.93% 22.24% 34.93% 17.82% 12.69% 2.00% 0.13 0.2 0.27 10.61 38.9 10.62
37.65% 24.42% 37.65% 22.67% 13.22% 1.44% 0.16 0.26 0.35 21.27 9.72 7.21
33.46% 27.17% 33.46% 19.50% 6.29% 0.00% 0.14 0.18 0.13 26.54 7.05 0.93
26.13% 17.17% 26.13% 11.96% 8.96% 0.04% 0.09 0.11 0.08 16.83 28.04 2.22
26.11% 16.91% 26.11% 11.01% 9.20% 0.16% 0.08 0.11 0.07 16.44 24.42 1.8
55.89% 26.78% 55.89% 17.62% 29.11% 2.60% 0.09 0.12 0.09 4.78 NA 5.12
48.70% 22.03% 48.70% 28.22% 26.67% 0.08% 0.07 0.09 0.14 8.15 NA 2.7
47.08% 23.74% 47.08% 22.25% 23.34% 2.71% 0.08 0.11 0.11 7.15 NA 0.28
11.9 -1.68 -9.23 1.66
-60.38 -4.91 66.28 1.84
17.14 0.72 -16.86 1.87
1.69 -1.08 0.4 0.31
45.34 -4.35 -39.99 1.47
-3.95 0.37 4.58 0.78
1.72 -0.09 -0.63 1.53
1.68 -0.06 -0.62 2.2
2.16 -0.41 -0.75 1.96
73
Ratio Analysis Bharti Airtel Ltd VSNL 2005 2006 2007 2005 2006 FixedAsset/Total
Assets Current Assets/Total Assets Investment/Total Assets Capital /Total Assets
Reserves/Total Assets LTL/Total Assets CL/Total Assets ROCE (Dupont Ratios) PBI
T/CE PBIT/Sales Sales/TA TA/CE De t Turnover Ratio FA Turnover Ratio CA Turnover
Ratio Inventory Turnover Ratio 0.73 0.21 0.06 0.13 0.24 0.35 0.29 0.81 0.16 0.0
4 0.1 0.29 0.26 0.35 0.81 0.17 0.03 0.07 0.35 0.21 0.37 0.38 0.47 0.16 0.04 0.71
0.01 0.24 0.39 0.3 0.31 0.04 0.72 0.02 0.23
2007 0.41 0.27 0.32 0.03 0.72 0.03 0.22
2004 0.71 0.28 0.002 0.13 0.53 0.14 0.21
BSNL 2005 0.63 0.37 0.002 0.12 0.57 0.11 0.21
2006 0.56 0.44 0.002 0.11 0.59 0.08 0.22
0.17 0.2 0.54 1.41 1.56 0.74 2.61 251.53
0.2 0.2 0.59 1.54 2.26 0.74 3.81 636.29
0.26 0.26 0.66 1.58 3.21 0.82 4 372.16
0.18 0.27 0.51 1.31 38.92 1.36 1.09 1974.03
0.11 0.17 0.5 1.29 23.13 1.27 1.66 1055.19
0.11 0.17 0.5 1.28 15.8 1.22 1.84 901.27
0.12 0.27 0.35 1.26 2.6 0.49 1.24 14.47
0.09 0.22 0.34 1.26 3.2 0.54 0.92 16.07
0.11 0.21 0.35 1.28 4.47 0.63 0.8 14.4

Note : COGS for BSNL and VSNL is notavaila le. So Inventory Days, Creditor Days
and Working Capital Days could not e calculated
74
13. REFERENCES
1. http://www.airtelworld.com 2.http://www. snl.co.in/index.html
3. http://www.
vsnl.in/index.php 4. http://www. seindia.com 5. http://www.r i.org.in/home.aspx
6. http://www.myiris.com/newMyiris/ 7. http://www.dot.gov.in/ 8. http://www.apts
ec.org/meetings/2002/forum/TPR16-IND.ppt 9. http://findarticles.com/p/articles/m
i_qa3857/is_199804/ai_n8799612
10. http://www.investopedia.com/ 11. http://www.d
omain- .com/ 12. http://i ef.org/download/Telecom_new.ppt
75

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