fundamental analysis on telecom sector

8/12/2019 Fundamental Analysis on Telecom Sector

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ANALYSIS OF TELECOM SECTOR

A PROJECT REPORT

Submi tted by

SHRUTHI SHETTY

Batch 2012-14

in parti al ful fi llment for the award of the degree

of

MASTER OF MANAGEMENT STUDIES

Under the Guidance ofProf. Pooja Dave

THAKUR INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

KANDIVALI

MUMBAI


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BONAFIDE CERTIFICATE

This is to certify that this project report ANALYSIS ON TELECOM SECTORis a bonafide work

of MISS SHRUTHI SHETTY in part completion of the MASTER OF MANAGEMENT

STUDIEShas been done under my guidance.

The project is in nature of original work that has not so far been submitted for any degree of this

university.

References of work and relative sources of information have been given at the end of the project.

Signature or the candidate

(SHRUTHI SHETTY)

Forwarded through the research guide

Signature of the guide

PROF. POOJA DAVE


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ACKNOWLEDGEMENT

Its a great privilege that I have done my project in such a well-organized and

diversified organization. I am great full to all those who helped and supported me in

completing the project.

First of all I would sincerely like to thank Mr. VIKRAM JAIN (Branch

Manager, Goregaon,Mumbai), for his valuable guidance and kind co-operation during the

project.

I am highly grateful to Mr. Vishal Menon (Business Associates of Reliance

Securities Ltd.) for the help provided by them in various forms.

I am also thankful to our director Dr. R M KUMAR and my project guide Prof.

Pooja Dave for helping me in completing the project.

Last but not least, I am also thankful to all college staff and my friends for helping me

directly or indirectly in my project.


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EXECUTIVE SUMMARY

Internship gives an in hand experience to the management students and also gives anexposure to the actual corporate environment.

The objective of this internship was to get an insight about working of the financial markets

and to find out ways to determine the best investment options for the investors.

This report attempts to provide a unified overview of the telecom sector with reference to

2 companies i.e Bharti Airtel and Idea along with its fundamental. The main objective of

the analysis here is to find out trends by which decisions can be made to maximize returns

from proposed investments.


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1.1 INTRODUCTION

India is a developing country and economy is increasing at very steady speed. Financial market of

India is also providing good returns for the investors. Equities are playing a major role in contribution

of capital to the business from the beginning.

Introduction of shares concept, large numbers of investors are showing interest to invest in stock

market. To invest in a stock market increasingly difficult to predict and contend with, if one looks

hard enough there may still be a genuine aid for the Day Trader and Short Term Investor.

As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If

prices are based on investor expectations, then knowing what a security should sell for (i.e.,

fundamental analysis and Technical analysis) becomes less important than knowing what other

investors expect it to sell for.

But there is usually a fairly strong consensus of a stock's future earnings that the average investor

cannot disprove Fundamental analysis and technical analysis can co-exist in peace and complement

each other. Since all the investors in the stock market want to make the maximum profits possible,

they just cannot afford to ignore either fundamental or technical analysis.

1.2 BACKGROUND / RATIONALE OF STUDY

Rational of the study is understand how Telecom Sector in India is performing and is it worth

investing money in the companies in that sector .

1.3 OBJECTIVES OF THE STUDY

The objective of this project is to deeply analyze Indian telecom Sector for investment purpose by

monitoring the growth rate and performance on the basis of historical data.

The main objectives of the Project study are:


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Detailed analysis of Telecom Sector which is gearing towards international standards

Analyze the impact of qualitative factors on industrys and companys prospects

Comparative analysis of 4 tough competitors like Bharti airtel,idea cell,REL com ltd,TATAcomm through fundamental and Technical analysis.

Suggesting as to which companys shares would be best for an investorto invest.

1.4 SCOPE OF STUDY

The scope of the study is to understand how telecom sector is performing in India and to analyze

various companies in that sector and providing investors detail information about it.

Analysis is done on the basis of the data of last 4 years.

Analysis is done on those companies.

1.5 METHODOLOGY

This study is exploratory in nature and the approach adopted is case study method where the data

source is purely secondary in nature.

The method used for the project is Fundamental Analysis .Fundamental analysis is a technique that

attempts to determine a security's value by focusing on underlying factors that affect a

company's actual business and its future prospects.

Fundamental analysis would further include

Quantitative Analysis Balance Sheet / Ratios / Cash Flow Qualitative Analysis


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1.6 LIMITATION

This study has been conducted purely to understand fundamental analysis of TelecomSector.

The study is restricted to these 2 companies based on Fundamental analysis. The study is limited to the companies having equities. Detailed study of the topic was not possible due to limited size of the project. There was a constraint with regard to time allocation for the research study i.e. for a period

of 2 months.


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2. COMPANY PROFILE: RELIANCE SECURITIES

2.1 VISION OF COMPANY:

By 2015, it will be a company that is known as:

" The most prof itable, innovative, and most trusted financial services company in I ndia and in

the emerging markets" .

In achieving this vision, the company will be both customer-centric and innovation-driven.

2.2 BOARD OF DIRECTORS

Anil Dhirubhai Ambani: Chairman

Rajendra P Chitale: Director

V N Kaul: Director

Amitabh Jhunjhunwala: Vice Chairman

Bidhubhusan Samal: Director

2.3 MANAGEMENT

Vikrant Gugnani - Executive director

Sanjay Wadhwa - Chief Financial Officer

Ganesh Pai - Head Compliance

Hitesh Agrawal - Head Research


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3. JOB DESCRIPTION

The internship involved two aspects of training that was to be provided to us viz. finance

and marketing. The finance aspect involved training departed to us with regards to analysing

a sector and 2 companies fundamentally and then giving a recommendation as to whether

the sector and/or the companies are worth investing in. This training was imparted over the

period of the internship in sessions taken thrice a week.

The marketing aspect involved selling products given to us by the company for which

deadlines were given and had points associated to it to judge the performance.

4. IMPORTANT TERMINOLOGIES IN FUNDAMENTAL ANALYSIS

FUNDAMENTAL ANALYSISInvolves analysing the quantitative and qualitative fundamental factors that help in

valuation or comparative analysis of the company without taking into consideration the

stock market fluctuation of the share price of the company.

QUANTITATIVE FACTORSAll the factors analysed while doing a fundamental analysis involving quantitative

aspects such as ratio analysis, balance sheet and cash flow analysis, etc.

QUALITATIVE FACTORSAll the factors analysed in a fundamental analysis involving qualitative fundamentals

of a company that cannot be measured quantitatively but are still important for analysing

the company in a holistic way.


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MACRO ECONOMIC FACTORSThose factors which directly or indirectly affect the sector or the company but exist

in the external environment and which cannot be controlled is known as macro-economic

factors. These include Political factors, economy related factors, etc.

CORPORATE GOVERNANCECorporate Governance involves proper rules and regulations regarding how the company is run

and how it is managed. It helps in proper functioning of the organisation and in an ethical manner.

RATIO ANALYSISA company is financially analysed by calculating the ratios which help in quantifying the

performance of the company and understand the performance in terms of competitors and the

industry as well as for various other purposes.


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5. FUNDAMENTAL ANALYSIS OF TELECOM SECTOR:

In todays information age, the telecommunication industry has a vital role to play. Considered as

the backbone of industrial and economic development, the industry has been aiding delivery of

voice and data services at rapidly increasing speeds, and thus, has been revolutionising human

communication. The telecommunicationsindustry has emerged as a key driver of the global

economic recovery. The unprecedented growth of high-speed mobile Internet traffic, particularly for

wireless data and video, has transformed the industry into the most evolving, inventive and keenlycontested space.

The telecom industry has been divided into two major segments, that is, fixed and wireless cellular

services.

With increasing number of people, mobile is no longer a nice-to-have; its embedded in their daily

lives and integrated into the workplace. Moreover, consumers are starting to see beyond the

monthly bill and derive more value from the features, functionality and applications on their devices.

With fourth generation (4G) technology rolling out, as well as other technologies to enhance

broadband access, along with new devices and services exploiting it, data usage will continue to

expand exponentially, and the overall value equation to consumers should move in the same

direction.

Higher speeds and widespread adoption of mobile also are expected to enable additional traction in

vertical markets, especially in banking, mobile payments, automotive telematics and health care.

These incremental services will present new opportunities and also drive even more data needs.

The key challenges for telecom in the near term may be spectrum availability and the continued

hearty capital requirements to build/enhance/upgrade networks. The projected increase in data

usage will outpace the technological advances of 4G, driving toward a potential spectrum shortage in

as early as a year or two. With the appropriate focus, it shouldnt inhibit innovation, but it will


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require technical solutions and also escalate pressure for the government to unlock more spectrum,

on a timely basis, to allow for further mobile broadband network expansion.

There would also be continued consolidation in the marketplace, driven primarily by the need for

scale, spectrum positioning and vertical market development.

BASIC MODEL OF A TELECOM COMPANY

A brief description of the four major segments that make up the telecom industry is

as follows:

I. Wireless/Mobile/Cellular services:

The cellular mobile service providers (CMSPs) make available mobile telephone

services where by a customer on possession of a handset and obtaining a connection by way

of SIM card (for GSM based technology phones) is able to connect to the network.


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of the service provider. This is a wireless service that allows the customer to connect with

other wireless customers as also wire line customers. A CMSP derives its revenues by way

of tariff charges for outgoing calls made by subscribers on its network.

II. Fixed line services:

The fixed (wireline) services are dominantly provided for by the PSUs (BSNL

and MTNL) in India. A customer can obtain a connection where by a wireline provides

him with the last mile connectivity on the national telecom network. Although this had

been a dominant mode of telecommunication in the past, it is fast being replaced with

mobile telephony, which has the advantage of connectivity on the move. The

fundamental business of a fixed line operator is almost similar to that of a CMSP, in

terms of ARPU and Subscriber base.

III. Internet/Broadband:

The Internet services are provided either by telecom service providers or

independent Internet service providers (ISP) who deal exclusively in providing this

service. There are two forms of Internet that are currently popular - the dial-up

connections and the broadband connections. While both these forms are used for

transmitting and receiving data, a broadband connection (Internet access that allows

minimum download speed of 256 kilo bits per second from the point of presence of the

service provider) allows you to transmit data at faster rate.

IV. Enterprise services:

These services are used by large and medium corporates for data transfer between

their offices and/or their suppliers' offices, which may be spread in a city, or a country,

or even across continents. The need of users to have a seamless connectivity with their

associates is what drives this business for telecom companies. Considering that this

business takes care of data transfer needs of corporates, who are not as 'affordability'


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conscious as the individuals, telecom companies generally earn higher margins on

Enterprise services than they earn on any of the other three business lines. IT and BPO

sectors, whose business is so data dependent, are the major users of Enterprise services.

GLOBAL SCENARIO:

Research firm Ovum reported that worldwide revenues of telecom sector were more than $2 trillion

in 2012, an improvement of 2% year over year. Mobile service providers account for nearly 60% of

the total revenue.

Economic uncertainty around the globe is not expected to be a significant factor for mobile in 2013.

A few years ago, there was concern about whether the slow economy would push consumers to

drop their mobile devices, but the trend has proven to be the opposite. And this has been at various

demographic levels and across a broad range of the mobile marketplace. In fact, last year it was

estimated that the U.S. mobile ecosystem generated economic activity of nearly $200 billion

enough to make it equivalent to one of the top 50 largest economies in the world.

Companies need to remain focused on marketplace growth and innovation in other strategic areas,

particularly vertical industries and the cloud. The expanding array of data services provides

tremendous value to consumers, in turn creating value for all of the companies in the mobile

ecosystem. As the consumer market matures, connected things and enterprise services offer new

growth opportunities. In addition to supporting their customer base, companies also need to revisit

their core fundamentals around shareholder value including blocking and tackling activities such

as asset efficiency, cost control and service improvement.

As noted, spectrum availability presents more uncertainty for mobile. Companies will have to decide

which technological solutions smaller cell sites, leveraging non-licensed spectrum, spectrum

sharing, etc. to apply to alleviate constraints in the short-term while awaiting a longer-term policy

fix.


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INDIAN SCENARIO:

The Indian telecommunications industry is one of the fastest growing in the world.

Government policies and regulatory framework implemented by Telecom Regulatory

Authority of India (TRAI) have provided conducive environment for service providers. This has

made the sector more competitive, while enhancing the accessibility of telecommunication

services at affordable tariffs to the consumers. In the last two decades, the Indian Telecom

Sector and mobile telephony in particular has caught the imagination of India by revolutionizing

the way we communicate, share information; and through its staggering growth helped millions

stay connected. This growth, however, has and continues to be at the cost of the Climate,

powered by an unsustainable and inefficient model of energy generation and usage.

Simultaneously, this growth has also come at significant and growing loss to the state exchequer,

raising fundamental questions on the future business and operation model of the Telecom

sector.

The telecom industry has witnessed significant growth in subscriber base over the last

decade, with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base. The growth story and the potential have also served

to attract newer players in the industry, with the result that the intensity of competition has kept

increasing. The sector expected to witness up to US$ 56.3 billion investments and the market will

cross the US$ 101 billion mark in five years.

The Indian telecom sector has witnessed tremendous growth over the past decade. Today, the

Indian telecom network is the second largest in the world after China. A liberal policy regime and

involvement of the private sector have played an important role in transforming this sector.

The total number of telephones has increased from 429.73 million on 31 March 2009 to 926.55

million on 31December 2011.

The telecom industry has witnessed significant growth in subscriber base over the last

decade, with increasing network coverage and a competition-induced decline in tariffs acting as

catalysts for the growth in subscriber base. The growth story and the potential have also served

to attract newer players in the industry, with the result that the intensity of competition has kept


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increasing. Also, broadband segment has seen significant growth with total internet subscribers

reaching 20.99 million in September 2011, which includes 13.30 broadband subscribers.

Liberalization of the sector has not only led to rapid growth but also helped a

great deal towards maximization of consumer benefits, evident from a huge fall in tariffs.Telecom sector has witnessed a continuous rising trend in the total number of telephone

subscribers and hence the teledensity has increased.

CURRENT INDIAN SCENARIO:

FY12 saw the continuance of growth for the Indian telecom market, which witnessed a12% YoY increase in its subscriber base during the 12-month period. At the end of March

2012, the countrys total telecom subscriber base (fixed plus mobile) stood at about 951

m. The tele-density level stood at about 76% by the end of the fiscal.

Growth remained robust in the GSM mobile space. GSM added 115 m subscribers duringthe year. After a robust 46% YoY increase in subscriptions during FY11, the growth in

GSM industry has slowed down to 17% YoY in FY12. The year saw the apex court of the

country cancelling the disputed 2G licenses that were issued in 2008. The cancellation

caused the exit of Etisalat and Batelco from the sector.

During FY12, India's mobile subscriber base grew by 13% YoY, from 812 m to 919 m,while the fixed subscriber base declined by about 7%, from 34.73 m to about 32.71m


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GROWTH IN TELECOM

Key factors, which will fuel the growth of the sector include increased access to services owing

to launch of newer telecom technologies like 3G and BWA, better devices, changing consumer

behavior and the emergence of cloud technologies. A majority of the investments will go into the

capital expenditure for setting up newer networks like 3G and developing the backhaul, among

other things.

Subscriber BaseThe mobile subscriber base in India is estimated rise by 9 per cent to 696 million connections

this year, according to technology researcher Gartner. The mobile service penetration in the

country is currently at 51 per cent and is expected to grow to 72 per cent by 2016.

Mobile Value Added Services (MVAS)India's current MVAS industry has an estimated size of US$ 2.7 billion. The industry derives its

revenues majorly from the top five to six products such as game based applications, music

downloads, etc, which continue to form close to 80 per cent of VAS revenues. The Indian MVAS

industry estimated to grow to US$ 10.8 billion by 2015, with the next wave of growth in

subscriptions expected to come from semi-urban and rural areas.

Mobile Number Portability (MNP)Mobile Number Portability requests increased from 41.88 million subscribers at the end of

March 2012 to 45.89 million at the end of April 2012. In the month of April 2012 alone, 4.01

million requests have been made for MNP.

HandsetsThe mobile handset market's revenues in India will grow from US$ 5.7 billion in 2010 to US$ 7.8

billion in 2016, according to the study. India is the second largest mobile handset market in the

world and is set to become an even larger market with unit shipment of 208.4 million in 2016 at

a CAGR of 11.8 per cent from 2010 to 2016.

The Indian handset market witnessed a 14.1 per cent growth in 2011 to touch a total

volume of 182 million handsets. The market continues to be dominated by Nokia with a share of

37.2 per cent, followed by Samsung with 14.9 per cent, G'Five with 7.5 per cent, and Micromax


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with 5.8 per cent. Domestic and Chinese handset makers such as Micromax, G'Five, Karbonn,

Spice, Maxx and Lava, have garnered a strong presence in the Indian market due to their feature-

rich, localised products and low price points.

Key Developments

Telecom Regulatory Authority of India (TRAI) has revealed that the country's mobile

subscriber base has increased from 893.84 million in December 2011 to 903.73 million

in January 2012

Telecom operators added 9.88 million mobile subscribers in January 2012

The overall tele-density reached 77.57 per cent

Broadband subscriber base increased from 13.30 million at the end of December 2011

to 13.42 million at the end of January 2012

Telecom users in rural areas have grown at a faster pace compared to their urban

counterparts in the last five years, a CAG report said

India added around 20 million subscriptions of the estimated 140 million net additions

in mobile subscriptions across the world during the April-June quarter in 2012, said a

report by Ericsson

The Indian telecom sector is a very capital intensive sector and involves high value

investments. Correspondingly, the mobile phone industry is also experiencing a parallel

upward surge, and a parallel enhancement in technologies used. With the liberalization

of the Indian economy, the telecom sector has become very attractive for mergers and

acquisitions latest being SingTel increasing its stake in Bharti telecom.

Employment OpportunitiesAccording to analysts, the sector would generate employment opportunities for about

10 million peopledirect employment for 2.8 million people and indirect employment

for about 7 million. The total revenue of the Indian telecom sector grew by 7% to

283,207crore ($ 56.5 billion) in 2011, while revenues from telecom equipment segment


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stood at 117,039 crore ($ 23.35 billion).

Energy saving initiativesWith an ambition to be diesel free by 2020, telecom companies are retrofitting their

towers every year. Many telecom tower companies currently use renewable energy

sources such as solar, biogas and wind besides hydroelectric power, for individual

towers. Bharti Airtel, one of the largest telecom service providers in India, has been

testing and implementing various energy saving options for the last two-three years.

Additionally, the e-bill initiative is estimated to save as many as 24,000 trees a year.

Value addition by VASSome of the recent developments in this area are M-Commerce, focus on localization,

availability of content in vernacular languages and availability of mobile TV. The

expected revenue from VAS will be around $4 billion by 2015.

IMPACT OF UNION BUDGET ON TELECOM SECTOR:

Overall, budget 2013 failed to bring any major surprise for the telecom sector. FinanceMinister did not address any of the long pending demands of industry including the much

awaited infrastructure tag to telecom players, high service taxes, spectrum allocation and FDI.

There is no denying the fact that telecom sector plays a vital role in the economic development

of the country as for every 10% of the population using basic services (voice and SMS) in the

country, national gross domestic product rises by 0.5%, and for Internet and other non-voice

communications (data), the same penetration adds 1% according to the report by DoT.

However, the cancellation of 122 licences last year and high spectrum fee reduced sales across

the ecosystem and led to negligible spending in network rollouts. Moreover, sector has been hit

by high service tax levies in the recent past.

Although the Union budget 2013 failed to bring clarity on issues that were hindering the growth

of otherwise fastest growing industry, HOPES ARE ON THE National Telecom Policy/Spectrum

Enactment act to be announced this year which is expected to address most of the issues

concerning Telecom sector


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CHALLENGES OF THE TELECOM SECTOR:

Rapidly Falling ARPU

The competitive intensity in the telecom industry in India is one of the highest in the world andhas lead to sustained fall in realisation for the service providers. Intense competitive pressure

and cut throat pricing has resulted in declining ARPUs. With increasing number of new entrants

in the telecom space the competitive intensity is likely to continue, putting further downward

pressures on the telecom tariffs. Thus, the telecom companies might have to grapple with

further decline in ARPUs, going forward.

Further, with the telecom companies moving their focus to the rural areas for driving the future

subscriber growth they might not witness a commensurate increase in revenues. In fact, the risk

of steep decline in ARPUs will increase going forward as the telecom companies penetrate rural

markets that are characterised by higher concentration of lowincome, low-usage customers. A

higher-than-expected decline in ARPU poses a risk of reduction in margins of service providers.

Alternatively, telecom operators are turning their focus to steadily increasing the minutes of

usage (MoU) to counter the sustained fall in ARPUs. Likewise, the growth of the VAS is also

crucial for some improvement in the ARPUs of operators.

Lack of Telecom InfrastructureLack of telecom infrastructure in semi-rural and rural areas could be one of the major hindrances

in tapping the huge rural potential market, going forward. The service providers have to incur a

huge initial fixed cost to enter rural service areas. Further, as many rural areas in India lack basic

infrastructure such as road and power, developing telecom infrastructure in these areas involve

greater logistical risks and also extend the time taken to roll out telecom services. The lack of

trained personnel in the rural area to operate and maintain the cellular infrastructure, especially

passive infrastructure such as towers, is also seen as a hurdle for extending telecom services to

the under penetrated rural areas.

Rural Areas Continue to Remain Under Penetrated


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tower sharing, they will face challenges in terms of high subscriber acquisition costs and lower

ARPU customers.

Price War Between the Service Providers Putting Pressure on MarginsThe ever-increasing competitive intensity in the sector, with licenses and spectrum in several

circles allotted to newer operators, is also a concern and could lead to unrealistic pricing levels

to grab subscribers. The pricing strategy of per second billing already has taken the price war

between telecom operators to the next level. The intensifying price war could put significant

downward pressure on the industry revenue growth. Further, the ongoing price war and the

concomitant decline in telecom traffic could raise the entry barrier for new companies.

Spectrum Allocation3G Spectrum availability is one of the major concerns for the industry. Lack of adequate

spectrum which is the most integral part of the mobile telephony sector could hamper its growth

severely. However, the spectrum allotment has been the most controversial issues in the Indian

telecom sector.

The smooth process of scheduled 3G and BWA spectrum allocation is likely to be one of the key

factors affecting the industry dynamics, going forward. Given the highly-competitive nature of

the Indian telecom industry on one hand, and limited licenses in the 3G network on the other,

the risk of excessive biding by the service providers has increased. Irrational bidding, especially in

some circles, might render 3G services financially-unviable. Further, there exists a risk of delay in

allotment of proposed spectrum to the service providers who have successfully bid for the 3G

spectrum.

Regulatory ChargesThe regulatory charges in the telecom sector have a complicated structure because multiple

levies impede the smooth implementation of telecom projects in India. Given the continuously-

declining ARPUs, and the extremely-low tariffs, sustianing the current growth rates of the

industry requires urgent attention towards rationalising the convoluted tax structure in the

sector.


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TRAI has recommended to the DoT committee to phase out the multiple levies in this sector with

a single levy in a phased manner. Further with regard to license fees, which currently stand at

6%-10% of total revenue, TRAI has suggested that it be reduced at a uniform rate of 6% across all

licences.

Lower Broadband PenetrationThe Indian economy remains highly underpenetrated in terms of broadband connections. High

cost of devices (PC and laptop), high internet charges and lower wireline connections have been

some of the major factors inhibiting broadband penetration. Broadband is one of the key

catalysts for economic development and major initiatives by both the government and service

providers are needed to increase its penetration


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PORTERS FIVE FORCE:

Supply:Intense competition has resulted in prompt service to the subscribers. However, smaller towns

and villages continue to have waiting periods on account of non-availability of adequate

infrastructure.

Demand:Given the low penetration levels in the country and continuously falling tariffs, demand

will continue to remain higher in the foreseeable future across all the segments.

Barriers To Entry:High capital investments

Older and well-established players who have a nationwide network License fee

Continuously evolving technology, and o Falling tariffs

Bargaining Power Of Suppliers:Improved competitive scenario and commoditization of telecom services has led to reduced

bargaining power for services providers.

Bargaining Power Of Customers:A wide variety of choices available to customers both in fixed as well as mobile telephony has

resulted in increased bargaining power for the customers.

Competition:The entry of fourth cellular player and commencement of WLL services has resulted in intense

competition in the bigger cities. Reducing tariffs will hurt the new entrants, as they will be

unable to recover their high capital investments.

Threat of substitute:Internet Telephony eating into the revenue of GSM/CDMA telephony.


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COMPANY ANALYSIS:

1. BHARTI AIRTEL: (BSE Code: 532454 ; NSE Code: BHARTIARTL)

OVERVIEW:

Bharti Airtel is one of the world's leading providers of telecommunication services with presence in

20 countries including India, Sri Lanka, Bangladesh and 17 countries in the African continent. The

Company served an aggregate of 251.65 Mn customers as on March 31, 2012 providing mobile, voice

and data solutions using 2G, 3G and 4G technologies. The Company provides fixed line voice and data

solutions to 3.3 Mn customers in 87 cities in India. Headquartered in New Delhi, India, the company

ranks amongst the top 5 mobile service providers globally in terms of subscribers. In India, the

company's product offerings include 2G, 3G and 4G services, fixed line, high speed broadband through

DSL, IPTV, DTH, enterprise services including national & international long distance services to carriers.

In the rest of the geographies, it offers 2G, 3G mobile services. Bharti Airtel had over 246 million

customers across its operations at the end of February 2012.

VISION OF THE COMPANY:

By 2015 airtel will be the most loved brand, enriching the lives of millions.

Enrichinglives means putting the customer at the heart of everything we do. We will meet their needs

based on our deep understanding of their ambitions, wherever they are. By having this focus we will

enrich our own lives and those of our other key stakeholders. Only then will we be thought of as

exciting, innovation, on their side and a truly world class company."


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QUANTITATIVE ANALYSIS:

Ratio Analysis for the last 3 years and comments over the performance of the Company

Overall Profitability Ratios:

Profitability ratios are used to analyze the profitability of the company. Different stakeholders will have

different perspective on the profitability ratios. These ratios measures the results of business operations

or overall performance and effectiveness of the firm

2012 2011 2010

Gross Profit Margin (%) 14.45 18.95 25.81

Net Profit Margin (%)3.08 11.95 21.78

Return on Networth (%)4.38 14.69 23.13

Return on Capital Employeed (%)8.86 11.15 22.1

Comment:

The overall Profitability of the company has decreased in 2011-12 compared to 2010-11.

Gross profit ratio has declined from 25.81% in 2010 to 18.95 % in 2011 & 14.45 % in 2012, eventhough the overall sales has increased showing that the cost of goods sold has increased.

Net profit ratio has also declined from 21.78 % in 2010 to 11.95% in 2011 and 3.08 % in 2012.This fall is an indication of decreasing overall efficiency and profitability of the firm, though the

sales have increased.

Return on equity (ROE) also known as Return on Net Worth is also declining from 23.13 % in2010 to 14.69 % in 2011 to 4.38 in 2012, indicating shareholders funds are not being utilized


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efficiently. This decreasing ROE also indicates that return earned by equity shareholders as

compared to last year. It can be inferred that the company is paying low dividend, decline in

profits is the main reason for this.

ROCE has decreased from 22.21 in 2010 to 11.15 in 2011to 8.86 in 2012. The ROCE is decreasingbecause of the global economic downturn and the issues in telecom sector namely 2G fraud

affecting the entire telecom sector.

Capital structure/Long term solvency/Gearing ratios:

Long-term solvency ratios convey a firms abilityto meet the interest cost and repayments schedules of

its long-term obligations.

2012 2011 2010

Debt Equity Ratio 1.36 1.16 0.25

Interest Coverage Ratio (%) 4.82 7.85 21.42

Comments:

Debt equity ratio indicates that the proportion of funds provided by long-term lenders incomparison to the funds provided by the owners is only 0.25 in 2010.This portion has further

increases to 1.16 in 2011 and 1.36 in 2012. It shows that the long-term solvency position of the

company This may be due to high financial needs of the company eventually leading to high

debt for the company.

Interest Coverage Ratio has decreased from 21.42 in 2010 to 7.85 in 2011 and to 4.82 in 2012. Itshows company is capable to meeting its interest obligations from operating earnings. Since the

company has started its operations in African countries, the interest coverage ratio has come

down.


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Efficiency Ratios:

Fixed Assets turnover ratio = Sales / Fixed Assets. This ratio gives an indication of how efficiently a

company uses its fixed assets in doing its business.

2012 2011 2010

Fixed Asset turnover ratio 0.61 0.73 0.61

Inventory Turnover Ratio 546.68 278.01 864.48

Comments:

Fixed Asset turnover ratio has decreased from 0.73 in 2011 to 0.61 in 2012. It indicates thatalthough the company has utilized assets efficiently but when compared to previous year

the efficiency level is not so good.

As sales has increased, Inventory Turnover ratio has also increased from 278.01 in 2011 to546.68 in 2012 showing higher liquidity of the inventory.


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Liquidity Ratios/Short term solvency:

These are the ratios measures the short-term solvency or financial position of a firm. These ratios are

calculated to comment upon the short- term paying capacity of a concern of the firms ability to meet its

current obligation.

2012 2011 2010

Current Ratio (X)0.38 0.44 0.65

Quick Ratio (X)0.47 0.32 0.67

Comments:

The current ratio of the companyis 0.65 in 2010 & 0.44 in 2011 which does not show the goodliquidity position, as it is much below than the standard norms of 2:1. In the year 2012, it

decreased to 0.38 , as the current liabilities is increasing at a faster pace as compared to the

current assets.

The quick ratio of 0.67 in 2010 & 0.32 in 2011 is lower as compared to the standard norms of 1:1. In2012, it has increased to 0.47, and is greater than the earlier years which show that the company

can meet its current financial obligations in a little better with the available quick funds in hand. .


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2.IDEA CELLULAR (BSE Code: 532822 ; NSE Code: IDEA)

OVERVIEW

Idea Cellular is an Aditya Birla Group Company, India's first truly multinational corporation. Idea is a pan-

India integrated GSM operator offering 2G and 3G services, and has its own NLD and ILD operations, and

ISP license. With revenue in excess of $4 billion; revenue market share of nearly 15%; and subscriber

base of over 121 million in FY 2013, Idea is Indias 3rd largest mobile operator. Idea ranks among the

Top 10 country operators in the world with a traffic of over 1.5 billion minutes a day.

Ideas robust pan-India coverage is built on a network of over 100,000 2G and 3G cell sites, spread

across over 55,000 towns in India.

Using the latest in technology, Idea provides world-class service delivery through the most extensive

network of customer touch points, comprising of nearly 4,500 exclusive Idea outlets, and over 7,000 call

centre seats. Ideas customer service delivery platform is ISO 9001:2008 certified, making it the only

operator in the country to have this standard certification for all 22 service areas and the corporate

office.

Idea offers a range of high-speed mobile broadband devices including Android based 3G smartphones,

dongles etc. Ideas wide portfolio of 3G smartphones offer the latest in 3G applications and high-enddata services such as Idea TV, games, social networking etc. at most affordable prices.

Idea has been a pioneer in introducing customized product offerings for segmented customers. It is the

first mobile operator to introduce innovative value added services in the Indian telephony market, and

has remained ahead of the industry in data product offerings.


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QUALITATIVE ANALYSIS:

Ratio Analysis for the last 3 years and comments over the performance of the Company




or overall performance and effectiveness of the firm

2012 2011 2010

Gross Profit Margin (%)13.4 10.44 12.57

Net Profit Margin (%)3.7 5.79 7.59

Return on Networth (%)5.55 7.33 8.42

Return on Capital Employeed (%)10.85 6.93 8.99

Comment:

The above profitability ratios indicate the margin levels of the company. The gross profitmargins and net profit margins of the company are important indicators of the health and

revenue of the company.

The gross profit margins of Idea cellular seem to be in a healthy position. Over the three yearsviz. 2012, 2011 and 2010 the gross profit margin seems to be increasing in the three year but

takes a fall in 2011. This can be attributed to the high inflation that existed in the country.

Net profit ratio has also declined from 7.59 % in 2010 to 5.79% in 2011 and 3.7% in 2012. Thisfall is an indication of decreasing overall efficiency and profitability of the firm, though the sales

have increased.


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Return on equity (ROE) also known as Return on Net Worth is also declining from 8.42 % in2010 to 7.33 % in 2011 to 5.55 in 2012, indicating shareholders funds are not being utilized

efficiently. This decreasing ROE also indicates that return earned by equity shareholders as

compared to last year. It can be inferred that the company is paying low dividend, decline in

profits is the main reason for this. This ratio being of great interest to the equity

shareholders, they may loose interest in the company due to declining RoE.

ROCE has over the three years viz. 2012, 2011 and 2010 seems to be increasing in the three yearbut takes a fall in 2011.idea cellular gives a return of 10.85% in the year 2012 as compared to

that of 6.93% in the year 2011 which states that the company has tried to improve its return on

the total capital employed which gives a positive sign on improvement in the overall profitability

of the companys performance.


Long-term solvency ratios convey a firms abilityto meet the interest cost and repayments schedules of


2012 2011 2010

Debt Equity Ratio 0.73 0.83 0.69

Interest Coverage Ratio (%) 3.99 6.81 5.3

Comments:

The debt equity ratio is below the ideal ratio of 2:1 which states that company has less of debtand more of owned funds and the company believes in taking less risk.


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current obligation.

2012 2011 2010

Current Ratio (X)0.49 0.44 0.86

Quick Ratio (X)0.51 0.46 0.75

Comments:

The current ratio of the company is 0.86 in 2010 & 0.44 in 2011 which does not show the goodliquidity position, as it is much below than the standard norms of 2:1. In the year 2012, it

decreased to 0.49, as the current liabilities are increasing at a faster pace as compared to the

current assets.

The quick ratio of 0.75 in 2010 & 0.46 in 2011 is lower as compared to the standard norms of 1:1. In2012, it has increased to 0.51, and is greater than the earlier years which show that the company is

trying to improve its liquidity position.


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COMPARISON OF RATIO ANALYSIS:

Ratio Analysis Comparison of Bharti Airtel with Idea Cellular and comments

(Standalone ratios)




or overall performance and effectiveness of the firm.

Airtel Idea

Gross Profit Margin (%) 14.45 13.4Net Profit Margin (%) 3.08 3.7

Return on Networth (%) 4.38 5.55

Return on Capital Employeed

(%) 8.86 10.85

Comment:

Gross profit ratio of Airtel is 14.45% and that of Idea is 13.4% that reflects that Airtels salesprice of goods sold without corresponding decrease in cost of sales is better than that of Idea.

Net profit ratio of Airtel is 3.08% whereas Ideas Net profit ratio is 3.7% that states that Ideasoverall efficiency and profitability of the firm is better than that of Airtel, showing that idea is

more efficient as compared to Airtel.

Return on equity (ROE) also known as Return on Net Worth of Airtel is 4.38% whereas that ofIdea is 5.55% that indicates that shareholders funds are being utilized efficiently better in Idea

than Airtel, assuming that the that the company is diversifying its business

ROCE of Airtel is 8.86% and that of Idea is 10.85% which shows that Idea is earning slightlyhigher profits on the investments made by the company than Airtel.


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Long-term solvency ratios convey a firms ability to meet the interest cost and repayments schedules of


Airtel Idea

Debt Equity Ratio 1.36 0.73

Interest Coverage Ratio (%) 4.82 3.99

Comments:

Debt equity ratio of Airtel is 1.36 and that of Idea is 0.73 that indicates that the proportion offunds provided by long-term lenders in comparison to the funds provided by the owners by

Airtel is less than that of Idea. It also shows that the long-term solvency position of Airtel is

sound than Idea.

Interest Coverage Ratio of Airtel is 4.82% and that of Idea is 3.99% that indicates that Airtel ismore capable to meeting its interest obligations from operating earnings than Idea.

Efficiency Ratios:

Fixed Assets turnover ratio = Sales / Fixed Assets. This ratio gives an indication of how efficiently a

company uses its fixed assets in doing its business.

Airtel Idea

Fixed Asset turnover ratio 0.61 0.49

Inventory Turnover Ratio 546.68 210.54

Comments:

Fixed Asset turnover ratio of Airtel is 0.61 and that of Idea is 0.49 that shows that fixed assets inAirtel are optimally utilized for generating revenue than Idea.

Inventory Turnover ratio of Airtel is 546.68 and that of Idea is 210.54,this shows that Airtel hashigh liquidity of the inventory than that of Idea.


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current obligation.

Airtel Idea

Current Ratio (X) 0.38 0.49

Quick Ratio (X) 0.47 0.51

Comments:

The current ratio of Idea is 0.49 and that of Airtel is 0.38 showing that both the companies havea bad short term solvency but in comparison Idea is in a better position.

The quick ratio of Idea is 0.51 and that of Airtel is 0.49 which is lower as compared to thestandard norms of 1:1.The financial position of Idea is quite satisfactory than Airtel.

PE RATIO:

Airtel Idea

PE ratio 25.21 63.44

The Price-Earnings Ratio of Airtel is Rs25.21, which means that the market pays Rs25.21 for every rupee

earned by the company and in comparison Idea which is Rs.63.44. This indicates the market confidence

in IDEA and its future prospects. The industry average is Rs. 24.82 showing that Idea is overvalued.


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CONCLUSION:

Strong growth in subscriber base, increasing non voice revenues and lowering fixed cost per unit,the Indian telecom service sector is set to report buoyant growth in revenues and profitability in the

short to medium term.

There are two key drivers for the growth in this business. First, the enhanced capability of theCompany to deliver services on a global basis is attracting new customers and opening up new

markets. Second, there is significant growth in the existing customers' businesses globally.

Bharti Airtel, one of the major players in the telecom service provider industry has attained asignificant market share in the country with its widespread network, huge subscriber base and

quality service. Also, the company to make its presence felt all across the globe, is spreading its

wings to international markets.

Idea, is the second largest major player in the telecom sector is improving its services and try togrow in the market. Is the major competitor to Airtel, which again is growing globally

Though Airtel has much better presence in the global markets, it has shown somewhat consistentgrowth. Whereas Idea has shown a considerable growth over the last three years. The growth is

expected in both the companies but Idea will be able to give much better returns than Airtel.


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LEARNINGS:

Fundamental analysis is a vast topic wherein the sector or the company is analysed as well as

forecasting is undertaken to take a call on whether investment option should be exercised or

not.

1.) A company cannot be analysed in isolation to its sector. If it is analysed in isolation tothe whole sector the future predictions might not come true.

2.) Sector analysis is solely based on the macro economic factors in the market andcompanies performance may not truly uplift the gloom that might be prevalent in the

market. However, the same can be said about a company in isolation as its performance

may be contradicting to what is happening in the sector.

3.) Ratio analysis does not really need to be done manually as there exist excel sheetswhere in just putting in the balance sheet will give all the required ratios, with the help

of whose proper analysis can be made.

4.) Ratio analysis is not the only factor which is important while analysing a companyfundamentally. Fundamental analysis of the company involves analysing the qualitative

as well as the quantitative fundamentals of the company.

5.) Without analysing the qualitative factors of the company, one cannot make properpredictions as well as the recommendations of a company as factors such as skills that a

company has in terms of their employees.

6.) Deadlines in the corporate sector are tight and are to be met on time.7.) Punctuality is to be maintained and is a quality that is strongly expected in the corporate

world.

8.) In a market there exist different types of organization with regards to the businessverticals they operate in. companies exist using the same organization brand name of

parent company so as to utilize their goodwill. At the same time there exist company

subsidiaries that use different brand names irrespective of the goodwill enjoyed by the

parent companys brand name.


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GLOSSARY

Allocation: The process of apportioning costs (or revenue) to products, departments, divisions or other

organization units.

Annual Reports: The reports issued annually by a company to its shareholders. It basically contains

financial statements, management views and future prospects.

Annuity: A stream of uniform periodic cash flows.

Arbitrage: A simultaneous purchase and sale of a security (or currency) in different markets to derive

benefit from price differentials.

Bear market: A market operated by bears or one who has a pessimistic approach for the future.

Beta: A risk measure based on how the returns on a given security vary in the market.

Credit risk: the risk that a party to a contract will default.

Cumulative dividends: A feature of preferred stock that requires all past dividends on preferred stocks

to be paid before equity dividends are paid.

Current assets: Assets which normally gets converted into cash during the operating cycle of the firm.

Current liabilities: Liabilities those are generally payable within a year.

Depreciation: A write off part of the cost of the asset annually.

Derivatives: Instruments whose payoff are derived from the value of other asset.

Du pont system: A system of financial analysis, pioneered by the DU pont company, which helps in

understanding profitability in terms of profit margin and asset turnover.

Equity: The net worth of the firm consisting of the consisting of the paid up capital plus reserves and

surplus.asa

Financial Intermediaries: Financial institutions that serve as an intermediary between the savers of

funds and the users of funds (commercial banks, development banks, mutual funds etc)


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Financial Risk: the risk which arises out of use of debt capital.

Forward contract: An agreement between two parties to exchange an asset for cash at a predetermined

future date for a price that is specified today.

Futures contract: A standardized forward contract is a future contract.

Goodwill: intangible assets represented by the excess of purchase price over the book price.

Hedging: A method of risk transfer in which an action taken to shield against the possible losses also

eliminates the possible gains.

Holding company: A company which holds the controlling interest in one or more other companies

which are referred to as subsidiaries.

Insolvency: The inability of the firm to meet its debt obligation.

Market risk: the part of the risk that cannot be eliminated by way of diversification. Its also referred to

as market risk or systematic risk.

Money market: the financial market for short term loan/funds.

Operating cycle: the operating cycle of the business begins with acquisition of raw material and ends

with collection for receivables.

Options: the right to buy or sell something on or before a given date at a pre determined price.

Portfolio: A combination of assets.


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BIBLIOGRAPHY:

Websites:

www.reliancecapital.in www.airtel.in www.ideacellular.com www.moneycontrol.com www.insight.dionglobal.in www.trai.gov.in www.waystowealth.com

JOURNALS:

CMIE journal
http://www.reliancecapital.in/http://www.reliancecapital.in/http://www.airtel.in/http://www.ideacellular.com/http://www.moneycontrol.com/http://www.insight.dionglobal.in/http://www.trai.gov.in/http://www.trai.gov.in/http://www.trai.gov.in/http://www.insight.dionglobal.in/http://www.moneycontrol.com/http://www.ideacellular.com/http://www.airtel.in/http://www.reliancecapital.in/


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APPENDIX:

BHARTI AIRTEL INCOME STATEMENT:

Particulars 12-Mar 11-Mar 10-Mar

Income

Operating Income 71505.8 59467.2 41829.46

Expenses

Material Consumed 0 816.9 85.89

Manufacturing Expenses 25495.9 20188.1 10500.87

Personnel Expenses 3515.9 3278.4 1702.55

Selling Expenses 0 0 2789.68

Adminstrative Expenses 18789.1 15212.4 9753.97

Total Expenses 47800.9 39495.8 24832.96Operating Profit 23704.9 19971.4 16996.5

Other Recurring Income 264.3 488.2 235.19

Adjusted PBDIT 23969.2 20459.6 17231.69

Financial Expenses/ Interest Expenses 4082.8 2534.9 769.7

Depreciation 13368.1 8698 6199.41

Other Write offs 0 1508.6 355

Adjusted PBT 6518.3 7718.1 9907.59

Tax Charges 2542.8 1817.5 1533.92

Adjusted PAT 3975.5 5900.6 8373.67

Minority Interest 0 0 -198.39

Share of P/L In Associates 0 -5.7 -4.83

Adjusted PAT after Minority Interest 3975.5 5894.9 8170.45

Non Recurring Items -2041 1233.9 939.87

Other Non Cash adjustments 282.6 38.5 52.81

Reported Net Profit 2217.1 7167.3 9163.13

Earnings Before Appropriation 2217.1 7173 28197.36

Equity Dividend 379.8 379.8 379.79

Dividend Tax 61.6 61.6 64.55

Retained Earnings 1775.7 6731.6 27753.03


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IDEA CELLULAR INCOME STATEMENT:


Income

Operating Income 19488.69 15438.4 12397.88

Expenses

Material Consumed 141.37 41.22 30.48

Manufacturing Expenses 12450.8 9849.79 7431.19

Personnel Expenses 938.07 794.57 634.64

Selling Expenses 428.12 385.82 424.48

Adminstrative Expenses 481.89 608.8 505.69

Total Expenses 14440.26 11680.19 9026.47

Operating Profit 5048.43 3758.21 3371.41

Other Recurring Income 20.84 73.46 166.93

Adjusted PBDIT 5069.27 3831.66 3538.35

Financial Expenses/ Interest

Expenses 1055.55 523.56 690.63

Depreciation 2435.69 2145.29 1812.33

Other Write offs 0 0 202.58

Adjusted PBT 1578.03 1162.82 832.81

Tax Charges 332.29 98.15 104.24

Adjusted PAT 1245.74 1064.67 728.57

Adjusted PAT after Minority

Interest 1245.74 1064.67 728.57Non Recurring Items -567.84 -221.84 148.41

Other Non Cash adjustments 45.09 55.87 94.14

Reported Net Profit 722.99 898.71 953.94

Earnings Before Appropriation 1117.94 394.95 -988.21

Retained Earnings 1117.94 394.95 -988.21


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IDEACELLULAR BALANCE SHEET:


Source of Funds

Equity Share Capital 3308.85 3303.27 3299.84

ESOP 34.95 47.81 44.45

Preference Capital 1.93 1.93 1.93

Reserves And Surplus 9704.5 8946.93 8026.15

ShareHolders Fund 13050.22 12299.93 11372.36

Loan Funds

Secured Loans 8704.14 9176.06 7316.62

Unsecured Loans 2545.55 2894.44 542.68

Total Debt 11249.69 12070.5 7859.3

Total Liabilities 24299.91 24370.43 19231.66

Application of Funds

Gross Block 38271.57 33703.79 27064.65

(-) Accumulated Depreciation 11277.78 11212.78 8890.67

Net Block / Net Fixed Assets 26993.78 22491.02 18173.98

Capital WIP 679.85 3646.69 546.47

Investments 97.6 1020 1130.37

Current Assets 5823.52 3681.65 4142.27

(-) Current Liabilities & Provisions 9294.85 6468.93 4761.44

Total Net Current Assets -3471.33 -2787.28 -619.17

Total Assets 24299.91 24370.43 19231.66

fundamental analysis on telecom sector

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