sep 3 2010 dtu dsm bharti airtel strategy
TRANSCRIPT
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NMIMS- MBA Capital
Markets- 2008-2010
Presented By: -Gaurav Aggarwal - 02Dhawal Kantawala - 12Yatin Mota - 19Hardik Shah - 29Anurag Surana - 31Jwalit Vyas - 33Suyash Gupta - 34
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Indian TelecomSector
Fastest Growing Sector CAGR22% (2002 -08)
Second Largest TelecomMarket
Lowesttariffcharges in the world Wireless Subscribers 315.3 Mn Wireline Subscribers 38.4 Mn Teledensity 30.6
23 Circles - 4 Categories ( Metro, A, B & C)
Bharti Airtel Largest playerwith presence in
23 Circles
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GROUP 7 2
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Subscribers(in
millio
n)
Teledensity(in
percent)
Why Mad Rush for Telecom ??Large number of
addit ions in telecom
subscribers
Low teledensity
(depicting large untapped potential)
TelecomA
dvantage
250
200
150
100
50
0
5.1
53
7.0
76
9.1
98.4
12.8
140.3
18.3
206
24
19.9 20
16
225.21 12
8
4
0
200203 200304 200405 200506 200607 200708 (as
of June
2007)
TelecomSubscr iber Base Teledensity
GROUP 7 3
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Evolution of Telecom In IndiaDepartment of Telecommunicat ion (DoT) is the main body formulatinglaws and various regulations for the Indian telecom indust ry.
Privateplayers wereallowed in
Independentregulator,TRAI, wasestablished
B SNL wasestablishedby DoT
ILD services wasopened tocompetition
Go-ahead to
Calling PartyPays (CPP) wasimpl en
Intra-circlemergerguidelineswere established
Attempted toboost Rural
Numberportabili tywas proposed(pending)
Value AddedServices
the CDMAtechnology
em tedtelephony
1992
1994
1997
1999
2000
2002
Internettelephonyinitiated
2003
UnifiedAccessLicensing(U A SL) regime
2004
Broadbandpolicy 2004
2005
2006
2007
NationalTelecom Policy(N TP) wasformulated
IL D
NTP-99 led tomigration fromhigh-cost fixedli cense fee tolow-cost revenuesharing regim e
InternationalLong
Reduction oflicence fees
wasintroduced
ReferenceInterconnectorder wasissued
wasformulatedtargeting 20millionsubscribers by 2010
FDI li mit wasincreased from49 to 74percent
Decision on 3Gservices(awaite d)
Distance GROUP 7 4
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Telecom Ecosystem
In d ia n
Telec o
m In d u st
ry F
ra
me
wor
k
They formulate variouspoli cies andpass laws to regulate the telecom
industry in India.
Wireless
They undertake various research activitiesand monitor the quality of service provided in the Indian telecom industry .They also provide various recommendations
Pla n n i n g an d C o o rd i nati o n (WPC)
Handles spectrumallocation andmanagement
to improve the status of telecomoperations in India .
Telec o m Re g u lat o ryDe p artme n to f
DoT Licensee andA u t h o rit y o f I n d ia
Telec o mm u n ic
ati o n s
Telec o mC o mmissio n
Gro u p o n Telec o m a n d IT (G
oT
-IT)
frequency management
for telecom
Exclusive policy making body of DoT
Handles ad hocissues of thetelecom industry
(TRAI)
Telec o m Dis p u tes Settleme n t an d A p p ellat e Tri b u n al (TDSAT)
Independent regulatorybody
Telecom disputessettlement body
GROUP 7 5
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Bharti Airtel
La rgest Private Integrated TelecomCompany in India
3rd Largest Wireless Operatorin theWorld
La rgest & Fastest Growing Wireless
Operatorin India Largest Telecom Company lis tedon
IndianStock ExchangeGROUP 7 6
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Vision 2010
By 2010 Airtel will be the mostadm iredbrand in India:
Lovedby morecustomers
Targetedby top talent
Benchmarkedby morebusinesses
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Vision 2020
To build India'sfinestbusine sscongl omerate by 202 0
Supporting education ofunde rprivilegedchildrenthroughBharti Foundation
StrategicIntent:
To createa conglomerate of thefuture by bringing about BigTransformationsthrough BraveActions.
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Mission
We at Airtel alwaysthinkin freshand innovative ways abouttheneeds of our custom ers and how
we want themto fee l.We deliverwhat wepromiseand go out of ourway to de ligh tthe custom er with a
littlebitmore
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Core Values
Empowering People - to do theirbest
Being Flexible - to adapt to thechanging environme nt and evolvi ngcustomer nee ds
Ma king it Happ en-by strivi ng tochangethe statusquo, innovateandenergizenew ideas with a strongpassi onand entrepreneurial spirit
Opennes sand transparency- withan innatedesireto do good CreatingPositiveImpactwi th a
desireto createa meaningfuldifference in society.
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Objectives/Goals
To unde rtake transformat ionalprojectsthat have a positiveimpacton the societyand
contribu teto thenationbuild ingprocess.
To Diver sifyintonew businesses
in agriculture,financial servicesand retailbusiness with world-classpartners
To laythe foundation forbuil ding a
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Regulatory Framework
74% FDIInvestment
Lack ofTransparencyinSpectrum &LicenseAllocation
3G Policy & MNPGROUP 7 still Pending 12
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Declinging Tariff Rising Revenue
Source : TRAIReport
GROUP 7 13
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Economic Factors
GD P growth rate - Averaged around 7.9 %
f
rom
2002-2008Ris ing Tele-dens ity Target of 45% by 2010
Growing per capita income/di sposable Incom eRs 12000 in 2002 to Rs 33000 in 2008)
Fal ling Handset Pr ices
Moderate inflat ion levels which were prevalent duringthe past 7 years around 5-6%
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Changing Demographics
Demand for V A S& Broadbandservices Among Youth28%
Urban Populat ion
Rapid UrbanizationRis ing Incom e level
Source: Mckin sey Report
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Technology
CD M A Already there ar ebig players in this
segment Reliance , Tata
3G Value added servicespotential still to be
tapped fully
2G/3G GS M Currentlycommands 70% of mobilesubscribers in India
I t t d T l
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Integrated TelecomCompany(Product Portfolio)
qWirelessServices
2G/3G
Rural Market
qTelemedia
Services
Fixed Line
Broadband
DTH
qEnterpriseServices
Carrier
Corporate
qPass iveInfrastructure
Bharti Infratel
Indus Tower
GROUP 7 17
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Bharti AirtelCorporate structure
18
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Wireless Market Share - India
GROUP 7 19
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Soucre: TRA 20
Geographical Presence India ...
I
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Financials Snapshot
Details Q2 FY 09 Y-on-Y
Customers 79.99 mn 57.00%
Revenue $ 1,942 mn 42.30%
EBITDA $ 796 mn 36.50%
Cash Profit $ 673 mn 20.30%
Net Income $ 441 mn 26.80%
21
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Financial Snapshot - Ratios
eebyt- Eaq u oitsy- .3a8r- 0.5a4r- 0.8a3r- 0.6ar- 0.0a7r-
Long Term Debt-Equity Ratio 0.35 0.5 0.76 0.5 0.03
ROCE (%) 34.88 34.07 22.55 23.96 0.16
RONW (%) 39.53 43.04 31.82 23.88 -0.27h tt p :/ /ww w . c ap ita li n e .co m
Key Ratios - Industry 2007 2006 2005 2004 2003
Debt-Equity Ratio 0.35 0.21 0.27 0.34 0.36
Long Term Debt-Equity Ratio 0.3 0.19 0.24 0.29 0.33
ROCE (%) 9.72 10.28 8.25 8.43 3.07
RONW (%) 10.11 10.62 10.87 6.76 0.18htt p ://ww w.capitali ne.com
22
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Strengths
SWOT ANALYSIS
LargestTele complayerin India subscriberbase over100 mn
Pan IndiaPresence
High Pat Margins 24.8% Low debt on books D/E of0.3
Good ARPU of RS 199
StrategicAlliancewith other stakeholders in
Bharti Airtel include Sony-Ericsson, Nokia -and Sing Tel
Experience of launching 3G services inSriLanka
High cash balance of $1bn
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SWOT ANALYSISWeakness
Tariff war at its peak
Increasedcompetitiondue to newlicense s & issu ance of crossovertechnology
ARPU drop is a certainty,expe ct drop ofabout 20%
Mobile Termination Chargesreduced to .20 permin, indi cations
towards zero MTC M & A regulations rest rictatt ractive
synergies DTH a big worry
Land Line & fixed line se rviceare in a
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SWOT ANALYSIS
Opportunity Lot of scopein rural areas CurrentTele-Density 37 is sti ll low
among developingcount ries
Low broadband penetration companywell equippedto takebusi ness to nextlevel
Fast extending IPLC market, only player
otherthan VSNL to have InternationalSubmarine cable network Expectedconsolidation in industry in
mediumterm due to tariffwa rs
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Threat
SWOT ANALYSIS
Indiacentric - MajorrevenuesfromIndia
93% revenu es from BhartiTeleventures,only 7% fromother group companies
Mobile Number Portability by Jan
2010 impacton margins Inabilityto obtain3G spec trum in key
circle
Revi sion of Licensefee s
BCG M i f Bh i Ai l
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L
O
W
H
I
G
H
BCG Matrix for Bharti Airtel
St arsMobile ServicesBharti Infratel
?Broad BandInsuranceRetailFixed Line Services
Co ws
DogsDTH
HIGH
MMaar
rkkeett SShh aar
r
ee
L O W
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LOW
27
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Porters 5 Forces
28
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1. Threat from Competition
Wireless Market market
s h are
T o p 4 g arn eri n g 7 5 %
HIGH
29
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Competitor Analysis
O P Marg i n Net Marg i n
O P Marg i
n s
C o m p a n y
& Net Pro fit Margi n s am o n g
Rcom
IDEA
M TNL
Se p - 07
Peers37.90%
32.80%
23.70%
Se p - 08
31.60%
26.60%
22.90%
Se p - 0 72
23.90%
14.10%
7.00%
Se p - 0 83
13.20%
6.50%
6.80%
Source: CMIE November 2008
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30
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ARPU
(USD
perm
on
th)
AMOU & ARPU StatsMi n u tes o f Usa g e p er M o n t h M o b ile
Serv icesUSA 838
India 461
China
D
1
m
g
espite a low teledensit y of approximately9 percent, India has the second highestinutes of usage per month. This offers hugerowth opportunity to telecom companies.
Russ ia 88
ARPU* i n I n d i a M o b il e Serv ices
10
8
The declining A R PU implies that India Inc.6is tapping a large market at the bott om of
4
2
0
Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q12007
GSM CDMA
the pyramid by reducing tariffs;enhancing affordabilit y.
thereby,
31
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2. Customer Bargaining Power
Lack of differentiation among Service
Providers
Cut throat Competition
Low Switching Costs
Number Portability will have Ve Impact
Businesses & Consumers
HIGH
32
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Market Scenario
Postpaid Vs Prepaid Customers & Market Share
33
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3. Suppliers Bargaining Power
LOW
34
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4. Threat of Substitutes
Landline
CDMA
Video Conferencing
DIMINISHING MARKETH
IGH
BROADBAND SERVICE S
VOIP - Skype, Gtalk, Yahoo Messenger
e-Mail & Social Networking Websites
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35
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5. Threat of New Entrants
Huge License Fees to be paid upfront & High gestation
period
Entry of MVNOs & WiMAX operators
Spectrum Availability & Regulatory Issues
Infrastructure Setup Cost - High
Rapidly changing technology
LOW
36
G E M t i C l ifi ti
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M
a
r
k
e
t
A
tt
r
a
c
t
i
ve
n
e
s
s
L
o
w
M
e
d
i
u
m
H
i
g
h
GE M atrixClass ificatio n
Stro ng
B u si n ess Stre n g t h
Me d i u m Weak 5 . 0 0
3 . 6 7
2 . 3 3
5 . 0 0 3 . 6 7 2 . 3 3
1 . 0 037
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37
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B u sin ess Stre n g th
Currentmarket shareBrand imageBrand equity
Productioncapa ci tyCorporate image
Profit margins relativetocompetitors
R & D perform anceManagerial per son alPromotionaleffectiveness
GROUP 7 38
U d l i M k
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Factors Underlying Market
Factors Weight Rating(1 5)
Value =(Weight * Rating)
Resource availability 0.20 3.5 0.7
Overall market size 0.15 4 0.6
Annual Market growth rate 0.20 4 0.8
Profitability 0.15 4 0.6
Competitive intensity 0.10 4 0.4
Technological requirements0.20 4.5 0.9
Total 1.0 4.0
39
Factors Underlying Market/Biz
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Factors Underlying Market/BizStrengthFactors Weight Rating
(1 5)
Value =
(Weight * Rating)
Market share 0.15 5 0.75
New product development 0.10 3.5 0.35
Brand Image 0.10 4 0.40
Sales force 0.15 3 0.45
Pricing 0.15 3 0.45
Distribution capacity 0.10 4.5 0.45
Product quality 0.10 4.5 0.45
R&D Performance 0.15 3 0.45
Total 1.0 3.75
40
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Moder
Market
Attrac t
iveness
Airtels GE Matrix
High Business Strengths LowHigh
Attractive
Airtel E n terpri se
5 . 0 0
3 . 6 7
TeleMd ia
ateAttractive
2 . 3 3
Unattractive
Low
5 . 0
0
3 . 6
7
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2 . 3 3 1 . 00
41
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Airtel Strategy
MANTRA : Focus on CoreCompe tenciesand Outsource therest!
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Strategy
Airtelpartneredwith leading playersin telecommunicationpl aye rsacrossthe globe .
Ithas managedto work with thebest of domain specialistsgloballyand emerge as a world class entity.
Partnerships include ope rationalcontracts with marquee vendorsand str ategic investorsrangingfromprivateequ ity investorsto
global telecomgiants.
S i hi / Sh h ld
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Strategic partnerships/ Shareholders
Warburg Pincus a celebrated PEinvestorhelda stake for asubs tantialperiod of timeand was
instrumental inproviding Airtelsupportin itsearly stages.
Vodafonewas a strategic investorin
Airtel. Temasekthe Singapo rebased
investorholds a considerablestake
in it.
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quality assurancein Airtels then 13mobi le circles.
Outsourcing deals in 2004
Ericsson was given the mandate toprovide ,manage and maintain theequ ipmentas well provide
IBM was giventhe manda te to
handlethe back officerequ irements of Airtelspresence inIndia
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Operational Strategies.
Higherempha sison ARPU/min starkcontrast with otheroper ators whoconcentrateon ARPU only.
Aim to be become a one stop shop forall telecomm unication services underthe Bharti umbrella.
Exploring opportunities in internationalmarkets.
Hived off towerinfrastructure into aseparate entity.
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Performance till date
Bharti Airtel has enjoye dan excellentrun ever sincethe telecomsectoropened.
Ithas managedto hold on to itsleade rshipposition inspite of the
presence of other pla yers with deeppoc kets Ambanis, Tatas,Birlas
and Vodafone. Has copedwell with regu latory
changes.
Continues to att ractand delight
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Future Strategies
Translateits exper tise in Indianmarkets to ot her emergingeconomies.
This could call for acquisi tions globally. Technology leadership is a must
Airtel must ens urethatits relianceon
GSM technology does not renderitobsolete.
Indianmarket insp ite ofbeing thewo rlds largest is still not matured.
Opportunities abound in the
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hinterlandwhichmustbe exploited.
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Growth Factors
GROUP 7 49
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Road Map Growth Path
VPN & VoIP
WiMAX
3G
2G/2.5G
GROUP 7 50
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References
Bharti Airtel,Annual Report -2009
Investorspresentation,Bharti Airtel Limited,November 2009
Telecommunication Services, IndianIndustry: A
Monthly Review, CMIE November20 09 Analyst Report Bharti Airtel,AsitC. MehtaInvesmentIntermediate sLtd.
Telecommunication Sector Report March2009,CRISIL
Capitaline Databasehttp:// capita line.com IndianTelecommunication Sector - August2008,
IBEF Report Next Big Spenders Indian MiddleClass,
BusinessweekGROUP 7 51
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THANK YOU !!