4. Corporate Financial Analysis Report
Bharti Airtel
OBJECTIVE
The basic objective of doing the report is to analyse the financial statements of a Bharti Airtel,
analyse the environment in which it is operating and evaluate its performance over the last three
years and compare the performance with the industry peer groups. Hence a thorough
Environment Industry & Company analysis is done to understand the external factors
influencing the company. The financial report analyses and interprets using tools like
comparative analysis, common size analysis and ratio analysis. Using these tools the
performance of the company over the last three years is evaluated.
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Introduction To The Industry
The history of telecommunication industry started with the first public demonstration of Morse’s
electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham Bell filed his
patent application and the first telephone patent was issued to him on 7th of March. In 1913,
telegraph was popular way of communication. AT&T commits to dispose its telegraph stocks
and agreed to provide long distance connection to independence telephone system. In 1956,
the final judgment limited the Bell System to Common Carrier Communications and
Government projects but preserving the long-standing relationships between the manufacturing,
researches and operating arms of the Bell System. In this judgment AT&T retained bell
laboratories and Western Electric Company. This final judgment brought to a close the justice
departments seven –year-old antitrust suit against AT&T and Western Electric which sought
separation of the Bell Systems Manufacturing from its operating and research functions. AT&T
was still controlling the telecommunication industry.
In 1982 , AT&T was requested to divestiture its stock ownership in Western Electric;termination
of exclusive relationship between AT&T and Western Electric; divestiture by Western Electric of
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its fifty percent interest in Bell Telephone Laboratories, AT&T ‘s telecommunication research
and development facility, is a jointly owned subsidiary in which AT&T and Western Electric each
own 50% of the stock; separation of telephone manufacturing from provision of telephone
service and the compulsory licensing of patents owned by AT&T on a non-discriminatory basis.
It was telecommunication act of 1996 that true competition was allowed. The act of 1996
opened the market to all competitors. AT&T being the first telecommunication company paved
the road for the telecommunication industry as well as set the policy and standards for others to
follow.
Beginning of telecommunication in India
The era of telecommunication in India started from the year of 1851 with the initiative from govt.
of India near the city of Calcutta now known as Kolkata. However the rapid growth in telecom
industry came into picture after the year of 2002-03 onwards as the more number of service
providers came into existence. Since 2002-03 there is rapid change in the technology and
increase in numbers of subscribers in the Indian telecom industry till now. The following are the
milestones in the Indian telecom industry.
• 1851 First operational land lines were laid by the government near Calcutta.
• 1881 Telephone services introduced in India.
• 1883 Merger with postal system.
• 1923 Formation of Indian radio Telegraph Company.
• 1932 Merger of ETC and IRT into Indian Radio and Cable Communication Company.
• 1947 Nationalization of all foreign telecommunication companies to form the posts,
telephone and telegraph, a monopoly run by the government’s ministry of
communications.
• 1985 Department of telecommunication established an exclusive provider of domestic
and long-distance services that would be its own regulator.
• 1986 Conversion of dot into two wholly government – owned companies the VSNL for
international telecommunication and MTNL for services in metropolitan areas.
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• 1997 Telecom regulatory authority created.
Telecommunication is important not only because of its role in bringing the benefits of
communication to every corner of India but also in serving the new policy objectives of
improving the global competitiveness of the Indian economy and stimulating and attracting
foreign direct investment. Indian Telecom industry is one of the fastest growing telecom markets
in the world. In telecom industry, service providers are the main drivers; whereas equipment
manufacturers are witnessing growth and decline in successive quarters as sales is dependent
on order undertaken by the companies. Today the Indian telecommunications network with over
375 Million subscribers is second largest network in the world after China. India is also the
fastest growing telecom market in the world with an addition of 9- 10 million monthly
subscribers. The teledensity of the Country has increased from 18% in 2006 to 33% in
December 2008, showing a stupendous annual growth of about 50%, one of the highest in any
sector of the Indian Economy. The Department of Telecommunications has been able to
provide state of the art world-class infrastructure at globally competitive tariffs and reduce the
digital divide by extending connectivity to the unconnected areas. India has emerged as a major
base for the telecom industry worldwide. Thus Indian telecom sector has come a long way in
achieving its dream of providing affordable and effective communication facilities to Indian
citizens. As a result common man today has access to this most needed facility. The reform
measures coupled with the proactive policies of the Department of Telecommunications have
resulted in an unprecedented growth of the telecomsector. There is a cut-throat competition in
the Telecom industry as more and more advanced technology is developed in very short time.
Once the people get addicted to 2G technology by the time new players come up with latest
technology called 3G and EDGE. The thrust areas presently are:
• Building a modern and efficient infrastructure ensuring greater competitive environment
• With equal opportunities and level playing field for all stakeholders.
• Strengthening research and development for manufacturing, value added services.
• Efficient and transparent spectrum management
• To accelerate broadband penetration
• Universal service to all uncovered areas including rural areas.
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• Enabling Indian telecom companies to become global players.
Day by day, both the Public Players and the Private Players are putting in their resources and
efforts to improve the telecommunication technology so as to give the maximum to their
customers.
Recent things to watch in Indian telecom sector are:
• 3G and BWA auctions
• MVNO
• Mobile Number Portability
• New Policy for Value Added Services
• Market dynamics once the recently licensed new telecom operators start rolling out
• Services.
• Increased thrust on telecom equipment manufacturing and exports.
• Reduction in Mobile Termination Charges as the cost per line has substantially reduced
• Due to technological advancement and increase in traffic.
India's telecom sector has shown massive upsurge in the recent years in all respects of
industrial growth. From the status of state monopoly with very limited growth, it has grown in to
the level of an industry. Telephone, whether fixed landline or mobile, is an essential necessity
for the people of India. This changing phase was possible with the economic development that
followed the process of structuring the economy in the capitalistic pattern.Removal of
restrictions on foreign capital investment and industrial de-licensing resulted in fast growth of
this sector. At present the country's telecom industry has achieved a growth rate of 14 per cent.
Till 2000, though cellular phone companies were present, fixed landlines were popular in most
parts of the country, with government of India setting up the Telecom Regulatory Authority of
India, and measures to allow new players country, the featured products in the segment came
in to prominence. Today the industry offers services such as fixed landlines, WLL, GSM
mobiles, CDMA and IP services to customers. Increasing competition among players allowed
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the prices drastically down by making the mobile facility accessible to the urban middle class
population, and to a great extend in the rural areas. Even for small shopkeepers and factory
workers a phone connection is not an unreachable luxury. Major players in the sector are
• BSNL
• MTNL
• Reliance
• Bharti Teleservices
• Vodafone
• Tata Teleservices
• Idea
• Aircel
• Videocon
• MTS
With the growth of telecom services, telecom equipment and accessories manufacturing has
also grown in a big way. Indian Telecom sector, like any other industrial sector in the country,
has gone through many phases of growth and diversification. Starting from telegraphic and
telephonic systems in the 19th century, the field of telephonic communication has now
expanded to make use of advanced technologies like GSM, CDMA, and WLL to the great 3G
Technology in mobile phones. Day by day, both the Public Players and the Private Players are
putting in their resources and efforts to improve the telecommunication technology so as to give
the maximum to their customers.The wireless subscriber crossed the 261 million subscriber
mark at the end of the financial year in comparison to the subscriber base of 165.11 million at
the end of March, 2009. It added 95.9 million subscribers in the financial year 2008-09
registering an annual growth rate of about 58.12%. The total subscriber base of wireless
services has grown from 33.69 million in March, 05 to 261.07 million in March, 09 which is
shown in fig.
Growth of telecom industry in India
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Indian telecom industry continued to register significant growth in 2008-09. Indian telecom
network, with about 414 million connections in February 2009, is the third largest in the world,
while it is credited with the second largest wireless network in the world. At the current pace, the
target of 500 million connections by 2010 is well within reach. The Government of India has
reiterated its commitment to reach out to the remote and uncovered areas and to augment the
broadband facilities in rural areas.
Economic Survey 2008-09 Growth
Source: Department of Telecommunications
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Financial Year 2010
• FY10 saw the continuance of strong growth for the Indian telecom market, which
witnessed a 45% YoY increase in its subscriber base during the 12-month period. At the
end of March 2010, the country's total telecom subscriber base (fixed plus mobile) stood
at about 621 m. The tele-density level stood at about 53% by the end of the fiscal.
• Growth remained robust in the GSM mobile space. GSM added 87 m subscribers during
the year. After a strong 50% YoY increase in subscriptions during FY09, the GSM
industry recorded another good performance during FY10, growing subscriber base by
22% YoY to about 479 m.
• During FY10, India's mobile subscriber base grew by 49% YoY, from 392 m to 584 m,
while the fixed subscriber base declined by about 3%, from 37.9 m to about 36.9 m.
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Prospects
• As far as the fixed line business goes, the low penetration levels in the country and the
increasing demand for data based services such as the Internet will act as major
catalysts in the growth of this segment. The PSUs will however continue to retain their
dominant position. This is on account of high capital investments required in setting up a
nationwide network. As a result, the private sector players will have to rely on key
business centres and pockets of high urbanisation for their growth.
• Increasing choice and one of the lowest tariffs in the world have made the cellular
services in India an attractive proposition for the average consumer. The segment's
subscriber base has grown by over 49% YoY in FY10. As per Pricewaterhouse Coopers,
India's mobile subscriber base is expected to exceed 1 billion by 2014 and will be driven
by additions in the rural areas. India's rural tele-density for mobile subscribers currently
stands at 32.7%.
• During FY10, the Government completed the auction of 3G as well as the Broadband
Wireless Access (BWA) spectrum auctions. The final price for a pan India 3G spectrum
stood at a whopping '16,751 Crores. As a result, there was no single operator with a pan
India license. The maximum circles that an operator got 3G spectrum was for 13 circles.
For BWA, the final auction price for a pan India license was '12,848 Crores. There
emerged a new competitor in this field with Reliance backed Infotel being the only
operator to win a pan India BWA license.
• During the year the Telecom Regulatory Authority of India (TRAI) also proposed new
guidelines for charging spectrum fee and for mergers and acquisitions in the sector. On
the face of it these guidelines appear to be more detrimental for the sector rather than
helpful. If applied, these guidelines would increase the financial burden for the GSM
operators by making them pay higher spectrum charges as well as humongous fee for
holding higher quantities of spectrum. The guidelines also pose hurdles for mergers and
acquisition activities, which are essential for reducing the overheated competition in the
sector which currently has about 15 operators.
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• During the current fiscal, a lot of focus will be given to new policy initiatives in the
industry. The telecom regulator TRAI has set October 31st as the date for implementing
mobile number portability (MNP) which allows subscribers to switch networks without
changing the number. This would definitely lead to an increase in churn in the sector
with each operator vying for subscriber attention to their own networks. In addition to
this, the government is supposed to allocate 3G spectrum later during the year.
Therefore, by the end of this fiscal, the operators would start rolling out 3G services in
some circles at least.
An Introduction to the Company - Bharti Airtel
Incorporated on July 7, 1995, Bharti Airtel Ltd is a division of BhartiEnterprises. The businesses
of Bharti Airtel are structured into two main strategic groups - Mobility and Infotel. The Mobility
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business provides GSM mobile services in all23 telecommunications circles in India, while the
Infotel business group provides telephone services and Internet access over DSL in 15 circles.
The company complements its mobile, broadband, and telephone services with national and
international long-distance services. The company also has a submarine cable landing station
at Chennai, which connects the submarine cable connecting Chennai and Singapore. Bharti
Tele-Ventures provides end-to-end data and enterprise services to corporate customers by
leveraging its nationwide fibre-optic backbone, last mile connectivity in fixed line and mobile
circles, VSATs, ISPand international bandwidth access through the gateways and landing
station. Allof Bharti Tele-Ventures' services are provided under the Airtel brand.As of
September 2005, Bharti Tele-Ventures was the only company to providemobile services in all
23 telecom circles in India.By the end of October 2005, Bharti Tele-Ventures was serving more
than 14.74 million GSM mobile subscribers and 1.10 million broadband and telephone (fixed
line) customers.The equity shares of Bharti Tele-Ventures are currently listed on the
NationalStock Exchange of India Ltd (NSE) and the Stock Exchange, Mumbai (BSE). As of
September 30, 2005, the main shareholders of Bharti Tele-Ventures were: Bharti Telecom Ltd
(45.65%), a subsidiary of Bharti Enterprises;Singapore Telecom (15.69%), through its
investment division Pastel Ltd; and, Warburg Pincus (5.65%), through its investment company
Brentwood Investment Holdings Ltd). Other shareholders with more than a 1% stake were: Citi
Group Global Markets Mauritius Pvt Ltd (2.99%); Europacific Growth Fund (2.04%); Morgan
Stanley & Co International Ltd (1.93%); CLSA Merchant Bankers Ltd A/C Calyon (1.33%); Life
Insurance Corporation of India (1.34%); and, The Growth Fund of America Inc. (1.11%). Sunil
Bharti Mittal, the founder-chairman of Bharti Enterprises (which owns Airtel), is today, the most
celebrated face of the telecom sector in India. He symbolises the adage that success comes to
those who dream big and then work assiduously to deliver it. Sunil Bharti Mittal began his
journey manufacturing spare parts for bicycles in the late 1970s. His strong entrepreneurial
instincts gave him a unique flair for sensing new business opportunities. In the earlyyears,
Bharti established itself as a supplier of basic telecom equipment. His true calling came in the
mid-1990s when the government opened up the sector and allowed private players to provide
telecom services.Bharti Enterprises accepted every opportunity provided by this new policy to
evolve into India's largest telecommunications company and one of India's most respected
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brands. Airtel was launched in 1995 in Delhi. In the ensuing years, as the Airtel network
expanded to several parts of India, the brand came to symbolise the very essence of mobile
services. Product Airtel provides a host of voice and data products and services, including high-
speed GPRS services. Airtel also offers a wide array of 'post-paid' and 'prepaid' mobile offers,
with a range of tariff plans that target different segments. A comprehensive range of value-
added, customised services are part of the unique package from Airtel. The company's
products reflect a desire to constantly innovate. Some of these are reflected in the fact that
Airtel was the first to develop a 'single integrated billing system' Airtel comes to you from Bharti
Airtel Limited - a part of the biggest private integrated telecom conglomerate, Bharti Enterprises.
Bharti is the leading cellular service provider, with an all India footprint covering all 23 telecom
circles of the country. It has over 21 million satisfied customers. Bharti Enterprises has been at
the forefront of technology and has revolutionized telecommunications with its world class
products and services. Established in 1976, Bharti has been a pioneering force in the telecom
sector with many firsts and innovations to its credit. Bharti has many joint ventures with world
leaders like Singtel (Singapore Telecom); Warburg Pincus, USA; Telia, Sweden; Asian
infrastructure find, Mauritius; International Finance Corporation, USA and New York Life
International, USA. Bharti provides a range of telecom services, which include Cellular, Basic,
Internet and recently introduced National Long Distance. Bharti also manufactures and exports
telephone terminals and cordless phones. Apart from being the largest manufacturer of
telephone instruments in India, it is also the first company to export its products to the USA.
Airtel's journey to leadership began in Delhi in 1995. Since then, Airtel has established itself
across India in sixteen states covering a population of over 600 million people. Airtel will soon
cover the entire country through a process of acquisitions and green field projects. With a
presence in over 1,400 towns, Airtel today has the largest network capacity in the country. In
the last nine years Airtel has achieved many firsts and unique records: it was the first to launch
nationwide roaming operations, it was the first to cross the one million and the five million
customer marks. It was also the first to launch services overseas. There are other 'firsts'
credited to Airtel - many of them in the area of innovative products and services. Today, Airtel
innovates in almost everything that it presents to the market. An excellent example is Easy
Charge - India's first paperless electronic recharging facility for prepaid customers. As evidence
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of its fine record, Airtel has also been conferred with numerous awards. It won the prestigious
Techies Award for 'being the best cellular services provider' for four consecutive years between
1997 and 2000 - a record that is still unmatched. And in 2003, it received the Voice & Data
Award for being 'India's largest cellular service provider', amongst others. As part of its
continuingexpansion, Airtel has invested over Rs. 1,065 billion in creating a new telecom
infrastructure. In 2003/04, Bharti Tele-Ventures earned a gross profit of Rs. 16 billion on
revenues of Rs. 50 billion. Telecom giant Bharti Airtel is the flagship company of Bharti
Enterprises. The Bharti Group has a diverse business portfolio and has created global brands in
the telecommunication sector. Bharti has recently forayed into retail business as Bharti Retail
Pvt Ltd. under a MoU with Wal-Mart for the cash & carry business. It has successfully launched
an international venture with EL Rothschild Group to export fresh agri- products exclusively to
markets in Europe and USA and has launched Bharti AXA Life Insurance Company Ltd under a
joint venture with AXA, world leader in financial protection and wealth management. Airtel
comes to you from Bharti Airtel Limited, India’s largest integrated and the first private telecom
services provider with a footprint in all the 23 telecom circles. Bharti Airtel since its inception has
been at the forefront of technology and has steered the course of the telecom sector in the
country with its world class products and services. The businesses at Bharti Airtel have been
structured into three individual strategic business units (SBU’s) – Mobile Services, Airtel
Telemedia Services &Enterprise Services. The mobile business provides mobile & fixed
wireless services using GSM technology across 23 telecom circles while the Airtel Telemedia
Services business offers broadband & telephone services in 94 cities. The Enterprise services
provide end-to-end telecom solutions to corporate customers and national &international long
distance services to carriers. All these services are provided under the Airtel brand. Bharti Airtel
is one of India's leading private sector providers of telecommunications services based on an
aggregate of 71.77 million customers as on June 2008, consisting of 69.38 million GSM mobile
customers and 2.39 Bharti Telemedia Customers. Bharti Airtel Limited, a group company of
Bharti Enterprises, is India’s leading integrated telecom services provider with an aggregate of
71.77 million customers as of end of June 2008, consisting of 69.38 million mobile customers.
Bharti Airtel has been rated among the best performing companies in the world in the Business
Week IT 100 list 2007. Bharti Airtel is structured into three strategic business units - Mobile
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services, Telemedia services and Enterprise services. The mobile business provides mobile &
fixed wireless services using GSM technology across 23 telecom circles. The Telemedia
business provides broadband and telephone services in 94 cities and is foraying into the IPTV
and DTH segments. The Enterprise business provides end-to-end telecom solutions to
corporate customers and national and international long distance services to carriers. All these
services are provided under the Airtel brand. Airtel’s high-speed optic fibre network currently
spans over 78,540 kilometres covering all the major cities in the country. The company has two
international landing stations in Chennai that connects two submarinecable systems - i2i to
Singapore and SEA-ME-WE-4 to Europe.Company shares are listed on The Stock Exchange,
Mumbai (BSE) and The National Stock Exchange of India Limited (NSE).
Vision
By 2010 Airtel will be the most admired brand in India:
• Targeted by top talent
• Loved by more customers
• Benchmarked by more businesses
We at Airtel always think in fresh and innovative ways about the needs of our customers and
how we want them to feel. We deliver what we promise and go out of our way to delight the
customer with a little bit more
Mission
• Recruit & Maintain Calibre Working Staff
• Provides Customer Specific Software Solution
• Continues Improvement in Software Quality
• Not remain as Only Software Solution Provider, but be as Continues Service Provider
• To empower stakeholders in services and inventories to deal with associated
Quality Policy
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We will deliver error free service to our customer by doing our jobs rightand first time every
time.
Market share and revenues of the telecom companies
A total of 391.76 wireless subscribers were split between top wireless telecom operators. Bharti
Airtel leads the way with 93.92 million followed by Reliance (GSM + CDMA).
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Of the 391.76 wireless subscribers GSM has a market share of 76% and here is how they are
split:
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Introduction to Financial Analysis
Financial statements are a picture of a company's financial health. Outside investors and
stakeholders use financial statements to determine how well a business is doing and if they
should invest money into its operations. Most investors expect companies to have strong
financials to mitigate potential investment risk.The section of report embodies the calculation
and analysis of selected variables taken into reflection for the report purpose. The analysis uses
raw data available on the concerned website. The raw data encompasses Yearly Results,
balance sheet and income statement of the company. After calculation, analysis of individual
tool is being done. Analysis is performed by using software known as Microsoft Excel.
Income Statement
The income statement reports all sales, cost of goods (COGS) and expenses. A general
accounting rule is that COGS should be 75 percent or less of gross sales; expenses, 20 percent
or less; and income, 5 percent of gross sales. This general guideline ensures that companies
are not overpaying for COGS or other expenses listed on the income statement. A trend of
income statements (measured over months or quarters) should be reviewed to see if sales or
expenses are rising or falling throughout the previous periods.
Balance Sheet
The corporate balance sheet contains all assets and liabilities of a company. The assets should
be reviewed to see if large amounts of inventory or accounts receivable (A/R) are listed in the
asset section. High inventory indicates slow sales or obsolete goods still owned by the
company; large amounts of A/R indicate slow collections by the company, slowing down cash
flow. High liabilities mean that a company has several debt obligations that it must meet each
accounting period. If current liabilities are especially high, it means that the company is avoiding
payments to suppliers due to slow cash flow.
Cash Flows
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A cash flow statement fills in the gaps regarding the incomes statement and balance sheet
reviews; it shows how well a company generates cash flows from operations and financing
activities. Strong cash flows help a company pay for the goods and services it needs to run the
business. Sluggish cash flow indicates a company may have poor internal accounting
operations and is unable to collect cash or pay vendors on time.
Financial Ratios
Another way to review corporate financial statements is to use financial ratios to calculate how
well the company is performing. A few common financial ratios are as follows: Current ratio =
current assets / current liabilities. Measures how well a company can pay liabilities with only
short-term assets. A/R turnover = net sales / total accounts receivable. Measures how well a
company receives payment on A/R through the accounting period. Gross profit margin = gross
profit / total sales. Measures how much profit a company earns on sales for the accounting
period. Debt ratio = total debt / total assets. Measures how much leverage is used to purchase
operating assets.
Comparison
When using financial ratios, investors and stakeholders must compare an individual company's
ratios against competitors or industry standards. This comparison will indicate if a company is
operating at a level that will provide growth opportunities from future operations. If the numbers
are weak compared to the industry, the company may be forced out of its industry as an
inefficient producer in the marketplace.
Tools used for Analysis
• Ratio Analysis
• Comparative Analysis
• Common Size Analysis
The used of Financial analysis are the following:
(A) Management use of Ratio Analysis
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• Helps in Decision making
• Helps in Financial forecast and planning
• Helps in Communicating
• Helps in Co-ordination
• Helps in Control
(B) Utility to shareholders and investors
(C) Utility to Creditors
(D) Utility to Employees
(E) Utility to Government
Traditional ratio analysis, a process used for many years by many financial analysts and Project
Managers, looks at financial information in terms of liquidity, activity, profitability, and debt
management, considering each measurement by itself. This analysis method helps the analyst
develop an assessment of the company at the time of the statements analysed. Non-traditional
ratio analysis considers the relationships between financial data from an interpretive
perspective, permitting the analyst or Project Manager to make judgments or decisions related
to operations. Non-traditional ratio analysis recognizes that some information is as indicative of
future performance as it is of past performance.Financial analysis incorporates some of the
tools used by analysts and Project Managers to assess the financial status and the financial
condition of a company. Such analysis, utilizing financial ratios and analytical logic, provides
information for assessment and is used by a wide range of interested parties. Sources of
comparative information are identified and use of the analytical tools is explained in depth.
Everyone in business wishes they had a crystal ball and could anticipate future challenges and
opportunities, allowing them to take appropriate and effective Project Managerial action.
Through the careful application of the tools of financial analysis, the Project Manager can gain
insight that is close to that crystal ball.
Financial analysts, in conducting a financial analysis, generally compute and interpret several
ratios, which are drawn from financial statements, followed by a written interpretation of the
results of the computations. Ratios can be represented in one of the following
ways:Comparative analysis, often called cross-sectional analysis or industry analysis, may
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provide some meaningful benchmarks for performance. Trend analysis, also known as historical
Analysis, compares a company against itself over time. Ratios may be a combination of both of
the above. Ratios are grouped as follows:
Liquidity—assessing the ability to meet maturing obligations
Activity—assessing the effective utilization of assets
Profitability—assessing operating performance
Debt—assessing the management of borrowed funds, sometimes known as “coverage” ratios
Specifically, we will look at a group of ratios that have been described as Effect Ratios:[*] the
Current Ratio, the Quick Ratio, Net Working Capital, Accounts Receivable to Working Capital,
Inventory to Working Capital, Debt to Assets, Debt to Equity, Short-Term Debt to Equity, and
Short-Term Debt to Total Liabilities. We will also look at period-to-period change in these
measurements. These ratios highlight the application of financial analysis tools and the types of
information that such an analysis provides. As we will see, they also give the analyst or Project
Manager a good idea of where to look for additional information.
In addition to ratios and relationships within the two key financial statements, many ratios relate
an element of the Income Statement to an element of the Balance Sheet. These ratios are also
very valuable tools for assessing management and for identifying actions or situations that will
affect future results. Among these ratios is Return on Assets, Return on Equity, Average
Collection Period, Inventory Turnover, Fixed Asset Turnover, Total Asset Turnover, and Sales
to Net Worth.
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Comparative Analysis of Bharti Airtel
Comparative Analysis of Income Statement of Bharti Airtel for the years 2008-2010
Increase Increase Increas Increase/
/Decreas /Decreas e/Decre Decrease
Mar ' Mar ' Mar ' Mar '
e in e in ase in in
10 09 09 08
Amount Percent Amount Percentag
s age s e
Income
Operating 35,609. 34,04 34,04 25,76 8,287.2
1,561.22 4.59 32.17
income 54 8.32 8.32 1.11 1
Expenses
Material 281.6 11.35451 281.6 732.05317
313.63 31.98 33.85 247.8
consumed 5 8 5 58
Manufactu
11,882. 8,627. 37.73305 8,627. 7,339. 17.551686
ring 3,255.28 1288.12
41 13 84 13 01 13
expenses
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Adjusted 8,507.4 9,287. 8.401093 9,287. 6,467.
780.27 2819.99 43.60
PAT 5 72 056 72 73
Nonrecurri 1,497. - 164.7295 1,497. 162.8
969.48 1334.87 -819.59
ng items 74 2,467.22 258 74 7
Other non-
cash 10.03250
50.78 46.15 4.63 46.15 60.67 -14.52 -23.93
adjustmen 27
ts
Reported 9,426.1 7,743. 21.72449 7,743. 6,244.
1,682.31 1499.65 24.02
net profit 5 84 33 84 19
Earnings
before 27,928. 19,54 42.92466 19,54 11,77
8,387.93 7762.93 65.91
appropriati 98 1.05 37 1.05 8.12
on
-
Equity 379.6 379.6
379.79 -0.14 0.036876 - - -
dividend 5 5
07
Preferenc
- - - - - - - -
e dividend
-
Dividend
64.54 64.52 -0.02 0.030998 64.52 - - -
tax
14
Retained 27,484. 19,09 43.92212 19,09 11,77
8,387.76 7318.77 62.14
earnings 65 6.89 55 6.89 8.12
Interpretation:
Operating income – 4% increase in 09-10
32% increase in 08-09
Operating profit - 5% increase in 09-10.
24% increase in 08-09.
Net profit - 22% increase in 09-10.
24% increase in 08-09.
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29. Corporate Financial Analysis Report
Bharti Airtel
Cost of Sales - 4% increase in 09-10.
38% increase in 08-09.
While there has been marginal increase in operating income, operating profit and net profit in
2009-10, it is less than 2008-09. This is possibly because of entry of new players in mobile
connections in India. But what Airtel has done well is that they have reduced cost of sales,
which somewhat compensates the competitive pressure. Manufacturing expenses have also
increased due to their acquisition of Zain telecom in Africa. They have also acquired 60% stake
in Warid telecom in Bangladesh, and thus is expanding its business in Asia. Its wireless
operating margin would get negatively affected due to increase in spectrum charges in 3g, but
that is still uncertain. Depreciation charges increased a lot from 2009 to 2010, but considering
the company’s aggressive mode, these minor obstacles will not hinder them much. Overall, it is
a good but not the best performance by the market leader.
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30. Corporate Financial Analysis Report
Bharti Airtel
Comparative Analysis of Balance Sheet of Bharti Airtel for the years 2008-2010
Increase/D Increase/D
Mar ' Mar ' Increase/D ecrease in Mar' Mar ' Increase/D ecrease In
10 09 ecrease Percentag 09 08 ecrease Percentag
e e
Sources of funds
Owner's fund
Equity
1,898 1,898 1,898 1,897
share 0.53 0.03 0.33 0.02
.77 .24 .24 .91
capital
Share
applica 186.0 116.2 116.2
69.87 37.55 57.63 58.59 101.67
tion 9 2 2
money
Prefere
nce
- - - -
share
capital
Reserv
34,65 25,62 25,62 18,28
es & 9,022.81 26.04 7,343.56 40.16
0.19 7.38 7.38 3.82
surplus
Loan funds
-
Secure
39.43 51.73 -12.3 31.194521 51.73 52.42 -0.69 -1.32
d loans
9
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31. Corporate Financial Analysis Report
Bharti Airtel
Unsec -
4,999 7,661 7,661 6,517
ured -2662.43 53.254031 1144 17.55
.49 .92 .92 .92
loans 9
41,77 35,35 15.364807 35,35 26,80
Total 6418.49 8545.77 31.88
3.97 5.48 32 5.48 9.71
Uses of funds
Fixed assets
Gross 44,21 37,26 37,26 28,11
6,945.83 15.71 9,151.05 32.55
block 2.53 6.70 6.70 5.65
Less :
revalua
2.13 2.13 0.00 0.00 2.13 2.13 0.00 0.00
tion
reserve
Less :
accum
16,18 12,25 12,25 9,085
ulated 3,934.22 24.30 3,168.34 34.87
7.56 3.34 3.34 .00
depreci
ation
Net 28,02 25,01 25,01 19,02
3,011.61 10.75 5,982.71 31.44
block 2.84 1.23 1.23 8.52
Capital
work-
1,594 2,566 2,566 2,751
in- -971.93 -60.95 184.41 6.70
.74 .67 .67 .08
progre
ss
Invest 15,77 11,77 11,77 10,95
3,995.56 25.33 -824.91 7.53
ments 3.32 7.76 7.76 2.85
Interpretation:
Reserves ans Surplus – 26% increase in 09-10.
40% increase in 08-09
Investments – 25% increase in 09-10
7% increase in 08-09
Secured loans – 31% decrease in 09-10
1.32% decrease in 08-09
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32. Corporate Financial Analysis Report
Bharti Airtel
Unsecured loans – 53% decrease in 09-10
As obvious, reserves have decreased and investments have increased in 2010. The domestic
telecom sector has been negatively impacted due to irrational pricing, forcing telecom
operators
with strong balance sheets like Airtel, to go for acquisitions in emerging markets. Net block has
decreased from 31% to 10% increase over the years, also because of this. Investors, hence
have to take a long term perspective rather than short term gains. If a company has decided to
go global with emerging markets, then such fluctuations are bound to occur. But profit will come
in future. It is a strong balance sheet because they have paid their most of the loans in 09-10 as
compared to 08-09. Although unsecured loans have an increase in 08-09, but they decreased it
in 09-10, which shows the company has strong reserves to go for investments as well as pay
the due loans. Hence the company has a strong performance inspite of competitive pressure.
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Bharti Airtel
Comparative Analysis of Balance Sheet of Airtel with Competitors
Bharti Reliance Idea Tata Spice
Airtel Comm Cellular Comm Comm
Mar '10 Mar '10 Mar '10 Mar '10 Mar '09
Sources Of Fund
Total Share Capital 1,898.77 1,032.01 3,299.84 285 689.93
Equity Share Capital 1,898.77 1,032.01 3,299.84 285 689.93
Share Application Money 186.09 0 44.45 0 0
Preference Share Capital 0 0 0 0 0
Reserves 34,650.19 49,466.88 8,112.95 6,995.78 -872.54
Revaluation Reserves 2.13 0 0 0 0
Net worth 36,737.18 50,498.89 11,457.24 7,280.78 -182.61
Secured Loans 39.43 3,000.00 5,988.61 1,281.76 1,219.59
Unsecured Loans 4,999.49 21,478.28 537.81 1,357.15 838.97
Total Debt 5,038.92 24,478.28 6,526.42 2,638.91 2,058.56
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Bharti Airtel
Total Liabilities 41,776.10 74,977.17 17,983.66 9,919.69 1,875.95
Application Of Funds
Gross Block 44,212.53 39,838.17 22,834.40 6,820.94 3,244.11
Less: Accum.
16,187.56 9,225.69 7,907.34 2,316.14 1,522.31
Depreciation
Net Block 28,024.97 30,612.48 14,927.06 4,504.80 1,721.80
Capital Work in Progress 1,594.74 1,683.52 462.58 386.15 103.56
Investments 15,773.32 31,898.60 2,755.13 2,501.30 0.05
Inventories 27.24 298.34 46.7 1.25 6.44
Sundry Debtors 2,104.98 1,738.63 430.12 632.29 52.02
Cash and Bank Balance 54.89 81.92 129.13 102.9 53.41
Total Current Assets 2,187.11 2,118.89 605.95 736.44 111.87
Loans and Advances 6,276.12 17,886.79 3,533.15 4,042.38 297.29
Fixed Deposits 761.86 0.26 151.31 7.96 179.19
Total CA, Loans &
9,225.09 20,005.94 4,290.41 4,786.78 588.35
Advances
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Bharti Airtel
Deferred Credit 0 0 0 0 0
Current Liabilities 12,183.25 5,836.53 4,313.76 2,084.67 523.18
Provisions 658.75 3,386.84 137.76 174.67 14.64
Total CL & Provisions 12,842.00 9,223.37 4,451.52 2,259.34 537.82
Net Current Assets -3,616.91 10,782.57 -161.11 2,527.44 50.53
Miscellaneous Expenses 0 0 0 0 0
Total Assets 41,776.12 74,977.17 17,983.66 9,919.69 1,875.94
Interpretation:
Intense pressure from competitors especially from Reliance, in terms of net worth and
the amount of reserves. But in terms of debt and liabilities pay off to assets, Airtel still
maintains its top position. Hence its aggressive expansion strategy will make it difficult
for other players to catch up with it.
Comparative Analysis of Income Statement of Airtel with Competitors
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36. Corporate Financial Analysis Report
Bharti Airtel
Bharti Reliance Idea Tata Spice
Airtel Comm Cellular Comm Comm
Mar '10 Mar '10 Mar '10 Mar '10 Mar '09
Sales Turnover 35,609.54 13,554.60 11,850.24 3,218.04 1,580.48
Excise Duty 0 0 0 0 0
Net Sales 35,609.54 13,554.60 11,850.24 3,218.04 1,580.48
Other Income 1,118.46 2,455.17 383.83 359.95 56.93
Stock Adjustments -34.91 0 0 0 0.02
Total Income 36,693.09 16,009.77 12,234.07 3,577.99 1,637.43
Expenditure
Raw Materials 278.72 50.39 0.02 11.56 0.58
Power & Fuel Cost 0 144.27 942.27 0 135.78
Employee Cost 1,401.66 672.39 561.17 418.44 83.66
Other Manufacturing
11,882.41 7,850.49 5,187.63 1,592.11 532.67
Expenses
Selling and Admin
6,856.42 1,974.73 1,823.48 265.01 449.97
Expenses
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Bharti Airtel
Total Value Addition 21,329.56 11,310.78 8,606.12 2,455.87 1,700.49
Preference Dividend 0 0 0 0 0
Equity Dividend 379.79 175.44 0 0 0
Corporate Dividend Tax 64.55 29.14 0 0 0
Per share data
(annualised)
Shares in issue (lakhs) 37,975.30 20,640.27 32,998.38 2,850.00 6,899.25
Earnings Per Share (Rs) 24.82 2.32 3.19 16.95 -14.78
Equity Dividend (%) 20 17 0 0 0
Book Value (Rs) 96.24 244.66 34.59 255.47 -2.65
Interpretation:
Airtel beats its competitors by a long margin when it comes to sales turn over. This has resulted
in a huge gain in total income since excise duty was zero for all companies. However, due to its
huge employee base, its employee expenses are also the highest. Hence, its total expenses
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39. Corporate Financial Analysis Report
Bharti Airtel
have also reported the highest among its competitors. But since its net profit is way ahead from
other players due to its huge customer base, so Airtel maintains its number one position in
telecom sector in India. Also, earnings per share has a very good value of Rs 24, which beats
the others comfortably. So, although expenses have increased but still the market share is very
good.
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40. Corporate Financial Analysis Report
Bharti Airtel
Common Size Analysis of Bharti Airtel
The common-size statement is a financial document that is often utilized as a quick and easy
reference for the finances of a corporation or business. Unlike balance sheets and
other financial statements, the common-size statement does not reflect exact figures for each
line item. Instead, the structure of the common size statement uses a common base figure, and
assigns a percentage of that figure to each line item or category reflected on the document.
A company may choose to utilize financial statements of this type to present a quick snapshot
of how much of the company’s collected or generated revenue is going toward each operational
function within the organization. The use of a common-size statement can make it possible to
quickly identify areas that may be utilizing more of the operating capital than is practical at the
time, and allow budgetary changes to be implemented to correct the situation.
The common size statement can also be a helpful tool in comparing the financial structures and
operation strategies of two different companies. The use of percentages in the common size
statements removes the issue of which company generates more revenue, and brings the focus
on how the revenue is utilized within each of the two businesses. Often, the use of a common-
size statement in this manner can help to identify areas where each company is utilizing
resources efficiently, as well as areas where there is room for improvement.
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41. Corporate Financial Analysis Report
Bharti Airtel
Common Size Analysis of Income Statement of BhartiAirtel from 2008 to 2010
31-Mar- 31-Mar- 31-Mar-
10(12) 09(12) 08(12)
Profit / Loss A/C Rs mn %OI Rs mn %OI Rs mn %OI
Net Sales (OI) 356095.41 100.00 340142.90 100.00 257035.10 100.00
Material Cost 0.00 0.00 0.00 0.00 0.00 0.00
Increase Decrease Inventories 203.22 0.06 124.05 0.04 338.50 0.13
Personnel Expenses 14371.32 4.04 14336.41 4.21 13341.85 5.19
Manufacturing Expenses 157121.92 44.12 151721.48 44.61 99228.29 38.60
Gross Profit 184398.94 51.78 173960.96 51.14 144126.45 56.07
Administration Selling and
45881.01 12.88 42262.13 12.42 37596.00 14.63
Distribution Expenses
EBITDA 138517.93 38.90 131698.83 38.72 106530.45 41.45
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42. Corporate Financial Analysis Report
Bharti Airtel
Depreciation Depletion and
40979.21 11.51 33850.99 9.95 34326.53 13.35
Amortisation
EBIT 97538.72 27.39 97847.84 28.77 72203.92 28.09
Interest Expense -5679.98 -1.60 21483.82 6.32 6077.57 2.36
Other Income 3773.79 1.06 5251.35 1.54 3599.07 1.40
Pre-tax Income 106992.49 30.05 81615.37 23.99 69725.42 27.13
Provision for Tax 12730.94 3.58 4176.98 1.23 7283.50 2.83
Extra Ordinary and Prior Period
0.00 0.00 0.00 0.00 0.00 0.00
Items Net
Net Profit 94261.55 26.47 77438.38 22.77 62441.92 24.29
Adjusted Net Profit 94261.55 26.47 77438.38 22.77 62441.92 24.29
Dividend - Preference 0.00 0.00 0.00 0.00 0.00 0.00
Dividend - Equity 3797.89 1.07 3796.48 1.12 0.00 0.00
Interpretation:
Although manufacturing expenses have increased over the years due to expansion from 08-10,
Airtel has managed to report 26% profits of net sales in 2010, as compared to 24% in 2008 and
22% in 2009. This is good for the company as it means that it has successfully managed to
increase its customer base profitably. Manufacturing expenses have increased from 38% to
44%, due to high prices, but that is compensated by net profit. Interest expense has lessened
which is a good sign. Overall, the income statements for three years account for a gradual
improvement in the performance of the company.
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43. Corporate Financial Analysis Report
Bharti Airtel
Common Size Analysis of Balance Sheet of Bharti Airtel for the years 2008-2010
31-Mar-10 %BT 31-Mar-09 %BT 31-Mar-08 %BT
Equity Capital 18987.65 3.48 18982.40 3.87 18979.07 4.87
Preference Capital 0.00 0.00 0.00 0.00 0.00 0.00
Share Capital 18987.65 3.48 18982.40 3.87 18979.07 4.87
Reserves and Surplus 346523.22 63.44 256295.07 52.19 182859.52 46.89
Loan Funds 50389.23 9.23 77136.47 15.71 65703.42 16.85
Current Liabilities 121799.93 22.30 131179.82 26.71 119090.69 30.54
Provisions 6587.54 1.21 6344.00 1.29 2098.76 0.54
Current Liabilities and Provisions 128387.48 23.51 137523.82 28.00 121189.45 31.08
Total Liabilities and Stockholders’
546181.02 100.00 491099.93 100.00 389946.48 100.00
Equity (BT)
Tangible Assets Net 258471.17 47.32 230440.88 46.92 168836.10 43.30
Intangible Assets Net 21778.47 3.99 19692.71 4.01 21470.38 5.51
Net Block 280249.64 51.31 250133.58 50.93 190306.48 48.80
Capital Work In Progress Net 15947.36 2.92 25666.69 5.23 27510.79 7.06
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44. Corporate Financial Analysis Report
Bharti Airtel
Fixed Assets 296197.00 54.23 275800.28 56.16 217817.26 55.86
Investments 157733.19 28.88 117777.58 23.98 109528.53 28.09
Inventories 272.44 0.05 621.51 0.13 568.61 0.15
Accounts Receivable 21049.77 3.85 25500.49 5.19 27764.57 7.12
Cash and Cash Equivalents 8167.41 1.50 22516.03 4.58 5029.39 1.29
Other Current Assets 663.74 0.12 1197.13 0.24 997.27 0.26
Current Assets 30153.37 5.52 49835.15 10.15 34359.84 8.81
Loans & Advances 62097.46 11.37 44414.95 9.04 28238.82 7.24
Miscellaneous Expenditure Other
0.00 0.00 0.87 0.00 2.03 0.00
Assets
Total Assets (BT) 546181.02 100.00 491099.93 100.00 389946.48 100.00
Interpretation:
Short Term Solvency: By comparing the current Asset and Current Liabilities of the company it
appears that the company is not able to pay the day to day obligations. But from the Reserve
(Rs 34650.19 Crores) has increased to 82.94% of Total Assets with the company. The
company may use this reserve to pay the day to day obligations.The debt (Secured &
Unsecured Loans) is decreasing; this may be due to the fact that the company is able to
generate cash through the sale of services. From the increase in the Reserve fig., it may be
assumed that the Airtel is making huge profits.
Long Term Solvency: While comparing the fixed Asset and the Long Term Liabilities, as long as
the Airtel makes profit the company is able to attract more shareholders. Company is
decreasing or selling some of the fixed assets, this may be due to the efficient use of Indus
Towers.Company shows a negative balance in the Current Asset but while comparing the
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45. Corporate Financial Analysis Report
Bharti Airtel
performance from 2008 to 2010, the Airtel is able to have a good position in Current Assets in
the year 2010.
The overall profitability of Airtel is better when comparing the previous years, this may be due to
the Sales of services, increase in customer base (an increase of 65%), reduction in operating
expenses by the use of Indus Tower ( sharing the towers with other major players) etc.
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46. Corporate Financial Analysis Report
Bharti Airtel
Common size Analysis Balance Sheet of Bharti Airtel with Idea for the year 2010
Bharti Airtel Idea Cellular
Mar '10 % Mar '10 %
12 mths 12 mths
Sources of Funds
Total Share Capital 1,898.77 3,299.84
Equity Share Capital 1,898.77 4.55 3,299.84 18.35
Share Application Money 186.09 0.445 44.45 0.247
Preference Share Capital 0 0
Reserves 34,650.19 82.94 8,112.95 45.11
Revaluation Reserves 2.13 0
Net worth 36,737.18 87.93 11,457.24 63.71
Secured Loans 39.43 0.094 5,988.61 33.3
Unsecured Loans 4,999.49 11.96 537.81 2.99
Total Debt 5,038.92 12.06 6,526.42 36.29
Total Liabilities 41,776.10 99.9 17,983.66 100
Mar '10 Mar '10
12 mths 12 mths
Application of Funds
Gross Block 44,212.53 105.83 22,834.40 126.97
Less: Accum. Depreciation 16,187.56 38.75 7,907.34 43.96
Net Block 28,024.97 67.08 14,927.06 83
Capital Work in Progress 1,594.74 3.81 462.58 2.57
Investments 15,773.32 37.76 2,755.13 15.32
Inventories 27.24 0.065 46.7 0.259
Sundry Debtors 2,104.98 5.04 430.12 2.39
Cash and Bank Balance 54.89 0.132 129.13 0.71
Total Current Assets 2,187.11 5.23 605.95 3.36
Loans and Advances 6,276.12 15.02 3,533.15 19.64
Fixed Deposits 761.86 1.82 151.31 0.84
Total CA, Loans & Advances 9,225.09 22.08 4,290.41 23.86
Deferred Credit 0 0
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Bharti Airtel
Current Liabilities 12,183.25 29.16 4,313.76 23.98
Provisions 658.75 1.57 137.76 0.767
Total CL & Provisions 12,842.00 30.74 4,451.52 24.71
Net Current Assets -3,616.91 -8.66 -161.11 -0.896
Miscellaneous Expenses 0 0
Total Assets 41,776.12 100 17,983.66 100
Contingent Liabilities 3,921.50 9.38 1,960.75 10.9
Book Value (Rs) 96.24 0.23 34.59 0.192
Interpretation:
Share capital of Idea is more than Airtel, but Airtel has more Reserves than Idea. This is
because the introduction of new circles has caused an overshoot in the expense of Idea,
thereby reducing the profit. Short Term Solvency of Airtel when compared to Idea is poor as
Idea can pay the day to day obligations, but both service sectors lack to cover the current
liabilities.Idea has more fixed Assets than Airtel this may be due to the introduction of new
circles to provide better services to the exiting/ new customers.
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48. Corporate Financial Analysis Report
Bharti Airtel
RATIO ANALYSIS
Ratio analysis is the powerful tool of financial statements analysis. A ratio is defined as the
indicated quotient of two mathematical expressions and as the relationship between two or
more things. The absolute figures reported in the financial statement do not provide meaningful
understanding of the performance and financial position of the firm. Ratio helps to summaries
largequantities of financial data and to make qualitative judgment of the firm’s financial
performance.
Ratio analysis helps to appraise the firms in the term of their profitabilityand efficiency of
performance, either individually or in relation to other firmsinsame industry. Ratio analysis is
one of the best possible techniques availabletomanagement to impart the basic functions like
planning and control. As futureis closely related to the immediately past, ratio calculated on the
basis historicalfinancial data may be of good assistance to predict the future. E.g. On the
basisof inventory turnover ratio or debtor s turnover ratio in the past, the level ofinventory and
debtors can be easily ascertained for any given amount of sales.Similarly, the ratio analysis
may be able to locate the point out the various ariaswhich need the management attention in
order to improve the situation. E.g. Current ratio which shows a constant decline trend may be
indicate the need forfurther introduction of long term finance in order to increase the
liquidityposition. As the ratio analysis is concerned with all the aspect of the firm’sfinancial
analysis liquidity, solvency, activity, profitability and overallperformance, it enables the
interested persons to know the financial andoperational characteristics of an organization and
take suitable decision.
Current Ratio:
Current Ratio is the indicator of the firm’s commitment to meet its short-term liability. Current
Assets mean assets that will either be used up or converted into cash within a year’s time.
Current liabilities mean liabilities payable within a year or during the operating cycle, whichever
is longer.
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49. Corporate Financial Analysis Report
Bharti Airtel
Year Ratio (Times)
2008 0.57
2009 0.69
2010 0.72
Interpretation:
There is no hard or fast rule, conventionally, a current ratio of 2:1 (current assets twice the
current liabilities) is considered satisfactory. The logic underlying the convention rule is that
even with a dropout of 50% in value of current assets a firm can meet its obligations, i.e., 50%
margin of safety is assumed to be sufficient to ward off the worst situation. Generally the levels
of current ratio vary from industry to industry depending on specific industry characteristics.
Also firm differs from the industry ratio because of its policy. In Bharti Airtel Limited, the current
ratio is 0. 72 times i.e. the current asset is less than current liabilities. The current liability is high
because of sundry creditors. This is due to strategic partner.
Chart showing the Current Ratio of Bharti Airtel Limited for the year ended 2008 – 2010
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Bharti Airtel
Quick Ratio:
The Quick ratio is also termed as “Acid-Test Ratio”. This ratio is ascertainedby comparing the
liquid assets (i.e., assets which are immediately convertible in to cash without much loss) to
current liabilities. Prepaid expenses and stock are not taken as liquid assets. This may be
expressed as:
Quick Ratio = Liquid Assets
-----------------------
Current Liabilities
Year Ratio (Times)
2008 0.55
2009 0.65
2010 0.72
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Interpretation:
Generally Quick Ratio of 1:1 is considered satisfactory as a firm can easily meet all current
claims. It varies from industry to industry depending on specific industry characteristics. Also
differ from the industry ratio because of its policy.In Bharti Airtel Limited, the Quick Ratio is
below the standard no of 1:1 in all the years during the period of study (2008 – 2010). It is
because of strategic partnership with Ericsson.
Chart showing the Quick Ratio of Bharti Airtel Limited for the year ended 2008 – 2010
Gross Profit Ratio:
These ratios express the relationship between gross profit and net sales.
Gross Profit= Sales – Cost of goods sold (Including Operating Expenses) – Depreciation –
Amortization
Gross Profit
Gross Profit Ratio = -------------------- X 100
Net Sales
Year Percentage
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52. Corporate Financial Analysis Report
Bharti Airtel
2008 29.08
2009 29.33
2010 27.97
Interpretation:
In interpreting the gross profit ratio at is important to observe any trend, but in making
comparison between companies at is vital to appreciate that the gross profit ratio varies
considerably from industry to industry. In telecom Gross profit is very high considering Low
operating cost and high depreciation on capex led by them. Gross profit of 45-50% is highest
among all the industries. In Bharti Airtel, the Gross Profit Ratio is high during the year 2008 and
low during the year 2010. As major expense is towards depreciation which is fixed cost.
Company will loss more with decrease in business. It is visible from above trend. Gross Profit
ratio will increase with increase in business due to benefit of scale. In interpreting the gross
profit ratio at is important to observe any trend, but in making comparison between companies
at is vital to appreciate that the gross profit ratio varies considerably from industry to industry. In
telecom Gross profit is very high considering Low operating cost and high depreciation on
capex led by them. Gross profit of 45-50% is highest among all the industries. In Bharti Airtel,
the Gross Profit Ratio is high during the year 2008 and low during the year 2010. As major
expense is towards depreciation which is fixed cost. Company will loss more with decrease in
business. It is visible from above trend. Gross Profit ratio will increase with increase in business
due to
benefit of scale.
Chart showing the Gross Profit Ratio of Bharti Airtel Limited for the year ended 2008– 2010
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Bharti Airtel
Net Profit Ratio:
This ratio helps in determining the efficiency with which affairs of the businessare being
managed. An increase in ratio over previous period indicates improvement in the operational
efficiency of the business provided the gross profit ratio is constant.
Net Profit after tax
Net Profit Ratio = --------------------------------- X 100
Net Sales
Year Percentage
2008 23.99
2009 22.58
2010 26.40
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Bharti Airtel
Interpretation:
In interpreting the Net Profit Ratio at is important to bear in mind that suchratio varies from firm
to firm. When we compare the gross and the net profit margins we can gain a good impression
of their non-production and non-directcosts such as administration, marketing and finance
costs. The Net Profit Ratio provides clear picture of how efficiently the firm maintains control
over its total expenses. The Net Profit Ratio of Bharti Airtel Limited is high during the year 2010
&low during the year 2008. The net profit ratio has gone up to 26.40% in 2010 compared to
2008 & 2009, respectively. It indicates the efficiency of the management in increasing the profit.
As mentioned above the benefit is for increase in scale of business. Fixed cost will get observed
over more revenue hence there will be increase in Net profit ration with increase in revenue.
Chart showing the Net Profit Ratio of Bharti Airtel Limited for the year ended 2008 – 2010
Operating Ratio:
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This ratio is complementary of Net Profit Ratio. In case Net Profit is 20 %, it means Operating
Ratio is 80 %.
Cost of goods sold + Operating Expenses
Operating Ratio = --------------------------------------------------------------------- X 100
Net Sales
Year Percentage
2008 41.37
2009 38.74
2010 38.89
Interpretation:
Operating Ratio monitor the various expenses incurred related to sales. A highoperating ratio
would indicate low profitability, while a low ratio is an indication for high profitability. The
Operating Ratio should be low to leave a portion of sales to give fair return to the investors. The
smaller the ratio, the greater the organization's ability to generate profit if revenues decrease.
When using this ratio, however, investors should be aware that it doesn't take into account debt
repayment or expansion Bharti Airtel Limited has 60 % margin on operating expenses. The
Operating Ratio is 41.37 % in 2008 which is less than the margin. This shows the Airtel has well
managed the operating cost.
Chart showing the Operating Ratio of Bharti Airtel Limited for the year ended 2008– 2010
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Debtor Turnover Ratio:
Debtors constitute an important constituent of current assets and therefore the quality of
debtors to a great extent determines a firm’s liquidity. Debt collection period indicates the extent
to which the debts have been collected in time. It gives the average debt collection period.
Sales
Debtor Turnover Ratio = --------------------------------
Closing Debtors
Year Ratio (Times)
2008 12.28
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2009 12.78
2010 15.73
Interpretation:
Receivable Turnover Ratio which indicates the number of times that theaverage outstanding net
receivables is turned over, or converted into cash through collections during the year.
Receivables turnover is the period required for one complete cycle; from the time receivables
are recorded through collection, to the time new receivables are recorded. On the other hand, a
longer credit period granted to creditors would adversely affect the firm’s liquidity position. The
debtor turnover ratio has increased in all the years during the period under study. Though it has
increased, still with the growth in the business &receivables, it indicates that the company’s
strength in debtor management. The operation of debtors is through channel partners in post-
paid. The debtor is zero in prepaid operation because they are paid through demand draft. The
operation of prepaid is through Distributors – Retailers – Customers.
Chart showing the Debtors Turnover Ratio of Bharti Airtel Limited for the year ended 2008 –
2010
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Inventory Turnover Ratio:
This ratio is also known as stock turnover ratio establishes the relation between the cost of
goods sold during the year and average inventory held during the year. It calculates as follows:
Cost of goods sold
Inventory Turnover Ratio = -------------------------------
Average Inventory
Year Ratio (Times)
2008 453.06
2009 547.83
2010 1307.05
Interpretation:
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The liquidity of inventories is measured by the number of times per year thatinventory is
converted into cost of goods sold. Hence it is a device to measure the efficiency of the inventory
management. Inventory turnover ratio rates vary tremendously by the nature of the business.
In Bharti Airtel Limited, average inventory holding period is one day. In telecom inventory will
only include sim inventory which will be nominal incomparison to revenue. . Capex inventory will
be grouped under fixed assets. Inventory analysis clearly indicates the trend.
Chart showing the Inventory Turnover Ratio of Bharti Airtel Limited for the yearended 2008 –
2010
Fixed Assets Turnover Ratio:
A high fixed assets turnover ratio indicates efficient utilization of fixed assetsin generating sales.
A firm whose plant and machinery are old may show higher fixed assets turnover ratio than the
firm which has purchased them recently.
Sales
Fixed Assets Turnover Ratio = --------------------------------
Net Fixed Asset
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Year Ratio (Times)
2008 1.03
2009 1.00
2010 0.81
Interpretation:
This ratio measures the efficiency in utilization of fixed assets. The ratio ofsales to fixed assets
measures the turnover of plant and machinery. A high fixed assets turnover ratio indicates
efficient utilization of fixed assets in generating sales. There has been constant decrease in
fixed assets turnover ratio of Bharti Airtel Limited though absolute figure of sales have down up.
There is an decrease year after year. In 2010, it has increased by 19 %. The sales include the
capital work in not progress. It means decrease in the investment in fixed assets has brought
about commensurate loss.
Chart showing the Fixed Assets Turnover Ratio of Bharti Airtel Limited for the yearended 2008
– 2010
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Debt Equity Ratio:
The Debt Equity Ratio is determined to ascertain the soundness of the long term financial
policies of thecompany. It is also known as “External – Internal” Equity Ratio. It may be
calculated as follows:
External Equity
Debt Equity Ratio = -------------------------------
Shareholders Fund
Year Ratio (Times)
2008 0.33
2009 0.28
2010 0.14
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Interpretation:
Either too high or too low a ratio may be disadvantageous. Too high suggests that
management is not taking advantages of opportunities to maximize its profit
through borrowings. Too low suggests undue exposure to risks of bankruptcy and to
a fixed burden of interest expenses in the event of period of relatively low profit. As
a rule of thumb, debt equity ratio of less than 1 is taken as acceptable, but this is
not based on any scientific analysis. In Bharti Airtel Limited, the Debt Equity Ratio is
almost close to 1 which is good for company. The debt is 0.92 times in total equity.
The management has taken advantage of the opportunities to maximize profit
through borrowings.
Chart showing the Debt Equity Ratio of Bharti Airtel Limited for the year ended
2008 – 2010
Earnings perShare:
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The profitability of the firm from the point of view of ordinary shareholders can be measured in
terms of number of equity shares. This is known as Earningsper Share. It is calculated as
follows:
Net Profit after Tax
Earnings per Share = -----------------------------------------------
No. of Equity Shares outstanding
Earnings Per Share (Amount in
Year
Rs)
2008 32.9
2009 40.79
2010 24.82
Interpretation:
This is well known and widely used indicator of profitability because it can easily be compared
to the previous EPS figure. The earnings per share represent average amount of net income
earned by single equity share. Earnings per share are generally considered to be the single
most important variable in determining a share's price. It is also a major component of the price-
to-earnings valuation ratio. The Earnings Per Share of Bharti Airtel Limited is has been
consistently increasing in 2009and it decreased in 2010. This shows the equity share capital is
being effectively used in 2009 but not in 2010. This is also getting impacted with No-dividend
policy of Bharti. Bharti has never declared dividend so shareholder is not getting benefited with
the deprecation in EPS.
Chart showing the Earnings Per Share of Bharti Airtel Limited for the year ended 2008 – 2010
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Findings in Ratios:-
• The current ratio is 0. 72 times i.e. the current asset is less than current liabilities. The
current liability is high because of sundry creditors.
• Quick Ratio of 1:1 is considered satisfactory as a firm can easily meet allcurrent claims.
It varies from industry to industry depending on specificindustry characteristics. Also
differ from the industry ratio because of itspolicy.In Bharti Airtel Limited, the Quick Ratio
is below the standard noof 1:1 in all the years during the period of study (2008 – 2010).
• The Net Profit Ratio of Bharti Airtel Limited is high during the year2010 & low during the
year 2008. The net profit ratio has gone up to26.40% in 2010 compared to 2008 & 2009,
respectively. It indicates theefficiency of the management in increasing the profit. As
mentionedabove the benefit is for increase in scale of business.
• The debtor turnover ratio has increased in all the years during the periodunder study.
Though it has increased, still with the growth in thebusiness & receivables, it indicates
that the company’s strength in debtormanagement. The operation of debtors is through
channel partners inpost-paid.
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• There has been constant decrease in fixed assets turnover ratio of BhartiAirtel Limited
though absolute figure of sales have down up. There is andecrease year after year. In
2010, it has increased by 19 %. The salesinclude the capital work in not progress. It
means decrease in theinvestment in fixed assets has brought about commensurate loss.
• The Debt Equity Ratio is almost close to 1 which is good for company.The debt is 0.92
times in total equity. The management has takenadvantage of the opportunities to
maximize profit through borrowings.
• The Earnings Per Share of Bharti Airtel Limited is has been consistentlyincreasing in
2009and it decreased in 2010. This shows the equity sharecapital is being effectively
used in 2009 but not in 2010.
Ratio Analysis of Bharti Airtel with Competitors
Debt-Equity Ratio:
Interpretation:
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The data in Table reveals that IDEA has achieved the highest Debt-Equity Ratio every year for
the data taken for the period of 2007 to 2009 and is followed by RELIANCE between 2008-09.
TATA alone has registered the lowest ratio. Even the three year average Debt-Equity Ratio of
IDEA is significantly higher (1.656667) than that of RELIANCE (0.6166667), AIRTEL (0.406667)
and TATA (0.11). Thus, it is inferred that IDEA has the least proportion of debt fund in its total
capital and hence is the most efficient telecommunication company among all other companies.
IDEA has the highest portion of its self-owned funds in the capital structure followed by
RELIANCE, AIRTEL and TATA.
Long Term Debt-Equity Ratio
Interpretation:
The data in Table reveals that IDEA has achieved the highest Long Term Debt-Equity Ratio
every year for the data taken for the period of 2007 to 2009 and is followed by RELIANCE
between 2008-09. TATA alone has registered the lowest ratio. Even thethree year average
Long Term Debt-Equity Ratio of IDEA is significantly higher (1.323333) than that of RELIANCE
(0.45666667), AIRTEL (0.376667) and TATA (0.066667). Thus, it is inferred that IDEA has the
least proportion of debt fund in its total capital and hence is the most efficient
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telecommunication company among all other companies. IDEA has the highest portion of its
self-owned funds in the capital structure followed by RELIANCE, AIRTEL and TATA.
Current Ratio:
Interpretation:
The data in Table reveals that RELIANCE has achieved the highest Current Ratio every year
for the data taken for the period of 2007 to 2009 and is followed by TATA, IDEA and
AIRTEL.AIRTEL alone has registered the lowest ratio. Even the three year average Current
Ratio of RELIANCE is significantly higher (1.423333) than that of TATA (1.273333), IDEA
(0.753333) and AIRTEL (0.52). Hence we can say that RELIANCE has enough resources to
pay its debts over the next 12 months as compared with the other companies.
Fixed Asset Ratio:
Interpretation:
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The data in Table reveals that AIRTEL has achieved the highest Average Fixed AssetRatio for
the data taken for the period of 2007 to 2009 and is followed by TATA, RELIANCE and IDEA.
The three year average Fixed Asset Ratio of AIRTEL is significantly higher (0.926667) than that
of TATA (0.773333), RELIANCE (0.73) and IDEA (0.626667). The table shows that AIRTEL has
shown increase in the Fixed Asset Ratio year by year as compared to any other sample
company. Moreover RELIANCE has year by year decrease in its Fixed Asset Ratio. It means
that AIRTEL has less money tied up in fixed assets and RELIANCE has over-invested in plant,
equipment, or other fixed assets. However the changes in this ratio for IDEA and TATA shows
that they are not efficient to use their fixed assets.
EPS (Earnings per Share):
Interpretation:
The data in Table reveals that AIRTEL has achieved the highest Average EPS for thedata taken
for the period of 2007 to 2009 and is followed by RELIANCE, TATA and IDEA. The three year
average EPS of AIRTEL is significantly higher (31.54) than that of RELIANCE (14.963333),
TATA (14.3133333) and IDEA (3.04333333). However both AIRTEL and RELIANCE has shown
constant growth in EPS respectively between years 2007 to 2009 which is shown in the table.
The EPS of IDEA is the lowest in all years as well as its average is the lowest as compared with
other sample companies. The higher the ratio means the better is the share price of the
company and the shareholders can earn more from their shares. Hence the AIRTEL is more
efficient than other companies.
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MAJOR FINDINGS:
• The average Debt-Equity Ratio of IDEA is significantly higher (1.656667) thanthat of
RELIANCE (0.6166667), AIRTEL (0.406667) and TATA (0.11).
• Average Long Term Debt-Equity Ratio of IDEA is significantly higher (1.323333)than
that of RELIANCE (0.45666667), AIRTEL (0.376667) and TATA(0.066667).
• The average Current Ratio of RELIANCE is significantly higher (1.423333) thanthat of
TATA (1.273333), IDEA (0.753333) and AIRTEL (0.52).
• The average Fixed Asset Ratio of AIRTEL is significantly higher (0.926667) thanthat of
TATA (0.773333), RELIANCE (0.73) and IDEA (0.626667).
• The average EPS of AIRTEL is significantly higher (31.54) than that ofRELIANCE
(14.963333), TATA (14.3133333) and IDEA (3.04333333). Hencemaking AIRTEL one of
the most efficient companies in the terms of generatingearnings.
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REFERENCES
1. www.moneycontrol.com
2. www.airtel.in
3. www.equitymaster.com
4. www.angelsecurities.in
5. www.icicidirect.com
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