59908624 15135821-airtel-financial-analysis

Financial Accounting Bharti Airtel/u107092/u107093/u107094

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Financial Accounting

Project Report on

Bharti Airtel Limited

Submitted by:

Nidhi Agarwal (u107092) Niraj Kumar Mall (u107093)

Nishith Sahu(u107094)

Farhan Ahmed

untitled


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Table of Contents

1. ACKNOWLEDGEMENTS 4 2. OBJECTIVE 5 3. EXECUTIVE SUMMARY 5 4. ENVIRONMENT ANALYSIS 6

4.1 GOVERNMENT POLICIES 6 4.2 NEW TELECOM POLICY, 1994 6 4.3 NEW TELECOM POLICY, 1999 7 4.4 BROADBAND POLICY, 2004 8

5. INDIAN ECONOMY AND THE TELECOM SECTOR 11 5.1 GUIDELINES FOR FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR 18 5.2 TRAI GUIDELINES AND OBJECTIVES 20 5.3 TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL (TDSAT) 21 5.4 CELLULAR OPERATORS ASSOCIATION OF INDIA (COAI) 21

6. COMPANY ANALYSIS 22 6.1 ABOUT THE COMPANY 22 6.2 CAPITAL STRUCTURE OF BHARTI-AIRTEL 27 6.3 FINANCIAL STATEMENTS 30 6.4 ACCOUNTING POLICIES 32

7. Ratio Analysis 38 7.1 LIQUIDITY RATIOS 38

7.1.1 Current Ratio 38 7.1.2 Liquid Ratio 39 7.1.3 Absolute Cash Ratio 40 7.1.4 Debtor Days 40 7.1.5 Creditor Days 41 7.1.6 Inventory Days 42

7.2 SOLVENCY RATIOS 42 7.2.1 Debt Ratio 43 7.2.2 Equity Ratio 43 7.2.3 Debt to Equity Ratio 44 7.2.4 Interest Coverage Ratio 45 7.2.5 Debt Service Coverage Ratio 46

7.3 PROFITABILITY RATIOS 47 7.3.1 Gross Profit (PBDITA) / Sales Ratio 47 7.3.2 Operating Profit (PBIT) / Sales Ratio 48 7.3.3 Net Profit (PAT) / Sales Ratio 49

7.4 RETURN ON INVESTMENT 50 7.4.1 RONW 50 7.4.2 ROCE 51 7.4.3 ROTA 51 7.4.4 EPS 52

7.5 EFFICIENCY RATIOS 53


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7.5.1 Total Assets Turnover Ratio 53 7.5.2 Debt Turnover Ratio 54 7.5.3 Fixed Asset Turnover 55 7.5.4 Current Asset Turnover 56 7.5.5 Inventory Turnover 57

8. DUPONT ANALYSIS 59 8.1 THE DUPONT RATIO DECOMPOSITION 60

8.1.1 Profitability: Net Profit Margin (NPM: PBIT/Sales) 60 8.1.2 Operating Efficiency or Asset Utilization: Total Asset Turnover (Sales/Total Assets) 60 8.1.3 Leverage: The Leverage Multiplier (Total Assets/Capital Employed) 61

8.2 HIGHLIGHTS OF DUPONT ANALYSIS 62 9. CASH FLOW ANALYSIS 67 10. CALCULATION OF EVA 70 11. CONCLUSION 71 12. APPENDIX 73 13. REFERENCES 75


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1. ACKNOWLEDGEMENTS We wish to express our heartfelt gratitude and immense respect to Dr. D.V.Ramana, our

Faculty and Mentor in Financial Accounting. His threadbare explanation of the minutest

of concepts helped in generating a lot of interest in the subject.

We would also like to thank XIMB for providing the necessary infrastructure which

made our work easier.


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2. OBJECTIVE The basic objective of doing the project is to analyze the financial statements of a

company, analyze the environment in which it is operating and evaluate its performance

over the last 3 years. Hence a thorough Environment Industry & Company analysis is

done to understand the external factors influencing the company.

3. EXECUTIVE SUMMARY The environmental analysis would include analyzing the Indian economy, government

policies, FDI norms with regard to telecom sector, TRAI’s objectives & guidelines,

COAI data and demography related to cellular coverage.

Industry covered Factors behind the telecom growth, Industry Structure (services),

Technologies, recent growth trends in the Telecom Sector, GSM Coverage in India and

Outlook for the Sector.

Then we moved to company analysis where we studied that its strategic business group

primarily consists of two services namely mobile and infotel services. Infotel services can

further be classified into Broadband & Telephone services, Enterprise services and Long

distance services. We also studied the shareholding pattern, recent developments in the

company and the accounting policies of the company.

To analyse the performance of the company specifically we covered the following topics:

1. Ratio Analysis

2. Du Pont Analysis

3. Cash Flow Analysis

We also did a thorough analysis of its competitors like BSNL & VSNL to get a feel of

how the company is doing though in some places we were handicapped by the

unavailability of financial statements of the competitors.

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4. ENVIRONMENT ANALYSIS

4.1 GOVERNMENT POLICIES The telecom sector in India is at present governed by the legislations viz, The Indian

Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933. The reforms process

in the telecom sector in India began in early 80s with allowing manufacture of customer

premise equipment by private sector.

Telecom Services in the Metro cities of Delhi & Mumbai were corporatised under

Mahanagar Telephone Nigam Ltd. (MTNL) and International Telecom Services were

corporatised under Videsh Sanchar Nigam Ltd (VSNL). Subsequently, Center for

Development of Telematics (C-DOT) was set up in 1984 to develop indigenous

technology. While the initial mandate of C-DOT in 1984 was to design and develop

digital exchanges and facilitate their large scale manufacture by the Indian Industry, the

development of transmission equipment was also added to its scope of work in 1989. To

accelerate decision making Government also set up a High Powered Telecom

Commission in 1989.

To meet the resource requirement and achieve the nation’s telecom targets, the

government decided to invite the participation of private players, and the telecom sector

was opened up in 1992. The policy abolished the regime of public sector supremacy and

paved the way for private participation in the economy. Gone were the days of 2 year

waiting period to get a telephone connection.

4.2 NEW TELECOM POLICY, 1994

In 1994, the Government announced the National Telecom Policy which defined certain

important objectives, including availability of telephone on demand, provision of world

class services at reasonable prices, ensuring India’s emergence as major manufacturing /


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export base of telecom equipment and universal availability of basic telecom services to

all villages. It also announced a series of specific targets to be achieved by 1997. The

NTP 1994 targeted 1 PCO per 500 urban population and coverage of all 6 lac villages.

NTP 1994 also recognized that the required resources for achieving these targets would

not be available only out of Government sources and concluded that private investment

and involvement of the private sector was required to bridge the resource gap. The

Government invited private sector participation in a phased manner from the early

nineties, initially for value added services such as Paging Services and Cellular Mobile

Telephone Services (CMTS) and thereafter for Basic Telephone Services (BTS). After a

competitive bidding process, licenses were awarded to 8 CMTS operators in the four

metros, 14 CMTS operators in 18 state circles, 6 BTS operators in 6 state circles and to

paging operators in 27 cities and 18 state circles. VSAT services were liberalized for

providing data services to closed user groups. Licenses were issued to 14 operators in the

private sector.

4.3 NEW TELECOM POLICY, 1999

Since some of the targets set in the telecom policy of 1994 remained unfulfilled, a new

Telecom policy was brought about in 1999. The New Policy Framework focused on

creating an environment, which enabled continued attraction of investment in the sector

and allowed creation of communication infrastructure by leveraging on technological

development. The main objectives of NTP-1999 were:

Availability of affordable and effective communications for the citizens.

To achieve a tele-density of 7 by the year 2005 and 15 by the year 2010; to

improve rural tele-density from the level of 0.4 to 4 by the year 2010.

Create a modern, efficient and world class Telecommunications infrastructure

taking into account the convergence of IT, Media, Telecom and Consumer

Electronics.


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Convert Public Call Offices (PCOs) into Public Tele-info Centers having multi-

media capability like ISDN Services, Remote Database Access, Government and

Community Information Systems etc.

Transform in a time-bound manner, the Telecommunications Sector to a greater

competitive environment in both urban and rural areas providing equal

opportunities and level playing field for all players.

Strengthen Research and Development efforts in the country and provide an

Impetus to build world class manufacturing capabilities.

Protect Defense and Security interest of the country.

Enable Indian Telecom Companies to become truly Global Players.

Towards this end, the New Policy Framework divided the telecom service sector as

follows –

Cellular Mobile Service Providers, Fixed Service Providers and Cable Service

Providers, collectively referred to as ‘Access Providers’

Radio Paging Service Providers

Public Mobile Radio Trunking Service Providers

National Long Distance Operators

International Long Distance Operators

Other Service Providers

Global Mobile Personal Communication by Satellite (GMPCS) Service Providers

V-SAT based Service Providers

The policy led to rapid expansion of telecom services, steep reduction in tariffs,

advancement of technology etc.

4.4 BROADBAND POLICY, 2004 Recognising the potential of ubiquitous Broadband service in growth of GDP and

enhancement in quality of life through societal applications including tele-education, tele-

medicine, e-governance, entertainment as well as employment generation by way of high

speed access to information and web-based communication, Government finalized a

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policy to accelerate the growth of Broadband services. Some of the major points taken up

in the policy on the technology front were:

Greater emphasis on optical fibre-technologies & Digital-subscriber lines(DSL)

on copper loop

Cable TV network can be used as franchisee network of the service provider for

provisioning Broadband services.

Very Small Aperture Terminals (VSAT) and Direct-to-Home (DTH) services

would be encouraged for penetration of Broadband and Internet services with the

added advantage to serve remote and inaccessible areas.

Invest in newer technologies and incorporate them at the earliest.

National Internet Exchange of India (NIXI) was set up by DIT, Government of India to

ensure that Internet traffic, originating and destined for India, should be routed within

India. The policy targets 20m broadband subscribers by 2010.

The government policies over the period can be summed up and shown as below:

Pre-reform Further Deregulation Take-off Partial Deregulation

Pre-1994 1994-1999 1999 - 2002

• MTNL - Mumbai and Delhi; DTS elsewhere

• No mobile service

• NLD - DoT per/ BSNL ILD - VSNL

• 4 private fixed service providers with less than 1% market share

• 2 GSM mobile players in each circle

• 13 players start mobile service

• Licenses converted to revenue sharing

• Private sector share less than 5% in revenue terms

• Competition in NLD and ILD

• Licenses on Revenue share

• 4 mobile operators / circle

• NTP 1999

• BSNL formed 2001

• Internet Telephony 2002

• FDI - 49 %

2002 onwards

• Calling Party Pays

• CDMA launch

• 3-6 operators in each circle

• Intra-circle merger guidelines

• Unified Licensing

• National Telecom Policy (NTP) 1994

• TRAI constituted 1997

• Broadband policy 2004

• FDI - 74% 2005

National Telecom

New Telecom

Policy, 1999 Unified Licensing

Policy, 1994 Regime

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Some of the other policy initiatives are:

Deregulation virtually complete and Unified Licensing regime

Interconnection Usage Charge framework in place

Exemption from customs duty for import of Mobile Switching Centres

Comprehensive Spectrum policy and 3G policy on the anvil

Independent regulation has been a critical factor in the growth.

2002

• ILD opened to competition

• Internet Telephony allowed.

• Reduction in License fees

2003 Calling Party Pays Regime Unified Access Licensing Reference Interconnect Order

2004 Intra-circle merger guidelines Internet / broadband penetration

Mature regulatory regime and an enabling policy framework already in place

2005 Unified Licensing Quality of Service regulation Rural Telephony

2006 Number portability Convergence

TRAI’s recommendations


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5. INDIAN ECONOMY AND THE TELECOM SECTOR

1. The Indian Economy is galloping at a fast pace over the last few years.

2. It has clocked over 9% growth for the last many years.

3. Such a growing economy offers vast growth opportunities for the telecom industry.

The telecom market has grown rapidly in the last few years.

Subscriber growth 164

9876

5344

0

60

120

180

2002 2003 2004 2005 Aug-06

In Millions

CAGR– 38%

Revenue growth20

15

11109

0

5

10

15

20

2002 2003 2004 2005 2006

$ Bill

ion

CAGR - 21%

Revenues ~ USD 19.5 bn (FY 2006)

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o CAGR (FY 2002-06) - 21%

o Have doubled in last 3 years

Subscribers ~ 160 million (Aug 2006)

o CAGR (FY 2002-06) - 38 %

o Nearly quadrupled since FY 02

o 5-6 million being added every month

Tele-Density - 14.8 (Aug 2006)

o Has doubled in 3 years

o Target set for 2007 under NTP 1999 achieved during FY 2005

And is poised to be the second-largest network globally by 2008

Telecom Subscribers - Country w ise December 2005

China743

USA360

Ind125

Rus130

Germany134

Japan 153

0

200

400

600

800

mn.

sub

scrib

ers


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Mobile telephony continues to be the key growth driver.

Subscriber Growth - Mobile vs Fixed

4141

434238

143

52

7 13 340

35

70

105

140

175

2002 2003 2004 2005 2006

Mn.

sub

scrib

ers

Fixed (mn. subs) Mobile (mn. subs)

Wireless emerging as the preferred mass market format service providers focus on

Internet / broadband access to improve fixed line ARPU

Progressive regulation

o Migration to revenue sharing

o Calling Party Pays (CPP) regime

o Unified access licensing

o Intra-circle merger guidelines

Intensifying competition

o 3 to 6 players per circle

o Presence of CDMA and GSM providers

o Significant share of private sector

Growing affordability

o ARPUs among lowest in the world


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o Lower cost of ownership due to Low cost / used handsets

o Success of the pre-paid format

Growing network coverage is triggering further market expansion

Cellular reach (2003-04) Cellular reach (End 2006 - Est.)Segment

Locations Population Locations Population

Urban ~ 1700 of 5200

towns

200 million ~ 4900 towns

out of nearly

5200 towns

300 million

Rural Negligible Negligible ~ 350,000 out of

607,000 villages

450 million

Support from Universal Service Obligation Fund envisaged for shared network

infrastructure creation in uncovered rural areas

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Vibrant and competitive telecom market

Subscribers Jul 06

(mn) Share (%)

Company Presence

Fixed Mobile Fixed Mobile

BSNL

Government owned. Has ramped up

GSM services. National presence

(except Mumbai and Delhi)

37.4 17.7 74.7% 19.6%

MTNL Government owned. Operates in

Delhi and Mumbai. 3.8 2.0 7.7% 2.3%

Bharti

Integrated operator, with presence in

all sectors. Largest mobile services

provider.

1.4 19.6 2.7% 21.7%

Reliance

Integrated operator. Plans expansion

of GSM network apart from being

the largest private CDMA operators.

3.0 17.3 6.0% 19.2%

Hutch Pure play GSM operator in 11

circles. 15.4 17.0%

IDEA Pure play GSM operator in 6 circles 7.4 8.2%

TTS

Integrated operator (along with

VSNL) with presence in all

segments. Provides CDMA services

in 20 circles

4.0 4.9 8.0% 5.4%

Aircel

Operates in 2 circles. Announced

Plans to expand GSM footprint in

North and North east

2.6 2.9%

Spice Pure play GSM player in 2 circles 1.9 2.1%

Others 0.4 1.4

Total 50 90

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Broadband and internet connectivity are on the verge of take-off.

Broadband subscriber growth2.00

1.38

0.18

0

0.75

1.5

Mar-05 Mar-06 Nov-06

Mn.

sub

scrib

ers

growth 6-fold

Several Indian firms are gaining a foothold in the global market.

Many Indian service providers are acquiring scale in the International Long

Distance market through acquisitions

o Acquisitions - FLAG by Reliance, Tyco and Teleglobe by Videsh Sanchar

Nigam Limited

o VSNL is now the world's fifth largest carrier of voice globally

o Reliance’s FLAG network connects with 28 countries. FLAG’s FALCON

cable system when completed would connect 12 countries with 25

international cable landing stations

Investments in Infrastructure

o Bharti-Singtel and VSNL investments in undersea cable

Emerging as Integrated telco, positioning themselves as full service providers

o Tata teleservices-VSNL, Bharti, Reliance have end-to-end presence in

ILD, NLD and Access; BSNL has announced plans to get into ILD

o Focus on corporate connectivity - IPLCs, Frame relay, VPNs

o Strong thrust on internet and broadband - both corporate and retail

segments

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Key Indian Companies

• BSNL - Incumbent service provider and World's 7th largest Telecommunications Company providing comprehensive range of telecom services in India

• Services include Wire line, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc.

• MTNL - State owned operator covering the cities of Mumbai an Delhi

• Provides both fixed and mobile services

• Bharti Airtel - Integrated operator with presence in all segments

• Leads the mobile segment in the country

• Reliance Communications - Largest player in India in the CDMA segment

• Plans a GSM network

• Tata Teleservices - Integrated operator (with VSNL) with presence in all segments

• Provides CDMA services in 20 circles


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5.1 GUIDELINES FOR FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR

The government has liberalized the FDI rules in the telecom sector. The FDI ceiling has

been raised from 49% to 74% in certain telecom services (such as Basic, Cellular,

Unified Access Services, National/International Long Distance, V-Sat, Public Mobile

Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services

(GMPCS) and other value added services). The remaining 26 per cent will be owned by

resident Indian citizens or an Indian Company (i.e. foreign direct investment does not

exceed 49 percent and the management is with the Indian owners). 100% FDI permitted

under automatic route in the manufacturing sector

The majority Directors on the Board including Chairman, Managing Director and Chief

Executive Officer (CEO) shall be resident Indian citizens, enforced through licence

agreement.

1. Singapore Telecom (SingTel) made an investment of US$1.07 B through a Mauritius

entity for a stake in Bharti Televentures.

2. Vodafone acquired a 10% stake in Bharti Televentures for 6700 crore rupees(

approximately US$ 1.5B)

3. Subsequently, Vodafone made an investment of $12 US B when it acquired a

controlling 67% stake in Hutch Essar.

All these have helped the Indian telecom market grow at an astonishing pace.

It is the fastest growing market in the world

About 6 million mobile subscribers are added every month

The mobile sector has grown from around 10 million subscribers in 2002 to reach

150 million subscribers by early 2007 registering an average growth of 90% yoy.

The overall fixed and mobile subscribers have risen to more than 200 million by

the first quarter of 2007.

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Currently, the Indian Telecom market is valued at US$100 B. Two telecom

players dominate this market- Bharti Airtel with 27% market share and Reliance

Communication with 20% market share.

In the mobile phone market there are basically two technologies that are used: GSM

and CDMA. GSM is the dominant technology that is used.

GSM and CDMA subscription numbers:

Year GSM

Subscribers (millions)

GSM Annual growth

CDMA Subscribers (millions)

CDMA Annual growth

2000 3.1 94% - - 2001 5.05 76% - - 2002 10.5 91% 0.8 - 2003 22.0 110% 6.4 700% 2004 37.4 70% 10.9 70% 2005 58.5 57% 19.1 75% 2006 105.4 80% 44.2 131% 2007 180.0 71% 85.0 92%


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5.2 TRAI GUIDELINES AND OBJECTIVES

The Telecom Regulatory Authority of India (TRAI) was formed in January 1997 with a

view to providing an effective regulatory framework and adequate safeguards to ensure

fair competition and protection of consumer interests. The Government is committed to a

strong and independent regulator with comprehensive powers and clear authority to

effectively perform its functions.

Objectives

Access to telecommunications is of utmost importance for achievement of the

country’s social and economic goals. Availability of affordable and effective

communications for the citizens is at the core of the vision and goal of the

telecom policy

Strive to provide a balance between the provision of universal service to all

uncovered areas, including the rural areas, and the provision of high level services

capable of meeting the needs of the country’s economy

Encourage development of telecommunication facilities in remote, hilly and tribal

areas of the country

Create a modern and efficient telecommunications infrastructure taking into

account the convergence of IT, media, telecom and consumer electronics and

thereby propel India into becoming an IT superpower

Convert PCOs, wherever justified, into Public Teleinfo centres having

multimedia capability like ISDN services, remote database access, government

and community information systems etc

Transform in a time bound manner, the telecommunications sector to a greater

competitive environment in both urban and rural areas providing equal

opportunities and level playing field for all players

Strengthen research and development efforts in the country and provide an

impetus to build world class manufacturing capabilities

Achieve efficiency and transparency in spectrum management

Protect defense and security interests of the country

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5.3 TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL (TDSAT)

With a view to further strengthen the regulator the TRAI Act, 1997 was amended in the

year 2000 and a separate body viz., The Telecom Dispute Settlement and Appellate

Tribunal (TDSAT) was constituted for resolution of disputes in Telecom Sector. The

appellate tribunal consists of a chairperson and two members appointed by the Indian

Parliament. The selection of Chairperson and members of the Appellate tribunal is made

by the Central Government in consultation with the Chief Justice of India.

The TDSAT is empowered to adjudicate any dispute between:

Licensor and a Licensee.

Two or more Service Providers.

A Service Provider and a Group of Consumers.

5.4 CELLULAR OPERATORS ASSOCIATION OF INDIA (COAI)

The Cellular Operators Association of India (COAI) was constituted in 1995 as a

registered, nonprofit, nongovernmental society dedicated to the advancement of

communication, particularly modern communication through Cellular Mobile Telephone

Services.

With a vision to establish and sustain a world-class cellular infrastructure and facilitate

affordable mobile communication services in India, COAI’ main objectives are to protect

the common & collective interests of its members. Keeping the mandate given to it,

COAI is the official voice for the Indian Cellular industry and on its behalf it interacts

with: the policy maker, the licensor, the regulator, the spectrum management agency and

the industry (telecom / nontelecom) associations.


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6. COMPANY ANALYSIS

6.1 ABOUT THE COMPANY

Company Profile

Bharti Airtel is one of India's leading private sector providers of telecommunications

services based on an aggregate of 48,853,758 customers as on August 31, 2007,

consisting of 46,814,745 GSM mobile and 2,039,013 broadband & telephone customers.

The businesses at Bharti Airtel have been structured into three individual strategic

business units (SBU’s) - mobile services, broadband & telephone services (B&T) &

enterprise services. The mobile services group provides GSM mobile services across

India in 23 telecom circles, while the B&T business group provides broadband &

telephone services in 94 cities. The enterprise services group has two sub-units - carriers

(long distance services) and services to corporates. All these services are provided under

the Airtel brand.

Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National

Stock Exchange of India Limited (NSE).

Vision & Promise

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

Loved by more customers

Targeted by top talent

Benchmarked by more business


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Company History

Bharti Tele-Ventures was incorporated on July 7, 1995 as a company with limited

liability under the Companies Act, for promoting telecommunications services. Bharti

Tele-Ventures received certificate for commencement of business on January 18, 1996.

The Company was initially formed as a wholly-owned subsidiary of Bharti Telecom

Limited. The chronology of events since Bharti Tele-Ventures was incorporated in 1995

is as follows:

Calendar year & Events

1995

Bharti Cellular launched cellular services 'AirTel' in Delhi

1997

British Telecom acquired a 21.05% equity interest in Bharti Cellular

1998

Bharti Telecom and British Telecom formed a 51%: 49% joint venture, Bharti

BT Internet for providing Internet services

2002

Comes out with issue of 18.53 crore equity shares through book building route

with a floor price of Rs 45 per share, received bid for 18.55 crore shares. Through

the issue, it becomes the first company in India to come out with 100% book

building issue

2004

Bharti Tele-Ventures enters into a three year service agreement with Ericsson

2005

Bharti inks $125-m deal with Nokia for rural network expansion

Bharti Tele Ventures announces agreement with Vodafone

2007

Bharti Airtel, telecom major, has come out with a slew of initiatives including

buying out SingTel's 50 per cent stake in joint venture under sea cable company

Network i2i for $110 million.


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Organization Structure

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Awards and Recognition

Wireless service provider of the year 2005 at the Frost and Sulivan Asia-

Pacific ICT awards

Competitive service provider of the year 2005 at the Frost and Sulivan Asia-

Pacific ICT awards

The Forbes Global 2000 list for the year 2007 ranked Bharti at 1149

Market Performance

Market Capitalization (as on July 13, 2007)

Approx. Rs. 1,670 billion Closing BSE share price = Rs. 880.75

Sales : $2.62 Billion

Profits : $0.46 Billion

Assets : $4.46 Billion

Market Value : $41 Billion

Highlights for Full Year ended March 31, 2007

Overall customer base crosses 3.9 crore.

Highest ever-net addition of 1.8 crore customers in a year.

Market leader with a market share of all India wireless subscribers at 22.9%

(20.4% last year)

Total Revenues of Rs. 18,520 crore (up 59% Y-o-Y)

EBITDA of Rs. 7,451 crore (up 72% Y-o-Y).

Cash Profit of Rs. 7,307 crore (up 79% Y-o-Y).

Net Profit of Rs. 4,257 crore (up 89% Y-o-Y).


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In News:

Recently Sunil Bharti's Airtel launched its calling card in America especially for

the NRI (Non-resident Indians) and people calling from America to India at a

cheaper rate as compared to the tariff offered by other providers.

On February 12, 2007 Vodafone sold its 5.6% stake in AirTel back to AirTel for

US $1.6 billion; and purchased a controlling stake in rival Hutchison Essar.

In its monthly press release, following statistics have been presented for end of

April 2007.

Bharti Airtel added the highest ever net addition of 53 lakh customers in a single

quarter (Q4-FY0607) and also the highest ever net addition of 1.8 crore total

subscribers in 2006-07

The company will invest up to $3.5 billion this fiscal (07-08) in network

expansion.

It has an installed base of 40,000 cellsites and 59% population coverage

After the proposed network expansion, an additional 30,000 towers will result in

the company achieving 70% population coverage

Bharti has over 39 million users as on March 31, 2007

It has set a target of 125 million subscribers by 2010

Prepaid customers account for 88.5% of Bharti’s total subscriber base, an increase

from 82.7% a year ago

ARPU has dropped to Rs 406

Non-voice revenues, (SMS, voice mail, call management, hello tunes and Airtel

Live) constituted 10% of total revenues during Q4, lower than 10.7% in the Q4 of

the previous year

Blended monthly minutes of usage per customer in Q4 was at 475 minutes

Has completed 100% verification of its subscribers and in the process

disconnected three lakh subscribers


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6.2 CAPITAL STRUCTURE OF BHARTI-AIRTEL

1. Capital

The capital structure of Bharti-Airtel is explained below:

(In ‘000 Rs.) 2007 2006 2005

Authorised Capital 25,000,000 25,000,000 25,000,000

Issued Capital 18,959,342 18,938,793 18,533,668

Paid up Capital 18,959,342 18,938,793 18,533,668

Share-holding Pattern:

% of share holding

45.48%

29.47%

25.05%

Promoter holdingInstitutional investorOthers

2. Nominal Value of Capital

• Face Value – The face value of shares remains constant at Rs. 10 throughout

this period.

• Change in Face value- There is no change in the face value.

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3. Issue Price of shares

Share Premium

The Share premium at the beginning of financial year 2005 is Rs. 31,254,879,000. It

changed to Rs. 38,754,546,000 by the end of the financial year and to Rs. 39,259,225,000

at the end of financial year 2006. While no new shares were issued the change is due to

other reasons which are illustrated below.

4. Dividend Distribution

For the year ending 2005-2006

The directors believe that there are tremendous growth opportunities available to the

telecom sector and the Company should leverage these by further expanding and

strengthening its existing network. This will enhance shareholder value in the long-term.

Accordingly, the directors did not recommend any dividend for the year ended March 31,

2006, in view of the proposed investments in network expansion and operations.

However this does not explain the change in share capital. The change in share capital

can be explained by the following:

The Company allotted 2,722,125 Equity Shares of Rs. 10/- each upon merger of

Bharti Cellular Limited (BCL) into the Company. During the year the Company

allotted 18,242,237 equity shares upon conversion of Foreign Currency

Convertible Bonds (FCCBs) by their holders.

During the year ended March 31, 2006 the Company had also issued 20,088,445

equity shares of Rs. 10/- each fully paid up to M/s. Shyam Cellular Infrastructures

Projects Limited upon conversion of Optionally Convertible Redeemable

Debentures (OCRDs).


29

For the year ending 2006-2007

The company did not declare any dividends because of the reasons as mentioned

previously. But during the year,

The Company allotted 165400 equity shares on exercise of stock options to the

employees of the company under the Company’s ESOP Scheme 2005.

The Company also allotted 1889453 equity shares upon conversion of Foreign

Currency Convertible Bonds (FCCBs) by their holders.

Due to these the corporate actions, the issued, subscribed and paid-up equity share capital

increased from 1,893,879,304 (March 31, 2006) to 1,895,934,157 equity shares as of

March 31, 2007.

5. Rights Issue

No rights issue was brought out for the period 2005-2007.

6. Market Capitalisation

The company had a market capitalization of over Rs. 760 billion for the year ending 31st

March 2006 and was among the top 10 listed entities in India. For the year ending 31st

March 2007, the Company had a market capitalisation of USD 38 bn and is among the

top 5 listed entities in India.


30

7. MV/BV Ratio

31st March 2007 31st March 2006 31st March 2005

Capital +Reserves

(in Rs) (A)

1,148,883,838,000 73,623,863,000 53,200,292,000

No. Of Equity

Shares(B)

1,895,934,157 1, 893,879,304 1,853,366,767

Book Value(BV)

= A/B

60.59 38.87 28.70

Market

Value(MV)

730.60 412.85 206.85

MV/BV 12.05 10.62 7.21

Thus we see that the MV/BV ratio has shown a positive increase over the period

considered.

6.3 FINANCIAL STATEMENTS

Consolidated Balance Sheet

All Figures in ‘000

2007 2006 2005 Capital 19,259,346 19,060,053 18,560,889 Reserves 95,173,342 54,395,531 34,639,403 LTL 55,474,673 49,853,367 50,951,920 CL 98,446,711 66,991,634 43,199,744 Total 268,354,072 190,300,585 147,351,956 Fixed Assets 216,814,497 153,481,269 107,594,459 Investments 7,058,179 7,196,981 9,318,953 CA 44,454,766 29,622,335 30,438,533 Total 268,327,442 190,300,585 147,351,945


31

Consolidated Income Statement


2007 2006 2005 Sales 177,944,343 112,905,793 79,441,940 COGS 220,849 674,043 721,037 Operating Expenses 105,121,756 71,445,970 48,780,762 Depreciation 23,533,010 14,323,385 10,193,626 PBIT 43,455,272 25,113,966 18,101,946 Interest 2,558,440 2,256,011 2,459,184 PBT 46,013,712 22,857,955 15,642,762 Tax 6,055,561 2,737,160 3,536,023 PAT 40,332,265 20,120,794 12,106,739

Consolidated Cash Flow Statement


2007 2006 2005 Opening CIH 3,074,285 3,841,352 1,316,310 CFF 3,401,320 3,763,474 -4,230,893 CFI -79,750,547 -50,843,891 -23,303,010 CFO 81,079,547 46,313,349 30,058,945 Closing CIH 7,804,605 3,074,284 3,841,352


32

6.4 ACCOUNTING POLICIES

1. BASIS OF PREPARATION

These financial statements have been prepared under the historical cost convention on the

accrual basis of accounting, in accordance with the generally accepted accounting

principles in India and the provisions of the Companies Act, 1956 as adopted consistently

by the Company.

2. FIXED ASSETS

Fixed Assets are stated at cost of acquisition and subsequent improvements thereto,

including taxes, duties, freight and other incidental expenses related to acquisition and

installation. Capital work-in-progress is stated at cost. Site restoration cost obligations are

capitalized when it is probable that an outflow of resources will be required to settle the

obligation and a reliable estimate of the amount can be made. The fixed component of

license fee payable by the Company for cellular and basic circles, upon migration to the

National Telecom Policy (NTP 999), i.e. Entry Fee and the one time license fee paid by

the Company for acquiring new licenses (post NTP-99) has been capitalized as an asset.

3. DEPRECIATION / AMORTISATION

Depreciation is provided on straight-line method at the rates and in the manner prescribed

in Schedule XIV to the Companies Act, 1956 on all assets, except for the following on

which depreciation is provided on straight line method to write off the cost of the fixed

assets over their estimated useful lives as below:

Useful lives

Building 20 years

Building on Leased Land 20 years


33

Office Equipment 5 years/2 years

Computer / Software 3 years

Vehicles 5 years

Furniture and Fixtures 5 years

Plant & Machinery 3 years / 5 years/ 10 years / 15 years

Leasehold Land Period of lease

Leasehold Improvements Period of lease or 10 years whichever is less

Software up to Rs. 500,000 is written off in the year placed in service. Bandwidth

capacity is amortized over the period of the agreement subject to a maximum of 15 years.

Additional depreciation is provided as appropriate, towards diminution in value of assets.

The Entry Fee capitalised is being amortised equally over the period of the license and

the one time licence fee is being amortized equally over the balance period of licence

from the date of commencement of commercial operations.

The site restoration cost obligation capitalized is being depreciated over the period of the

useful life of the related asset.

4. REVENUE RECOGNITION AND RECEIVABLES

Mobile Services: Service revenue is recognised on completion of provision of services.

Service revenue includes income on roaming commission and access charges passed on

to other operators, and are net of discounts and waivers. Revenue, net of discount, from

sale of goods is recognised on transfer of all significant risks and rewards to the customer

and when no significant uncertainty exists regarding realisation of the consideration.

Processing fees on recharge coupon is being recognised over the estimated customer

relationship period or coupon validity period, as applicable.

Telephone and Broadband and Enterprise Services Carriers


34

Service revenue is recognised on completion of provision of services. Revenue on

account of bandwidth service is recognised on time proportion basis in accordance with

the related contracts. Service Revenue includes access charges passed on to other

operators, and is net of discounts and waivers. Revenue, net of discount, from sale of

goods is recognized on transfer of all significant risks and rewards to the customer and

when no significant uncertainty exists regarding realisation of consideration.

Enterprise Services Corporate

Revenue, net of discount, from sale of goods is recognised on transfer of all significant

risks and rewards to the customer and when no significant uncertainty exists regarding

realisation of consideration.105 Service Revenues includes revenues from registration,

installation and provision of Internet and Satellite services. Registration fees is

recognised at the time of dispatch and invoicing of Start up Kits. Installation charges are

recognised as revenue on satisfactory completion of installation of hardware and service

revenue is recognized from the date of satisfactory installation of equipment and software

at the customer site and provisioning of Internet and Satellite services. Revenue from

prepaid dialup packs is recognised on the actual usage basis and is net of sales return and

discount.

Activation Income

Activation revenue and related direct activation costs, not exceeding the activation

revenue, are deferred and amortized over the related estimated customers relationship

period, as derived from the estimated customer churn period.

Investing and other activities

Income on account of interest and other activities are recognised on an accrual basis.

Dividends are accounted for when the right to receive the payment is established.

Provision for doubtful debts

The Company provides for amounts outstanding for more than 90 days in case of active

subscribers and for all amounts outstanding from customers who have been deactivated

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35

as reduced by security deposits or in specific cases where management is of the view that

the amounts are not recoverable. For receivables due from the other operators on account

of their NLD and ILD traffic, IUC and roaming charges, the Company provides for

amounts outstanding for more than 120 days from the date of billing net of any amounts

payable to the operators or in specific cases where management is of the view that the

amounts are not recoverable.

5. INVENTORIES

Inventories are valued at the lower of cost and net realisable value. Cost is determined on

First in First out basis.

6. INVESTMENT

Current Investments are valued at lower of cost and fair market value. Long term

Investments are valued at cost. Provision is made for diminution in value to recognise a

decline, if any, other than that of temporary nature.

7. LEASES

a) Operating Lease

Lease rentals in respect of assets taken on 'Operating Lease' are charged to the Profit and

Loss Account on a straight-line basis over the lease term.

b) Finance Lease

Assets acquired on 'Finance Lease' which transfer risk and rewards of ownership to the

Company are capitalized as assets by the Company at the present value of the related

lease payments Amortization of capitalized leased assets is computed on the Straight Line

method over the useful life of the assets. The finance charge is allocated over the lease

term so as to produce a constant periodic rate of interest on the remaining balance of

liability.


36

8. TAXATION

Tax expense for the period, comprising current tax, deferred tax and fringe benefit tax is

included in determining the net profit/ (loss) for the period. Deferred tax assets are

recognised for all deductible timing differences and carried forward to the extent there is

reasonable certainty that sufficient future taxable profit will be available against which

such deferred tax assets can be realised. Deferred tax is not recognized for such timing

differences which reverse during tax holiday period. Deferred tax assets to the extent they

pertain to brought forward losses and unabsorbed depreciation, are recognized only to the

extent that there is virtual certainty of realisation, based on expected profitability in the

future as estimated by the Company. Deferred tax assets and liabilities are measured at

the tax rates that have been enacted or substantively enacted by the balance sheet date.

9. BORROWING COST

Borrowing cost attributable to the acquisition or construction of a qualifying asset is

capitalised as part of the cost of that asset. Other borrowing costs are recognised as an

expense in the period in which they are incurred.

10. IMPAIRMENT OF ASSETS

Assets that are subject to amortization are reviewed for impairment whenever events or

changes in circumstances indicate that the carrying amount may not be recoverable. An

impairment loss is recognized for the amount by which the assets' carrying amount

exceeds its recoverable amount. The recoverable amount is the higher of the assets' fair

value less costs to sell and value in use. For the purpose of assessing impairment, assets

are grouped at the lowest levels for which there are separately identifiable cash flows

(cash generating units).

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11. EARNING PER SHARE

The earnings considered in ascertaining the Company's Earnings per Share ('EPS')

comprise the net profit after tax. The number of shares used in computing basic EPS is

the weighted average number of shares outstanding during the year. The diluted EPS is

calculated on the same basis as basic EPS, after adjusting for the effects of potential

dilutive equity shares unless impact is anti dilutive.

12. PROVISIONS

Provisions are recognised when the Company has a present obligation as a result of past

events; it is more likely than not that an outflow of resources will be required to settle the

obligation; and the amount has been reliably estimated.


38

7. Ratio Analysis Various Financial Ratio Analysis are used to analyse the financial performance of Bharti

Airtel Ltd. Its performance is also compared against BSNL and VSNL for 3 years from

2005 to 2007. Since the financial figures of BSNL was not available for the year 2006-

2007, so we tracked back a year and showed its figures for the year 2003-2004.

7.1 LIQUIDITY RATIOS Liquidity ratios help in determining the ability of a firm to meet its short term obligations.

7.1.1 Current Ratio Current Ratio = Current Asset / Current Liability

It is a simple guide to the ability of a company to meet its short term obligations. The

current ratio is a good diagnostic tool as it measures whether or not your business has

enough resources to pay its bills over the next 12 months. Higher the ratio higher is the

liquidity.

Current Ratios

0

0.5

1

1.5

2

2.5

2003-2004 2004-2005 2005-2006 2006-2007

Period

Curr

ent R

atio

Bharti Airtel LtdVSNLBSNL

Current Ratio 2003-2004 2004-2005 2005-2006 2006-2007

Bharti Airtel Ltd - 0.70 0.44 0.45

VSNL - 1.99 1.32 1.25

BSNL 1.36 1.79 2.02 NA

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The current ratio of Bharti Airtel Ltd has consistently remained less than 1. So its current

liability is greater than the current assets which implies that its short term liquidity

requirements might be financed by long term sources. In comparison, the current ratios of

VSNL and BSNL are better.

7.1.2 Liquid Ratio Liquid Ratio = (Current Asset – Inventory) / Current Liability

A better approach to measure the ability of a company to meet its short term liability is

by excluding the inventory from the current asset. This is done because it is unlikely to

turn inventory to cash immediately. It is thus a measure of how quickly a company’s

asset can be converted to cash. This ratio is also called the acid test and quick ratio.

Liquid Ratios

0

0.5

1

1.5

2

2.5

2003-2004 2004-2005 2005-2006 2006-2007

Period

Liqu

id R

atio


Liquid Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 1.98 1.31 1.25

BSNL 1.24 1.69 1.91 NA

Since the companies are all service oriented, they do not have inventories and hence the

liquid ratios are almost similar to the current ratios calculated above. The liquid ratio of


40

Bharti Airtel Ltd is well below 0.5 which indicates that it is able to meet only half of the

current obligations from its current assets. The liquid ratios of VSNL and BSNL are

much healthier than Bharti Airtel Ltd.

7.1.3 Absolute Cash Ratio Absolute Cash Ratio = (Cash + Near Cash Items) / Current Ratio

This ratio is still better in calculating the liquidity as it does not take into the debts in the

current asset.

Absolute Cash Ratios

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2003-2004 2004-2005 2005-2006 2006-2007

Period

Abso

lute

Cas

h R

atio


Absolute Current Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 0.08 0.06 0.14

BSNL 0.58 1 1.22 NA

Absolute Current Ratio is very low for Bharti Airtel Ltd and VSNL. This shows that very

little cash reserve is being maintained to meet the short term obligations.

7.1.4 Debtor Days Debtor Days = Debtors / Sales per day

This ratio measures the number of times that receivables turn over during the year. The

lower the turnover of receivables, the shorter the time between sale and cash collection. If


41

a company's debtor days is significantly higher than industry norms, the underlying

reason (poor collection methods, high risk customers, low sales) needs to be pinpointed.

Debtor Days measures the average time in days that receivables are outstanding. The

higher the number of days outstanding, the greater the collection risk. Debtor days may

suggest a concern over credit control and collections

Debtor Days

0102030405060708090

2003-2004 2004-2005 2005-2006 2006-2007

Period

Debt

or d

ays


Debtor Days 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 57.30 67.14 81.96

BSNL 42.82 67.12 57.25 NA

The Debtor days for Bharti Airtel Ltd has decreased over the last year. In a year credit

sales takes place only for 29 days and it is much lower as compared to its competitors

thus indicating it has healthy debt collection practices.

7.1.5 Creditor Days Creditor Days = Creditors / Purchase of goods per day

This ratio measures the number of times that Accounts Payable turns over during the year

relative to the Sales. Lower turnover rates suggest a shorter time period between purchase

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and payment. Higher than industry rates may suggest cash shortages, or expansion of

trade credit. Creditor days tells the average length of time trade debt is outstanding.

Creditor Days 2003-2004 2004-2005 2005-2006 2006-2007


Creditor days for VSNL and BSNL could not be calculated because COGS is not

available for them. Bharti Airtel Ltd follows a trend of increasing Creditor days thus

indicating it takes longer to pay to its creditors. In a year it makes purchases on credit for

133 days.

7.1.6 Inventory Days Inventory Days = Inventory / COGS per day

A financial measure of a company's performance that gives an idea of how long it takes a

company to turn its inventory into sales. Generally, the lower (shorter) the Inventory days

the better, but it is important to note that the average varies from one industry to another.

Inventory Days 2003-2004 2004-2005 2005-2006 2006-2007


Inventory days for VSNL and BSNL could not be calculated because COGS is not

available for them. Bharti Airtel Ltd being a telecom service based company has very

little inventory. In 2006-2007 the inventories were doubled but the COGS were halved.

7.2 SOLVENCY RATIOS It’s the company’s ability to meet its long term obligations. Also called the capital

structure it is one of the major financing decisions for the company. A proper mix of debt

and equity is said to be always beneficial for the company rather than pure equity.

Existence of debt disciplines the management to some extent.


43

7.2.1 Debt Ratio Debt Ratio = Debt / Total Assets

This ratio shows how much the business is in debt, making it a good way to check the

business’s long-term solvency. The lower the debt ratio, the less total debt the business

has in comparison to its asset base. On the other hand, businesses with high debt ratios

are in danger of becoming insolvent and/or going bankrupt.

Debt Ratios

00.050.1

0.150.2

0.250.3

0.350.4

2003-2004 2004-2005 2005-2006 2006-2007

Period

Deb

t Rat

io Bharti Airtel LtdVSNLBSNL

Debt Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 0.01 0.02 0.03

BSNL 0.14 0.11 0.08 NA

The Debt ratio of Bharti Airtel Ltd is higher as compared to VSNL and BSNL but it has a

decreasing trend over the past 3 years and is at a healthy level.

7.2.2 Equity Ratio Equity Ratio = Equity / Total Assets

It helps in determining the extent of funding from equity channel.

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Equity Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 0.75 0.75 0.75

BSNL 0.66 0.69 0.7 NA

Bharti Airtel Ltd uses a good mix of Reserves, Equities and Debts to fund its business.

7.2.3 Debt to Equity Ratio Debt to Equity Ratio = Debt / Equity

The debt to equity ratio is a financial ratio indicating the relative proportion of equity and

debt used to finance a company's assets. It is considered to be a good practice to use both

Debt (financial leverage) and Equities to finance the assets.


45

Debt Equity Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 0.01 0.03 0.04

BSNL 0.21 0.16 0.11 NA

Bharti Airtel Ltd has reduced the Debt to Equity ratio consistently. This is because of the

company is reinvesting the Profits into the business. This shows the strong confidence on

the future outlook of the business.

7.2.4 Interest Coverage Ratio Interest Coverage Ratio = PBIT / Interest Expense

A ratio used to determine how easily a company can pay interest on outstanding debt.

The lower the ratio, the more the company is burdened by debt expense. When a

company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may

be questionable. An interest coverage ratio below 1 indicates the company is not

generating sufficient revenues to satisfy interest expenses.


46

Interest Coverage Ratio 2003-2004 2004-2005 2005-2006 2006-2007


BSNL 10.29 271.4 8.75 NA

The Interest Coverage Ratio of VSNL is not shown because its interest expense is very

low as compared to its PBIT. Bharti Airtel Ltd has healthy Interest Coverage Ratio

because of increased profits.

7.2.5 Debt Service Coverage Ratio DSCR = PBIT / Total Debt Service

It is the amount of cash flow available to meet annual interest and principal payments on

debt. Debt service coverage ratio is used by financial lenders as a rule of thumb to give a

preliminary assessment of whether a potential borrower is already in too much debt.

More specifically, this ratio shows the proportion of income that is already spent on loan

service payments.

DSCR 2004-2005 2005-2006 2006-2007

Bharti Airtel Ltd 1.16 0.68 0.91

VSNL 16.72 5.21 7.35

DSCR of BSNL could not be calculated since the loan repayments were not available.

DSCR of Bharti Airtel Ltd is low because of the high loan repayments. The Long term

loans are increasing every year and are being used for funding expansion plans. There is

consequently a higher repayment of loans every year.


47

7.3 PROFITABILITY RATIOS

Profitability ratios are used to analyse the profitability of the company. Different

stakeholders will have different perspective on the profitability ratios.

Shareholders: They may be concerned about the ability of the company to maintain and

improve the value of their investments. They look to the company to generate sufficient

profits for dividend payments and increase in market value of the shares they own.

Lenders: They will be interested to see whether the company has the ability to pay the

interests of the debts.

Management and employees: They will be interested in knowing the performance of the

company and its future outlook and profitability gives a good idea about the same.

7.3.1 Gross Profit (PBDITA) / Sales Ratio Gross Profit / Sales = Profit before Depreciation Interest Tax and Amortisation / Sales

This ratio helps in determining extent to which the sales are greater than the operating

expenses.

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Gross Profit/Sales Ratio 2003-2004 2004-2005 2005-2006 2006-2007

Bharti Airtel Ltd - 35.62% 34.93% 37.65%

VSNL - 33.46% 26.13% 26.11%

BSNL 55.89% 48.70% 47.08% NA

The gross profit for Bharti Airtel Ltd has improved as compared to the last year. The

profitability is extremely good as it is sustained with growing sales.

7.3.2 Operating Profit (PBIT) / Sales Ratio Operating profit / Sales = Profit before Interest Tax / Sales

Operating profit is obtained by deducting the Depreciation and Amortisation from Gross

profit.

Operating Profit / Sales Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 27.17% 17.17% 16.91%

BSNL 26.78% 22.03% 23.74% NA


49

The Operating profit of Bharti Airtel has improved over last years. The depreciation has

more than doubled over last 2 years because of increase in Assets but the sales has

increase in sales has ensured a healthy profit.

7.3.3 Net Profit (PAT) / Sales Ratio Net Profit / Sales = Profit After Tax / Ratio

Net profit is obtained by deducting the Tax from the operating profit. This is finally the

profit that the company gets to earn after incurring all kinds of expenses.

PAT/Sales Ratios

0

0.05

0.1

0.15

0.2

0.25

0.3

2003-2004 2004-2005 2005-2006 2006-2007

Period

PAT

/Sal

es R

atio


Net Profit / Sales Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 19.50% 11.96% 11.01%

BSNL 17.62% 28.22% 22.25% NA

The PAT of Bharti Airtel Ltd has significantly improved in the last year. This is

significant especially when the call tariffs are reducing. Increase in sales is the main

contributing factor for increase in profits.


50

7.4 RETURN ON INVESTMENT Return on Investment shows the profits earned from investments in different perspective

like Networth, Capital employed and Total assets.

7.4.1 RONW RONW = PAT / (Capital + Reserve)

This is the best measure of profitability to evaluate overall return. This ratio measures

return relative to investment in the company. Return on Net Worth indicates how well a

company leverages the investment in it.

RONW 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 13.00% 8.00% 7.00%

BSNL 9.00% 14.00% 11.00% NA

RONW for Bharti Airtel Ltd. is much higher as compared to its competitors. This is

mainly because the company finances its future investments from its own profits and the

PAT has increased by 233% over last 2 years.

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7.4.2 ROCE ROCE = PBIT / (Capital + Reserve + Long Term Liability)

ROCE should always be higher than the rate at which the company borrows, otherwise

any increase in borrowing will reduce shareholders' earnings.

ROCE

0

0.05

0.1

0.15

0.2

0.25

0.3

2003-2004 2004-2005 2005-2006 2006-2007

Period

RO

CE


ROCE 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 18.00% 11.00% 11.00%

BSNL 12.00% 9.00% 11.00% NA

Bharti Airtel Ltd’s ROCE is much higher than the borrowing rate which is around 10%.

So the shareholders’ earnings are not reduced.

7.4.3 ROTA ROTA = PBIT / Total Assets

A ratio that measures a company's profits before interest and taxes (PBIT) against its total

assets. The ratio is considered an indicator of how effectively a company is using its

assets to generate earnings before contractual obligations must be paid.

The greater a company's profits in proportion to its assets, the more effectively that

company is said to be using its assets.

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ROTA

00.020.040.060.080.1

0.120.140.160.18

2003-2004 2004-2005 2005-2006 2006-2007

Period

RO

TA


ROTA 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 0.14 0.09 0.08

BSNL 0.09 0.07 0.08 NA

Bharti Airtel has the highest ROTA as compared to its competitors which indicates that it

uses its assets most efficiently. Another positive is that it’s constantly in an increasing

trend.

7.4.4 EPS EPS = PAT / No of shares

The portion of a company's profit allocated to each outstanding share of common stock.

EPS serves as an indicator of a company's profitability.

Earnings per share is generally considered to be the single most important variable in

determining a share's price.

An important aspect of EPS is that the capital that is required to generate the earnings

(net income) in the calculation is often ignored. Two companies could generate the same

EPS number, but one could do so with less equity (investment) - that company would be


53

more efficient at using its capital to generate income and, all other things being equal,

would be a "better" company. Investors also need to be aware of earnings manipulation

that will affect the quality of the earnings number. It is therefore important not to rely on

any one financial measure, but to use it in conjunction with statement analysis and other

measures.

Earnings per Share

0

5

10

15

20

25

30

2003-2004 2004-2005 2005-2006 2006-2007

Period

Earn

ings

per

Sha

re (R

s)


EPS 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 26.54 16.83 16.44

BSNL 4.78 8.15 7.15 NA

The EPS for Bharti Airtel Ltd has significantly increased as compared to the last year.

This is because of the doubling of the profits in just 1 year. Since ROTA of Bharti Airtel

Ltd is also higher as compared to its competitors so it is most efficient and profitable of

the three companies.

7.5 EFFICIENCY RATIOS

7.5.1 Total Assets Turnover Ratio Total Assets Turnover Ratio = Sales / Total Assets

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This ratio tells us how efficiently the company uses its assets to generate sales.

Total Assets Turnover Ratios

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2003-2004 2004-2005 2005-2006 2006-2007

Period

Tota

l Ass

ets

Turn

over

Rat

io


Total Assets Turnover Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 0.51 0.5 0.5

BSNL 0.35 0.34 0.35 NA

The above ratios indicate that Bharti Airtel Ltd is the most efficient in generating sales.

This ratio has consistently increased over the last 3 years.

7.5.2 Debt Turnover Ratio Debt Turnover Ratio = Sales / Debt

This ratio would be of greater significance to the lenders as it indicates how sales of a

company against the debts.


55

Debt Turnover Ratios

05

1015202530354045

2003-2004 2004-2005 2005-2006 2006-2007

Period

Deb

t Tur

nove

r Rat

io


Debt Turnover Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 38.92 23.13 15.8

BSNL 2.6 3.2 4.47 NA

Bharti Airtel Ltd has been able to increase its Debt Turnover ratio due to sharp increase

in its sales as compared to its borrowings.

7.5.3 Fixed Asset Turnover Fixed Asset Turnover Ratio = Sales / Fixed Assets

This ratio gives an indication of how efficiently a company uses its fixed assets in doing

its business.


56

Fixed Assets Turnover Ratios

00.20.40.60.8

11.21.41.6

2003-2004 2004-2005 2005-2006 2006-2007

Period

Fixe

d A

sset

s Tu

rnov

er R

atio


Fixed Assets Turnover Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 1.36 1.27 1.22

BSNL 0.49 0.54 0.63 NA

Bharti Airtel Ltd has improved its Fixed Turnover ratio primarily by increasing its sales

as compared to the increase in Fixed assets. It’s more efficient in utilizing its Fixed assets

than BSNL but less as compared to VSNL.

7.5.4 Current Asset Turnover Current Asset Turnover = Sales / Current Assets


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Current Assets Turnover Ratios

00.5

11.5

22.5

33.5

44.5

2003-2004 2004-2005 2005-2006 2006-2007

Period

Cur

rent

Ass

ets

Turn

over

R

atio


Current Assets Turnover Ratio 2003-2004 2004-2005 2005-2006 2006-2007

Bharti Airtel Ltd - 2.61 3.81 4

VSNL - 1.09 1.66 1.84

BSNL 1.24 0.92 0.8 NA

7.5.5 Inventory Turnover Inventory Turnover = Sales / Inventory

This financial ratio measures the number of times inventory is turned over during the

year. High inventory turnover suggests good levels of liquidity. Conversely it can

indicate a shortage of needed inventory for sales. Low inventory turnover can indicate

poor liquidity, overstocking, or, more optimistically, a planned inventory buildup.


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Inventory Turnover Ratios

0

500

1000

1500

2000

2500

2003-2004 2004-2005 2005-2006 2006-2007

Period

Inve

ntor

y Tu

rnov

er R

atio


Inventory Turnover Ratio 2003-2004 2004-2005 2005-2006 2006-2007


VSNL - 1974.03 1055.19 901.27

BSNL 14.47 16.07 14.4 NA

Since the three companies are in Telecom Service providers so they do not maintain a

high inventory. This is the reason why the inventory ratios are very high for Bharti Airtel

Ltd and VSNL.


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8. DUPONT ANALYSIS

Financial statement analysis is employed for a variety of reasons. Outside investors are

seeking information as to the long run viability of a business and its prospects for

providing an adequate return in consideration of the risks being taken. Creditors desire to

know whether a potential borrower or customer can service loans being made. Internal

analysts and management utilize financial statement analysis as a means to monitor the

outcome of policy decisions, predict future performance targets, develop investment

strategies, and assess capital needs. As the role of the credit manager is expanded cross-

functionally, he or she may be required to answer the call to conduct financial statement

analysis under any of these circumstances. The DuPont ratio is a useful tool in providing

both an overview and a focus for such analysis

A comprehensive financial statement analysis will provide insights as to a firm's

performance and/or standing in the areas of liquidity, leverage, operating efficiency and

profitability. A complete analysis will involve both time series and cross-sectional

perspectives. Time series analysis will examine trends using the firm's own performance

as a benchmark. Cross sectional analysis will augment the process by using external

performance benchmarks for comparison purposes. Every meaningful analysis will begin

with a qualitative inquiry as to the strategy and policies of the subject company, creating

a context for the investigation. Next, goals and objectives of the analysis will be

established, providing a basis for interpreting the results. The DuPont ratio can be used as

a compass in this process by directing the analyst toward significant areas of strength and

weakness evident in the financial statements.

ROCE = (PBIT/Sales) X (Sales/Total Assets) X (Total Assets/Capital Employed)

The ratio provides measures in three of the four key areas of analysis, each representing a

compass bearing, pointing the way to the next stage of the investigation.


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8.1 THE DUPONT RATIO DECOMPOSITION

The DuPont ratio is a good place to begin a financial statement analysis because it

measures the return on investment (ROI). A for-profit business exists to create wealth for

its owner(s). ROI is, therefore, arguably the most important of the key ratios, since it

indicates the rate at which owner wealth is increasing. While the DuPont analysis is not

an adequate replacement for detailed financial analysis, it provides an excellent snapshot

and starting point, as will be seen below.

The three components of the DuPont ratio, as represented in equation (1), cover the areas

of profitability, operating efficiency and leverage (liquidity analysis needs to be

conducted separately). Thus we will examine the meaning of each of these components

by calculating and comparing the DuPont ratio using the financial statements for Bharti

Airtel Ltd. We will be doing this by employing ROCE that is Return on Capital

Employed. Then carrying out decomposition we can study the finer implications.

8.1.1 Profitability: Net Profit Margin (NPM: PBIT/Sales)

Profitability ratios measure the rate at which either sales or capital is converted into

profits at different levels of the operation. The most common are gross, operating and net

profitability, which describe performance at different activity levels. Of the three, net

profitability is the most comprehensive since it uses the bottom line net income in its

measure.

8.1.2 Operating Efficiency or Asset Utilization: Total Asset Turnover (Sales/Total Assets)

Turnover or efficiency ratios are important because they indicate how well the assets of a

firm are used to generate sales and/or cash. While profitability is important, it doesn't

always provide the complete picture of how well a company provides a product or

service. A company can be very profitable, but not too efficient. Profitability is based


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upon accounting measures of sales revenue and costs. Such measures are generated using

the matching principle of accounting, which records revenue when earned and expenses

when incurred. Hence, the gross profit margin measures the difference between sales

revenue and the cost of goods actually sold during the accounting period. The goods sold

may be entirely different from the goods produced during that same period. Goods

produced but not sold will show up as inventory assets at the end of the year. A firm with

abnormally large inventory balances is not performing effectively, and the purpose of

efficiency ratios is to reveal that fact.

The total asset turnover ratio measures the degree to which a firm generates sales with its

total asset base. As in the case of net profitability, the most comprehensive measure of

performance in this particular area is being employed in the DuPont ratio (other measures

being fixed asset turnover, working capital turnover, and inventory and receivables

turnover). It is important to use average assets in the denominator to eliminate bias in the

ratio calculation.

8.1.3 Leverage: The Leverage Multiplier (Total Assets/Capital Employed)

Leverage ratios measure the extent to which a company relies on debt financing in its

capital structure. Debt is both beneficial and costly to a firm. The cost of debt is lower

than the cost of equity, an effect which is enhanced by the tax deductibility of interest

payments in contrast to taxable dividend payments and stock repurchases. If debt

proceeds are invested in projects which return more than the cost of debt, owners keep

the residual, and hence, the return on equity is "leveraged up." The debt sword, however,

cuts both ways. Adding debt creates a fixed payment required of the firm whether or not

it is earning an operating profit, and therefore, payments may cut into the equity base.

Further, the risk of the equity position is increased by the presence of debt holders having

a superior claim to the assets of the firm.


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8.2 HIGHLIGHTS OF DUPONT ANALYSIS

Sound financial statement analysis is an integral part of the management process for any

organization. The DuPont ratio, while not the end in itself, is an excellent way to get a

quick snapshot view of the overall performance of a firm in three of the four critical areas

of ratio analysis, profitability, operating efficiency and leverage. By identifying strengths

and/or weaknesses in any of the three areas, the DuPont analysis enables the analyst to

quickly focus his or her detailed study on a particular spot, making the subsequent

inquiry both easier and more meaningful. Some caveats, however, are to be noted.

The DuPont ratio consists of very general measures, drawing from the broadest values on

the balance sheets and income statements (e.g., total assets are the broadest of asset

measures). A DuPont study is not a replacement for detailed, comprehensive analysis.

Further, there may be problems that the DuPont decomposition does not readily identify.

For example, an average outcome for net profitability may mask the existence of a low

gross margin combined with an abnormally high operating margin. Without looking at

the two detailed measures, understanding of the true performance of the firm would be

lost.

The ROCE first can be broken down into the three segments we already looked at. Then

each of these can be broken up further to study the finer details. Each component

comprises of several sub-components which give a complete holistic view of the

workings of a company comprising its investment, financing and operating decisions. A

proper decomposition is very important to actually pin-point the exact area which are out-

performing or underperforming, this analysis gives us a better idea as to where exactly is

the company lacking, is it something very superficial or fundamental. Thus all this can be

used to understand the future prospects as well its current efficiency.

Down below we have carried out the DuPont analysis for Bharti Airtel for three years.

The time-series analysis in terms of ratios has already been studied in the previous

segments, here we are focusing more on the finer implications of the ratios and seeing

how one derives from the other and finally where does it fit in the larger picture.

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Return on Capital Employed

2007

ROCE 0.28

PBIT/Sales 0.28

Sales/TA 0.66

TA/CE 1.58

COGS/Sales 0.0012

Sales/FA 0.92

Sales/CA 4

TA/OF 2.35

TA/LTL 5.05

Sales/Stock372.16

TA/Capital 13.9

Oper Exp./Sales 0.59

Salary/Sales 0.07

Sales/Debtor12.54

TA/RS 2.82

Sales/Cash22.8

Other exp/ Sales 0.52

Dep/Sales 0.130

Amort/Sales 0.010

Implications:

As we can see from the above analysis, the company has decent profitability and

efficiency figures. Also one very interesting thing to note here is that the sales turnover

with relation to stock is pretty high, that tells us that the company does not maintain very

huge inventories. Also the sales as a proportion of debtors are also quite high, that could

also mean that the company is efficient enough in collecting its debt. And a large chunk

of its sales must comprise of cash sales.

Also if we see the break-up of the Sales/TA, we figure out that the Sales as a component

of CA is almost four times as compared to that of FA. This can mean that the proportion

of CA in comparison with FA is very less, which as we have seen earlier could be

attributed to low inventories and less credit sales.


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Return on Capital Employed

2006

ROCE 0.19

PBIT/Sales 0.22

Sales/TA 0.37

TA/CE 2.46

COGS/Sales 0.006

Sales/FA 0.74

Sales/CA 3.81

TA/OF 4.13

TA/LTL 6.08

Sales/Stock636.29

TA/Capital 15.9


Salary/Sales 0.071

Sales/Debtor10.49

TA/RS 5.57

Sales/Cash36.73


Dep/Sales 0.127

Amort/Sales 0.011

Implications:

This year can be studied in relation to 2007. Doing that we note that in 2006 the sales as a

proportion of Stock was double of what it became in 2007. And the general trend of the

company, which was high reliance on current assets as compared to Fixed Assets, can be

very well traced from 2006 to 2007.


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One thing to note here is the break-up of Total-assets as a function of Owner’s Fund. We

see that the TA/Capital ratio is almost triple of the TA/RS ratio. This means that the

owner’s fund comprises mainly of profits i.e. is reserves and surplus and that the capital

is almost thrice of the total reserves.

Return On Capital Employed

2005

ROCE 0.15

PBIT/Sales 0.23

Sales/TA 0.35

TA/CE 2.18

COGS/Sales 0.0091

Sales/FA 0.74

Sales/CA 2.61

TA/OF 4.26

TA/LTL 4.45

Sales/Stock251.53

TA/Capital 12.2


Salary/Sales 0.065

Sales/Debtor11.1

TA/RS 6.55

Sales/Cash20.68


Dep/Sales 0.128

Amort/Sales 0.015

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Implications:

All the general trends which have been discussed in the DuPont Analysis of 2007 and

2006 were found to hold good for 2005 as well. Thus we can conclude that, all these have

been lasting trends and reflect the general working style of the company.

One thing we can highlight especially for this year is that, the COGS seems to form the

lowest composition of the total expenses as it has been observed that COGS as a

percentage of Sales is the least. This trend is also found in the subsequent years. We can

interpret it by having an integrated approach. If we study this ratio in relation with the

Sales/Stock ratio, we find that since the company maintains such a low inventory thus its

resulting COGS is also very small.

Also if we study the work-type of the company, it is basically a services based company,

thus it does not have a relevant COGS as part of its total expenses.


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9. CASH FLOW ANALYSIS

Cash Flow Analysis

-423.1

376.3 340.1

-2,330.3

-5,084.4

-7,975.1

3,005.94,631.3

8,107.9

-10,000.0-8,000.0

-6,000.0-4,000.0-2,000.0

0.0

2,000.04,000.06,000.0

8,000.010,000.0

2004-2005 2005-2006 2006-2007

Valu

e(in

cro

res)

CFFCFICFO

Cash Flow in 2004-2005

The cash flow due to financing activities is negative. This is primarily due to interest paid

towards short-term borrowings. On the investment front, there is a net cash outflow. This

is primarily due to purchase of investments and certain fixed assets. A small proportion is

also due to license fee paid for new circles. A small percentage was also towards

acquisition of subsidiaries. The operating activities are generating good revenues. They

are able to meet the cash outflow required by investing & financing activities.

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CFF7%

CFI40%

CFO53%

CFFCFICFO


The cash flow from financing activities becomes positive which was negative the

previous year. The biggest sucker of cash outflow was payments made towards long-term

borrowings. This was followed in close tandem by interest paid towards short-term

borrowings. There was substantial increase in investing activities. There was a quantum

jump in purchase of fixed assets. Since the company was going through a high-growth

phase huge investments were made by the company. However the company is able to

meet its financing activities with the cash generated from operating activities. This is a

good sign of the growth of the company.


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CFF4%

CFI50%

CFO46% CFF

CFICFO


The cash flow from financing activities is positive again. But the overall percentage of

financing activities as a percentage of the overall cash has fallen down. The company is

surging ahead in purchase of fixed assets. There is lot of cash outflow towards purchase

of investments. High-growth periods demand high investments which mean high cash

outflows. For meeting its investing activities the company has good operating revenues.

This enables the company to utilize its current profits towards future growth.

CFF2%

CFI49%

CFO49% CFF

CFICFO


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10. CALCULATION OF EVA

We have calculated the EVA of the company over the last 3 years. In 2006 due to the

huge surge in the stock markets the cost of equity became costly and this has led to the

negative EVA.

Rupees in '000 Rs. 2007 2006 2005 Interest rate(I) 0.0461 0.0453 0.0483Tax ratio(t) 0.1316 0.1197 0.2261-t 0.8684 0.8803 0.774

Cost of Debt,Kd=I*(1-t) 0.04 0.0399 0.0374Risk free return(Rf) 7.46% 7.46% 7.46%Beta(β) 1.09 1.09 1.09Market opening in the new financial yr 11279.96 6492.82 5590.6

Market closing in the new financial yr 13072.1 11279.96 6492.82Market Return(Rm) 0.1589 0.7373 0.1614

Cost Of Equity,Ke =Rf+β(Rm-Rf) 0.1665 0.7969 0.1692Debt 55474673 49853367 50951920Equity 114432688 73455584 53200292Capital Employed,CE 169907361 123308951 104152212WaCC 0.1252 0.4908 0.1047Capital Charge,CC=WaCC*CE 21272401.6 60520033.15 10904736.6 PAT 40,332,265 20120794 12,106,739Interest 2558440 2,256,011 2,459,184Tax Benefits 336690.704 270044.5167 555775.584NOPAT 42,554,014 22,106,760 14,010,147EVA=NOPAT-CC 21,281,613 -38,413,273 3,105,411

Note:

Interest rate = Interest/Long-term liabilities

Tax rate= Total tax/PBT

Risk-free rate of return is the return offered for a 1 year government bond (T-Bill)

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11. CONCLUSION

Based on the detailed analysis of Indian Telecom Industry, Bharti Airtel Limited and its

competitors we conclude the following regarding the financial health of Bharti Airtel

Limited:

Growth:

The company’s sales have grown over 70% CAGR in the last 2 years. It stands at Rs

17,794 Crores in 2007 up from Rs 7,944 Crores in 2005. Bharti Airtel Ltd is the market

leader in mobile phone services with over 22% market share in terms subscriber base.

With about 6 million mobile subscribers being added every month in India, the future

growth of Bharti Airtel Ltd looks very strong.

Profitability:

The PAT/Sales of the company stands at 22.67% in 2007 and has grown from 15.24% in

2005. In 2007, RONW stood at 35%, ROCE was 26% and ROTA was 16%. This

indicated the return on investment was extremely healthy. The EPS was Rs 21.27 in 2007

up from Rs 6.39 in 2005. All these parameters suggest that the company is achieving

increased levels of profitability in spite of massive growth.

Solvency:

The Debt Ratio has decreased from 0.35 in 2005 to 0.21 in 2007. The DER has also

decreased from 0.97 in 2005 to 0.49 in 2007. The Interest coverage ratio has improved

from 7.36 to 16.99 which is a positive sign. The Debt service coverage ratio however

stands at 0.91 in 2007 and needs improvement. The business expansion is being funded

more by the Profits rather than external borrowings.

Liquidity:

Liquidity is a cause of concern. Current Ratio and Liquid Ratio in 2007 stands at 0.45.


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Absolute cash ratio is much less at 0.08. However the Debtor days are 29.10 which show

the debt collection practices of Bharti Airtel Ltd is much more effective as compared to

its competitors. The low liquidity could be attributed to the fact that the company invests

heavily in growth.

Efficiency:

Total Assets Turnover Ratio has increased from 0.54 in 2005 to 0.66 in 2007. Debt

Turnover Ratio, Fixed Assets Turnover Ratio and Current Assets Turnover Ratio have all

improved and are higher as compared to its competitors. This points that Bharti Airtel

Limited is more efficient in using its resources.

Overall the company has very strong fundamentals for future performance.


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12. APPENDIX

Ratio Analysis Bharti Airtel Ltd VSNL BSNL 2005 2006 2007 2005 2006 2007 2004 2005 2006Current Ratio 0.7 0.44 0.45 1.99 1.32 1.25 1.36 1.79 2.02 Liquid Ratio 0.7 0.44 0.45 1.98 1.31 1.25 1.24 1.69 1.91 Absolute Current Ratio 0.09 0.05 0.08 0.08 0.06 0.14 0.58 1 1.22 Inventory Days 159.88 96.09 790.24 NA NA NA NA NA NA Debtor Days 32.89 34.79 29.1 57.3 67.14 81.96 42.82 67.12 57.25 Creditor Days 40.31 82.98 133.2 NA NA NA NA NA NA WorkingCapital Days 152.46 47.9 686.14 NA NA NA NA NA NA Debt Ratio 0.35 0.26 0.21 0.01 0.02 0.03 0.14 0.11 0.08 Equity Ratio 0.36 0.39 0.43 0.75 0.75 0.75 0.66 0.69 0.7 Debt Equity Ratio 0.97 0.67 0.49 0.01 0.03 0.04 0.21 0.16 0.11 Interest Coverage Ratio 7.36 11.13 16.99 28798.33 382.51 104.13 10.29 271.4 8.75 Debt Service Ratio 1.16 0.68 0.91 16.72 5.21 7.35 NA NA NA Operating Profit/Sales (%) 35.62% 34.93% 37.65% 33.46% 26.13% 26.11% 55.89% 48.70% 47.08%PBIT/Sales (%) 22.79% 22.24% 24.42% 27.17% 17.17% 16.91% 26.78% 22.03% 23.74%PBDITA/Sales (%) 35.62% 34.93% 37.65% 33.46% 26.13% 26.11% 55.89% 48.70% 47.08%PAT/Sales (%) 15.24% 17.82% 22.67% 19.50% 11.96% 11.01% 17.62% 28.22% 22.25%Depreciation/Sales (%) 12.83% 12.69% 13.22% 6.29% 8.96% 9.20% 29.11% 26.67% 23.34%Interest/Sales (%) 3.10% 2.00% 1.44% 0.00% 0.04% 0.16% 2.60% 0.08% 2.71% PBIT/TA 0.12 0.13 0.16 0.14 0.09 0.08 0.09 0.07 0.08 PBIT/CE 0.17 0.2 0.26 0.18 0.11 0.11 0.12 0.09 0.11 PAT/OF 0.23 0.27 0.35 0.13 0.08 0.07 0.09 0.14 0.11 PAT/no of shares 6.39 10.61 21.27 26.54 16.83 16.44 4.78 8.15 7.15 Price to Earning Ratio 114.41 38.9 9.72 7.05 28.04 24.42 NA NA NA Market Value/Book ValueRatio 12.05 10.62 7.21 0.93 2.22 1.8 5.12 2.7 0.28 CFO/Total Cash Generated during the year 11.9 -60.38 17.14 1.69 45.34 -3.95 1.72 1.68 2.16 CFF/TCG -1.68 -4.91 0.72 -1.08 -4.35 0.37 -0.09 -0.06 -0.41 CFI/TCG -9.23 66.28 -16.86 0.4 -39.99 4.58 -0.63 -0.62 -0.75 CFO/PBIT 1.66 1.84 1.87 0.31 1.47 0.78 1.53 2.2 1.96

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Ratio Analysis Bharti Airtel Ltd VSNL BSNL 2005 2006 2007 2005 2006 2007 2004 2005 2006FixedAsset/Total Assets 0.73 0.81 0.81 0.38 0.39 0.41 0.71 0.63 0.56 Current Assets/Total Assets 0.21 0.16 0.17 0.47 0.3 0.27 0.28 0.37 0.44 Investment/Total Assets 0.06 0.04 0.03 0.16 0.31 0.32 0.002 0.002 0.002 Capital /Total Assets 0.13 0.1 0.07 0.04 0.04 0.03 0.13 0.12 0.11 Reserves/Total Assets 0.24 0.29 0.35 0.71 0.72 0.72 0.53 0.57 0.59 LTL/Total Assets 0.35 0.26 0.21 0.01 0.02 0.03 0.14 0.11 0.08 CL/Total Assets 0.29 0.35 0.37 0.24 0.23 0.22 0.21 0.21 0.22 ROCE (Dupont Ratios) PBIT/CE 0.17 0.2 0.26 0.18 0.11 0.11 0.12 0.09 0.11 PBIT/Sales 0.2 0.2 0.26 0.27 0.17 0.17 0.27 0.22 0.21 Sales/TA 0.54 0.59 0.66 0.51 0.5 0.5 0.35 0.34 0.35 TA/CE 1.41 1.54 1.58 1.31 1.29 1.28 1.26 1.26 1.28 Debt Turnover Ratio 1.56 2.26 3.21 38.92 23.13 15.8 2.6 3.2 4.47FA Turnover Ratio 0.74 0.74 0.82 1.36 1.27 1.22 0.49 0.54 0.63CA Turnover Ratio 2.61 3.81 4 1.09 1.66 1.84 1.24 0.92 0.8Inventory Turnover Ratio 251.53 636.29 372.16 1974.03 1055.19 901.27 14.47 16.07 14.4

Note : COGS for BSNL and VSNL is not available. So Inventory Days, Creditor Days and Working Capital Days could not be calculated

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13. REFERENCES 1. http://www.airtelworld.com 2. http://www.bsnl.co.in/index.html 3. http://www.vsnl.in/index.php 4. http://www.bseindia.com 5. http://www.rbi.org.in/home.aspx 6. http://www.myiris.com/newMyiris/ 7. http://www.dot.gov.in/ 8. http://www.aptsec.org/meetings/2002/forum/TPR16-IND.ppt 9. http://findarticles.com/p/articles/mi_qa3857/is_199804/ai_n8799612 10. http://www.investopedia.com/ 11. http://www.domain-b.com/ 12. http://ibef.org/download/Telecom_new.ppt

http://www.airtelworld.com/

http://www.bsnl.co.in/index.html

http://www.vsnl.in/index.php

http://www.bseindia.com/

http://www.rbi.org.in/home.aspx

http://www.myiris.com/newMyiris/

http://www.dot.gov.in/

http://www.aptsec.org/meetings/2002/forum/TPR16-IND.ppt

http://findarticles.com/p/articles/mi_qa3857/is_199804/ai_n8799612

http://www.investopedia.com/

http://www.domain-b.com/

http://ibef.org/download/Telecom_new.ppt

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