Project Report on Telecom companies by Puneet Jain 082 MBA DIAS

7/30/2019 Project Report on Telecom companies by Puneet Jain 082 MBA DIAS

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PROJECT REPORT ON FINANCIAL COMPARISON OF BSNL WITH OTHER MAJOR PLAYERS IN THE INDUSTRY A Report submitted in partial fulfillment of requirements for Master inBusiness Administration, GGSIPU Training Period: June-July, 2009 Submitted By: PUNEET JAIN Enroll. No. 0821233908 Summer Training Project Report

UNDER THE GUIDANCE OF Internal Guide: Mrs. Haritika Chhatwal (Faculty) DIAS (GGSIPU) External Guide:Mr. Raj Pal Nanda C.A.O (NTR region) BSNL

DELHI INSTITUTE OF ADVANCE STUDIES (APPROVED BY AICTE, HRD MINISTRY, GOVT. OF INDIA) AFFILIATED TO GURU GOBIND SINGH INDRAPRASTHA U N IV E R SIT Y , D E L H I PLOT NUMBER- 6, SECTOR- 25, ROHINI, DELHI- 110085


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STUDENT UNDERTAKING

I, Puneet Jain hereby declares that the project report Financial comparison of BSNL with other Major players in telecom industry assigned to me at BSNL during mytraining session for the partial fulfillment of MBA degree from DELHI INSTITUTEOF ADVANCE STUDIES, affiliated to IP UNIVERSITY is the original work of me and the information provided by me is authentic and true to the best of my knowledge.

This project work has not been submitted by anyone to any other institution or university for the award of MBA or any other degree.

PUNEET JAIN(MBA III SEMESTER)


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AcknowledgementThe success of any project study depends upon a number of factors among which the proper guidance from the experts in the industry and a faculty plays an important role.

I take this opportunity to convey my sincere thanks and gratitude to all those who have directly or indirectly helped and contributed towards the completion ofthis project.

I take here a great opportunity to express my sincere and deep sense of gratitude to Lecturer Mrs. Hartika Chhatwal , for giving us an opportunity to work on this project. The support & guidance from madam, was of great help & it was extremely valuable. I would like to express my gratitude to madam for her constant support and encouragement.

I take this platform to convey my gratitude to the officials of BSNL for their prompt response and guidance. I would like to express my gratitude to Mr. Raj PalNanda (Chief Accounts Officer, TR Section, Finance) for his constant support and encouragement. Without his outright support and prompt response, it would notbe possible to do any justice as well as bring authenticity to the project.

Puneet Jain


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Executive SummaryThis is a brief report of eight weeks Summer Internship project titled FinancialComparison of BSNL with Other major players in Telecom Industry conducted in Northern Telecom Region, Eastern Court, and BSNL. This report examines the analysisof the statement like Balance sheets and Profit and Loss A/c of past five yearsto know the performance of the company in comparison with other players in the industry.

Data of BSNL is collected from the companys annual reports and the data of otherplayers like Airtel, Idea, TATA and MTNL is searched on their websites. Then data of all these companies are arranged in the uniform manner so that financial factors can be drawn out easily.

With the help of theoretical knowledge on the part of ratios and cash flow, allthe relevant ratios of each and every company for past five years have been founded. With the help of regression analysis projected performance of various companies for 2009-10 have been forecasted. After a thorough study and discussion with the companys professional, comments were taken so that Interpretation of theseratios became easy and accurate.

After analyzing the project, it can be concluded that despite of having good liquid assets BSNL is having weak financial position as compared to any other private player in the industry. Companys performance have been deteriorated over the years and if the trend remains continue than it have been projected that company

will have to suffer net losses in the upcoming year 2009-10. So, it is high timefor the company to take some strict measure to meet the intense competitive industry. Hence it have been advised for the company to use cost cutting like voluntary retirement of useless chunk employees as it is having highest no. of useless employees and having golden handshake with the highly intellectual professionals in the industry especially form Bharti Airtel. Similarly various other recommendations have been given in the project.


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TABLE OF CONTENTS. No. Chapter 1 Particulars Research Study 1.1 Objectives of Study 1.2 ResearchMethodology 1.2.1 Research Design 1.2.2 Data collection Company Profile 2.1 Industry Profile 2.2 Company Profile (BSNL) 2.2.1 Board of Directors 2.2.2 Basic Service offered 2.2.3 Organisation Structure 2.2.4 Accounting Policies of 2.3 Competitors Profile 2.3.1 Bharti Airtel 2.3.2 Reliance Comm 2.3.3 Vodafone 2.3.4 IdeaCellular 2.3.5 Aircel 2.3.6 MTNL 2.3.7 BPL Mobile 2.3.8 HFCL Infotel LiteratureReview Conceptual Framework 4.1 Essentials of Financial Statement 4.2 Parties Interested 4.3 Tools of Financial Analysis 4.3.1 Ratio Analysis 4.3.2 Cash Flow Statements Finding And Analysis 5.1 Current Ratio 5.2 Earning Per Share 5.3 Debtor Turnover Ratio

Chapter 2

Chapter 3 Chapter 4

Chapter 5


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5.4 5.5 5.6 5.7 5.8

Debt Equity Ratio Return on Capital Employed Price Earning Ratio Net Profit Margin Ratio Analysis of Cash Flows 5.8.1 Net Cash From operating Activities 5.8.2 Net Cash Used in Investing Activities 5.8.3 Net Cash Used in Financing Activities

Chapter 6

Conclusion 6.1 Conclusion 6.2 Suggestions Limitations Bibliography Annexure BSNLP&L (5 Years) BSNL Balance Sheet (5 Years) BSNL Cash Flows (5 Years) Bharti Airtel Balance Sheet (5 Years) Bharti Airtel P&L (5 Years) Bharti Airtel Cash Flows(5 Years) MTNL Balance Sheet (4 Years) MTNL P&L (4 Years) MTNL Cash Flows (4 Years) Idea Balance Sheet (4 Years) Idea P&L (4 Years) Idea Cash Flows (3 Years) Tata Comm P&L (5 Years) Tata Comm Balance Sheet (5 Years) Tata Comm Cash Flows (5Years) Miscellaneous

Chapter 7 Chapter 8 Chapter 9

Chapter 10


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Chapter 1

RESEARCH STUDY


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1.1

OBJECTIVES OF THE STUDY

The basic objective of doing the project is to : Analyze the financial statements of past 5 years of BSNL and Other major competitors in the telecom industry. Predict the performance in next year (2009-10) on the basis of last 5 year performance. Describe the trends of various financial factors of BSNL over past 5 years. Studying the relationship among the various financial factors as disclosed inthe financial statements of various companies in the Indian telecomm Industry.Minor objectives are: 1. Know the Financial Position: The basic objective of studying the Financial statements of the company is to know the financial positionof the company.

2. Help in planning: Financial Analysis helps in planning and forecasting. Overa period of time, a firm or industry develops certain norms that indicate futuresuccess & failure.

3. Inter- Intra firm Comparison: Ratio Analysis provides the data for inter-firmcomparison as well as intra firm comparison. Ratios highlight the factors associated with successful and unsuccessful firms. They also reveal attractiveness and unattractiveness of the firm in the industry, over-valued and under-valued firms.


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1.2

RESEARCH METHODOLOGY

Methodology is the basic framework and the approach that has to be followed to carry out the approach used to collect the data, the sources of primary data, i.e., from where and how it has been collected. Research is a diligent and systematic inquiry or investigation into a subject in order to discover or revise facts,theories, applications etc. Methodology is system of methods followed by particular discipline. Thus, Research Methodology is the way how we conduct our research.

In the present project report type of research conducted is Quantitative research. Exploratory research is undertaken which involves extensive scanning of secondary data. For my project most of the finance related books have been considered. The best websites are considered which gives all the efficient and effectiveinformation. References for the project are from the websites and books and thecompanys annual reports. It is assured that the project has been completed with full dedication, sincerity and required intensity of hard work.

1.2.1 RESEARCH DESIGNIt helps to tackle the problem of bringing various phases of research under control. The research design helps to design the decision with respect to: Whatof data is needed? From where data can be found? What period of time study incl

ude? How much material will be needed? What technique of gathering data will beadopted? How will data be analyzed?

Generally three types of research are included in research design. These are asfollows:


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Exploratory research Descriptive and diagnostic research Experimental research In the present project report both primary and secondary data is taken so descriptive and exploratory research is done. This research focuses on discovery of insights and relationships among various financial factors among various companies.Companies which are taken as a sample of Indian Telecom Industry is based on themarket share.2 from the Top five companies and 2 from the Bottom five companies(Ratings have been provided to 10 companies in the telecom industry according to their respective market share )have been considered for comparison with BSNL.

1.2.2 DATA COLLECTIONSources of secondary data are (a) Authenticated companys website on Internet. (b)Annual reports provided by BSNL,Bharti Airtel and MTNL of financial year 2004-05, 2005-06, 2006-07, 2007-08, 2008-09.


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Chapter 2

COMPANY PROFILE


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2.1

INDUSTRY PROFILE

Today the Indian telecommunications network with over 375 Million subscribers issecond 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 hasbeen able to provide state of the art world-class infrastructure at globally competitive tariffs and reduce the digital divide by extending connectivity to theunconnected 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 telecom sector.

The thrust areas presently are: 1. Building a modern and efficient infrastructure ensuring greater competitive environment 2. With equal opportunities and levelplaying field for all stakeholders. 3. Strengthening research and development for manufacturing, value added services. 4. Efficient and transparent spectrum management 5. To accelerate broadband penetration 6. Universal service to all unco

vered areas including rural areas. 7. Enabling Indian telecom companies to become global players.

Recent things to watch in Indian telecom sector are: 1. 3G and BWA auctions 2. MVNO 3. Mobile Number Portability 4. New Policy for Value Added Services


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5. Market dynamics once the recently licensed new telecom operators start rolling out 6. Services. 7. Increased thrust on telecom equipment manufacturing and exports. 8. Reduction in Mobile Termination Charges as the cost per line has substantially reduced 9. 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 ofstructuring the economy in the capitalistic pattern. Removal of restrictions onforeign 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 Indiasetting up the Telecom Regulatory Authority of India, and measures to allow newplayers country, the featured products in the segment came in to prominence. Today the industry offers services such as fixed landlines, WLL, GSM mobiles, CDMAand IP services to customers. Increasing competition among players allowed theprices 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 smallshopkeepers and factory workers a phone connection is not an unreachable luxury.Major players in the sector are BSNL, MTNL, Bharti Teleservices, Hutchison Essar, BPL, Tata, Idea, etc. 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 gonethrough many phases of growth and diversification. Starting from telegraphic and telephonic systems in the 19th century, the field of telephonic communicationhas now expanded to


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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.

TELECOM SUBSCRIBER BASE IN INDIAIndian telecommunication Industry is one of the fastest growing telecom market in the world. The mobile sector has grown from around 10 million subscribers in 2002 to reach 150 million by early 2007 registering an average growth of over 90%. The two major reasons that have fuelled this growth are low tariffs coupled with falling handset prices.

Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance Communication. However, across the globe, CDMA has been loosing out numbersto popular GSM technology, contrary to the scenario in India.

The other reason that has tremendously helped the telecom Industry is the regulatory changes and reforms that have been pushed for last 10 years by successive Indian governments. According to Telecom Regulatory Authority of India (TRAI) therate of market expansion would increase with further regulatory and structuralreforms. Even though the fixed line market share has been dropping consistently,the overall (fixed and mobile) subscribers have risen to more than 200 millionby first quarter of 2007. The telecom reforms have allowed the foreign telecommunication companies to enter Indian market which has still got huge potential. In

ternational telecom companies like Vodafone have made entry into Indian market in a big way. Currently the Indian Telecommunication market is valued at around $100 billion (Rupees 400,000 crore). Two telecom players dominate this market - Bharti Airtel with 27% market share and Reliance Communication with 20% along with other players like BSNL


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(Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that has beenpuzzling is broadband Internet. Despite the manner in which the countrys Internet market has been booming, Indias move into high-speed broadband Internet accesshas been distinctly slow. And, while there appears to be considerable enthusiasmamongst the population for the Internet itself, this has not been reflected inbroadband subscription numbers. In 2006 India witnessed a good surge in broadband users with the total subscriber base in the country expanding by almost 200% to just over 2 million by years end. Despite this surge, broadband penetration inIndia still remains around only 0.2%; broadband services still account for only25% of the total Internet subscriber base, still in itself comparatively low. So, if 70% of total population is rural, the scope for growth in this Industry isunprecedented. The Ministry of Communications and Information Technology (MCIT)is has very aggressive plans to increase the pace of growth, targeting 250 million telephone subscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers is set to occur in rural India. Indias rural telephone density has been languishing at around 1.9%. The subscriber addition rate has been strong in the last 12 months but the regulatory developments will increase competition and thus curtail the long-term growth rates of individual companies. The savings through the setting of tower companies will partly go towards the higher capex and opex costs from more stringent spectrum allocation norms for the incumbents. The Telecommunications sector has been consistently adding more than 7 million subscribers for the last 6 months, a very healthy net addition rate infact.All the private operators GSM as well as the CDMA operators have been very consistent in their performance. The sector provides very strong revenue as well as e

arnings visibility over the next 12 months. However the recent regulatory developments are seem to be negative for the telecom companies as it will increase thenumber operators per circle which will intensify competition.


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PSU Operators Subscriber Base

Private Operators Subscribers Base


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ahead of its rivals, with 35.1 million Basic Phone subscribers i.e. 85 per centshare of the subscriber base and 92 percent share in revenue terms. BSNL has more than 2.5 million WLL subscribers and 2.5 million Internet Customers who accessInternet through various modes viz. Dial-up, Leased Line, DIAS, Account Less Internet (CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country. BSNLhas set up a world class multi-gigabit, multi-protocol convergent IP infrastructure that provides convergent services like voice, data and video through the same Backbone and Broadband Access Network. At present there are 0.6 million DataOne broadband customers.

2.2.1 BOARD OF DIRECTORSCorporate structure of BSNL Board consists of CMD & Five full time Directors, Human Resource (HR), Consumer Mobility, Consumer Fixed Access, Finance, Enterprise, who manage the entire gamut of BSNL operations. There are five other Directorsin the full Board of BSNL. Board of Directors Shri Kuldeep Goyal Shri S.D. Saxena Shri Rajesh Wadhwa Designation CMD Director (Finance) Director (CFA) Shri R.K.Aggarwal Shri Rajendra Singh Shri Gopal Das Shri J.S.Deepak (I.A.S.) Director -Consumer Mobility (CM) Director - Enterprise Director (HR) Govt. Director Consumer Fixed Access


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2.2.2 Basic Services offered by the BSNLThe Basic telephone Services offered by the BSNL are:

1. Internet: Keeping the global network networked, the countrywide Internet Services of BSNL includes Internet dial up/Leased Access service, for web browsing and E-mail Applications.

2. ISDN: Integrated Service Digital Network Service of BSNL utilizes a unique digital network providing high speed and high quality voice, data and image transfer over the same line. It can facilitate both desktop video & high quality videoconferencing.

3. Intelligent Network Service: Intelligent Network Service (In service) offersvarious value-added services such as: - Free Phone Services (FPH) - India Telephone Card (Prepaid Card) - Account Card Calling (ACC) - Virtual Private Network (VPN) - Tele-voting - Premium Rate Service (PRM) - Universal Access Number (UAN)

4.

Sulabh: It is the best available incoming-only plan. If anyone require the landline b-fone predominantly for receiving incoming calls only, BSNL brings you Sulabh Plan. The rentals in this plan are extremely low. If you desire to make outgoing calls, this facility can also be given separately (or one can also use ITC Cards with Sulabh Plan). These plans are now very popular.


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5. WLL (Wireless Land Line): There are two versions of WLL. These are explainedas follows:

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WLL Fixed (FWT): It is the Fixed Wireless Transmission. In this case, there is asmall box fitted with a small antenna at ones premises and a normal telephone instrument is connected to the box. There is no Telephone copper wire connection as in the conventional telephone.

-

WLL Mobile: In this case, Subscriber can carry a small handset of CDMA technology. There is no antenna or any other equipment at your premises. Branded as Tarang, this is the most reliable and affordable service giving ones the best of bothfixed line & mobile telephone.

6. Mobile Services: BSNLs Cellular Service is the Indias growing Cellular Service.BSNLs Cellular Service has taken the cellular telephone to the masses through innovative technology and strategic pricing. This ambitious service uses state-of-the-art GSM technology to attain global excellence and leadership. BSNLs entry into this sector has brought GSM cellular service at an affordable cost to the common man. Customers have respond tremendous faith in BSNL and it has enrolled over 1.07 crores Cellular customers.

7. BSNL Internet Service: BSNL, Indias no.1, Internet Service Provider, providesInternet service throughout the country (except Delhi and Mumbai). Sancharnet Card: BSNL has also launched Internet Card. This card is a prepaid Internet AccessCard.

8. BSNL Broadband: The Broadband service from BSNL is widely used by almost allthe companies of India.


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2.2.3 Organizational Structure of BSNL


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f) Wherever there is uncertainty in realization of income, such as liquidated damages, claims on Government Departments & local authorities etc., these are recognized on collection basis.

3. FIXED ASSETS 3.1 Fixed assets are carried at cost less depreciation. Cost includes directly related establishment and other expenses including employee remuneration and benefits, directly identifiable to the construction or creation of the assets.

3.2 Expenditure on replacement of assets, equipments, instruments and rehabilitation works is capitalized if, in the opinion of the management, it results in enhancement of revenue generating capacity. 3.3 Assets are capitalized to the extent completion certificates have been obtained, wherever applicable. 3.4 The costof stores and materials at the time of issue to a project is debited to CWIP. 3.5Cables are capitalized as and when ready for connection to the main system. 3.6Intangible assets are stated at cost of acquiring the same less accumulated depreciation /amortization.

4. DEPRECIATION/AMORTIZATION Depreciation is provided based on the Written DownValue Method at the rates prescribed in Schedule XIV to the Companies Act, 1956except for Subscriber Installation. The Subscriber Installation is depreciated over the useful life of 5 years on Written Down Value method. Assets costing up to Rs. 5,000 are depreciated fully in the year of purchase. Similarly, partitionworks costing up to Rs. 2,00,000 are depreciated fully in the year of constructi

on. The depreciation on machinery & tools used both for project and maintenancework is charged to profit and loss account instead of capitalization. All telephone exchange buildings, administrative offices and captive consumption assembling premises/workshops are considered as normal building and not as factory building. Accordingly depreciation is charged uniformly. Intangible assets such as Entry License Fee for Telecom Service operations are amortized over the license


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period (i.e. 20 years) and standalone computer software applications are amortized over the license period subject to maximum of 10 years as per straight line method.

5. IMPAIRMENT OF ASSETS Assets, which are impaired by disuse or obsolescence, are segregated from the concerned assets category and shown as Decommissioned Assets and provision made for the loss, if any, due to the difference between their net carrying cost and the net realizable value.

6. INVESTMENTS Long-term investments are carried at cost, after providing for any diminution in value, if such diminution is of a permanent nature.

7. INVENTORIES Inventories are valued at cost or net realizable value as the case may be - cost ascertained generally on weighted average method; obsolete/non moving inventories are valued at net realizable value.

8. TAXES ON INCOME Taxes on Income for the current period are determined on thebasis of taxable income and tax credits computed in accordance with the provisions of the Income Tax Act, 1961. In accordance with the AS-22, Deferred Tax Liability is recognized on the timing differences between accounting income and the taxable income for the period taking into consideration the contents of Accounting Standard Interpretations 3 and quantified using the tax rates in force or substantively enacted as on the Balance Sheet date. Deferred Tax Assets are recognized and carried forward to the extent there is a virtual certainty that such defe

rred tax assets can be realized.

9. PROVISIONS Provisions are recognized 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.


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10. CONTINGENT LIABILITIES Liabilities, though contingent, are provided for if there are reasonable chances of maturing such liabilities as per management. Other contingent liabilities and claims, not acknowledged as debts, are disclosed byway of notes.

11. EARNING PER SHARE Earning Per Share ("EPS") comprises the Net Profit after tax (excluding extraordinary income net of tax). The number of shares used in computing Basic & Diluted EPS is the weighted average number of shares outstandingduring the year.


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2.3

COMPETITOR PROFILEMarket Share of Telecom Companies as on 31st Jan09

TOP FIVE COMPANIESThe Top five companies, on the basis of Market Share as on 31st January, 2009 are:1. Bharti Airtel Ltd. 2. Reliance Communications Ltd. 3. Vodafone Essar Ltd. 4.BSNL 5. Idea Cellular + Spice


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2.3.1 BHARTI AIRTEL LTD.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. Airtel comes from Bharti Airtel Limited, Indias 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 theforefront of technology and has steered the course of the telecom sector in thecountry with its world class products and services. The businesses at Bharti Airtel have been structured into three individual strategic business units (SBUs) -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 95 cities and has recently launched India s best Direct-to-Home (DTH) service, Airtel digital TV. 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. The company served an aggregate of 88,270,194 customers as of December 31, 2008; of whom 85,650,733 subscribed to GSM services and 2,619,461 use the Telemedia Services either for voice and/or broadband access delivered through DSL. Bharti Airtel is the largest wireless service provider in the country, based on thenumber of subscribers as of December 31, 2008. They also offer an integrated suite of telecom solutions to their enterprise customers, in addition to providinglong distance connectivity both nationally and internationally. They have recently forayed into media by launching their DTH and IPTV Services. All these servic

es are rendered under a unified brand "Airtel".


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2.3.2 RELIANCE COMMUNICATIONS LTD.Reliance Communications is the flagship company of the Anil Dhirubhai Ambani Group (ADAG) of companies. Listed on the National Stock Exchange and the Bombay Stock Exchange, it is Indias leading integrated telecommunication company with over71 million customers.

Their business encompasses a complete range of telecom services covering mobileand fixed line telephony. It includes broadband, national and international longdistance services and data services along with an exhaustive range of value-added services and applications. Our constant endeavour is to achieve customer delight by enhancing the productivity of the enterprises and individuals we serve.

Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002,coinciding with the joyous occasion of the late Dhirubhai Ambanis 70th birthday,was among the initial initiatives of Reliance Communications. It marked the auspicious beginning of Dhirubhais dream of ushering in a digital revolution in India. Today, the company can proudly claim that they were instrumental in harnessingthe true power of information and communication, by bestowing it in the hands of the common man at affordable rates.

They endeavour to further extend their efforts beyond the traditional value chain by developing and deploying complete telecom solutions for the entire spectrumof society. It was established in the year 2004 as Reliance Infrastructure Developers Private Limited, Reliance Communications started laying 60,000 route kilo

meters of a pan-India fibre optic backbone with high capacity, integrated (wireless and wireline), convergent (voice, data and video) digital network and to offer services spanning the entire infocomm value chain. It is capable of delivering a range of services spanning the entire infocomm (information and communication) value chain, including infrastructure and services for enterprises as well asindividuals, applications, and consulting.


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2.3.3 VODAFONE ESSAR LTD.Vodafone Essar in India is a subsidiary of Vodafone Group Plc and commenced operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license for Mumbai. Vodafone Essar now has operations in 22 circles with over 65.92million customers**. The company is a joint venture of Essar Communication Holdings Ltd and the UK-based Vodafone Group. Vodafone has partnered with the Essar Group as their principal joint venture partner for the Indian market. They are inthe business of cellular telephony. Over the years, Vodafone Essar, under the Hutch brand, has been named the Most Respected Telecom Company, the Best Mobile Service in the country and the Most Creative and Most Effective Advertiser of the Year.

Vodafone is the worlds leading international mobile communications company. It currently has equity interests in 27 countries across 5 continents and 40 partnernetworks with over 289 million proportionate customers worldwide. Vodafone has partnered with the Essar Group as its principal joint venture partner for the Indian market.

Essar Global Limited (EGL) is a diversified business group spanning the manufacturing and services sectors of Steel, Energy, Power, Communications, Shipping & Logistics, and Projects. The group has operations and investments in India, Canada, USA, Africa, the Middle East, the Caribbean and South East Asia and employs 30,000 people worldwide.

Vodafone Essar Ltd provides services like 2G, which are based on 1800 Mhz and 90

0Mhz GSM digital technology. They offers voice and data services. In addition, they offers postpaid connections activation, prepaid SIM cards and recharge coupons sale, service activation/deactivation, postpaid tariff plan change, customerquery resolution, prepaid/postpaid SIM card replacement and upgradation, mobilenumber change, and information on and subscription of value added services through stores.

**Figures from Cellular Operators Association of India, February 28, 2009


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2.3.4 IDEA CELLULAR LTD. + SPICEDEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange (BSE and the National Stock Exchange (NSE) in March 2007. Idea Cellular Ltd. is India s leading GSM mobile services operator. It has licenses to operate in 11 circles. The company has a customer base of over 17 million. It is the first cellular company to launch music messaging with Cellular Jockey, Background Tones, Group Talk, a voice portal with Say IDEA and a complete suite of mobile email Services.

A brand known for many firsts, Idea was the first to launch GPRS and EDGE in thecountry. Idea has received international recognition for its path-breaking innovations when it won the GSM Association Award for "Best Billing and Customer Care Solution" for 2 consecutive years.

IDEA Cellular is part of the Aditya Birla Group, India s first truly multinational corporation. The group operates in 25 countries, and is anchored by over 1,25,000 employees belonging to 25 nationalities.

The Indian telecommunications market for mobile services is divided into 22 "Service Areas" classified into "Metro", Category "A", Category "B" and Category "C"service areas by the Government of India. These classifications are based principally on a Service Area

s revenue generating potential

Customer Service and Innovation are the drivers of this Cellular Brand. A brand

known for their many firsts, IDEA is the only operator to launch General PacketRadio Service (GPRS) and EDGE in the country. IDEA has seen phenomenal growth since its inception, the company s footprint idea is to first achieve critical mass, then drill deep instead of spreading thin, however, does not increasing geographic footprint only, it also drills deep and successfully attempts to provide excellent network coverage in all its circles of operations.


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BOTTOM FIVE COMPANIESThe Bottom five companies, on the basis of Market Share as on 31st January, 2009 are: 1. Aircel Cellular Ltd. + Dishnet 2. Mahanagar Telephone Nigam Ltd. (MTNL) 3. BPL Mobile Communications Ltd. 4. HFCL Infotel Ltd. 5. Shyam Telecom Ltd.

2.3.5 AIRCEL + DISHNETThe Aircel Group is a joint venture between Maxis Communications Berhad of Malaysia and Apollo Hospital Enterprise Ltd of India, with Maxis Communications holding a majority stake of 74%.

Aircel commenced operations in 1999 and became the leading mobile operator in Tamil Nadu within 18 months. In December 2003, it launched commercially in Chennaiand quickly established itself as a market leader a position it has held since.

Aircel began its outward expansion in 2005 and met with unprecedented success inthe Eastern frontier circles. It emerged a market leader in Assam and in the North Eastern provinces within 18 months of operations. Till today, the company gained a foothold in 14 circles including Chennai, Tamil Nadu, Assam, North East,Orissa, Bihar, Jammu & Kashmir, Himachal Pradesh, West Bengal, Kolkata, Kerala,Andhra Pradesh, Karnataka and Delhi.

The Company has currently gained a momentum in the space of telecom in India post the allocation of additional spectrum by the Department of Telecom, Govt. of India for 13 new circles across India. These include Delhi (Metro), Mumbai (Metro

), Andhra Pradesh,


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Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra & Goa, Rajasthan, Punjab, UP (West) and UP (East).

Aircel has won many awards and recognitions. Voice and Data gave Aircel the highest rating for overall customer satisfaction and network quality in 2006. Aircelemerged as the top mid-size utility company in Business worlds List of Best Mid-Size Companies in 2007. Additionally, Tele.net recognized Aircel as the best regional operator in 2008.

With over 16 million customers in the country, Aircel, the fastest growing telecom company in India, has revved up plans to become a full-fledged national operator by end of 2009.

2.3.6 MTNLMahanagar Telephone Nigam Limited (MTNL) was set up in 1st April of the year 1986 by the Government of India to upgrade the quality of telecom services, expandthe telecom network, introduce new services and to raise revenue for telecom development needs of India

s key metros, Delhi (the political capital) and Mumbai (the business capital of India). The company has also been in the forefront of technology induction by converting 100% of its telephone exchange network into thestate-of-the-art digital mode.

MTNL as a company, over last nineteen years, grew rapidly by modernizing the network, incorporating the State-of-the-art technologies and a customer friendly ap

proach. The Company providing various types of telecommunication services including Telephone, telex, wireless, data communication, telematic and other like forms of communication (Internet).

First digital exchange world technology brought to India by the company during the year


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1986. Phone Plus services was offered by the company in the year 1988, it givesmultiplied benefits to telephone users. During the year 1992, the company introduced Voice Mail Service. MTNL had introduced the Integrated Services Digital Network (ISDN) services in the period of 1996. Apart from this IVRS (Interactive Voice Response System) like local assistance changed number information, and faultbooking system ensuring round the clock service, a CD-ROM version of the telephone directory and an on-line directory enquiry through PC was introduced duringthe year 1997. To facilitate the clientele, MTNL launched the country

s first toll-free service in Delhi in the period of 1998. During the year 1999, MTNL brought in the most widely using service called Internet (Network of Networks), the extreme level of information exchange.

During the year 2001, the company launched GSM Cellular Mobile service under thebrand name Dolphin and in the same year MTNL also launched Wireless in Local Loop (WLL) Mobile services under the brand name Garuda.

The Company established Wi-Fi & digital certification services in the identicalyear. MTNL bagged the award for excellence in cost reduction in the year 2004. State of the art training centre of the company CETTM was commissioned in the year of 2004. The Company introduced the broadband services under the brand nameof TRI BAND during the year 2005. MTNL-STPI IT Services Ltd is a 50:50 Joint Venture between Software Technology Parks of India (STPI) and the company. The Company has restructured Millennium Telecom Ltd (MTL) as a Joint Venture company of MTNL and BSNL with 51% and 49% equity participation respectively.

To remain market leader in providing world class Telecom and IT related servicesat affordable prices, the company partaking its all efforts in the same business area and MTNL wants to become a global player, also find a place in the Fortune 500 companies.


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2.3.7 BPL MOBILE COMMUNICATIONS LTD.BPL Mobile Communications Limited popularly known as BPL Mobile is an India-based telecommunication service providing company. BPL Mobile Communications Limitedis an offshoot of the legendary business conglomerate ESSAR group. BPL Mobile Communications Limited was established in the year 1995 and it is presently operating in only in the city of Mumbai. BPL Mobile Communications Limited has revolutionized the Indian mobile telecommunication industry. Within a short span of time the subscriber base of BPL Mobile Communications Limited has reached the 1 million mark. This gigantic mobile telecommunication company of India has grown inleaps and bounds and it offers seamless service to its customers spread acrossMumbai. Further, BPL Mobile has gained tremendous popularity due to its competitive pricing of tariffs. BPL Mobile offers high-class mobile service to its widepool of Mumbai subscribers.

Further, it ranks very high on parameters like, customer satisfaction, billing performance, voice quality etc and was thus ranked first in the category of Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA) of mobile service providers, operating in Mumbai. Superior coverage and optimum sound clarity are the strengths of BPL Mobile. BPL Mobile Communications Limited provides its customers with world class mobile services, through the use of state-of-the-art technology and network and this includes use of unique network design, the Qualnet, Camel Phase 2 Intelligent Network (IN) platform and GPRS facilitating ultra modern services like Multimedia Messaging Services (MMS), mobilebrowsing and Java based mobile phone games. Mr. S. Subramaniam, CEO of the comp

any, heads this leading telecommunication company of India.

The products and services offered by BPL Mobile Communications Limited are as follows Prepaid Connections


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Postpaid Connections Prepaid Recharge Coupons Bill Payments Value Added Services(VAS) Service Inquiries SIM Replacements Handset Sales

2.3.8 HFCL INFOTEL LTD.Incorporated on 2 Aug. 46, The Investment Trust of India (ITI) is managed by chairman and managing director B K Kothari. During 2002-03 the name of the Companychanged to HFCL Infotel Ltd, as part of Company s diversification and restructuring programme, HFCL Infotel Ltd (

transferor Company

) a telecommunication Company operating in the Punjab Circle merged with the Company through a Scheme of Amalgamation and decided to hive off the business of Hire Purchase, Finance, Leasing and Securities Trading by way of an outright sale with effect from 1st September 2002 to its wholly owned subsidiary

Rajam Finance & Investments Company (India) Ltd now renamed as The Investment Trust of India Ltd

Other group companies are Kothari Sugars and Chemicals and Madras Safe Deposit.In Sep.

94, it came out with a rights issue of 21.79 lac shares (premium: Rs 30)aggregating Rs 8.72 cr, to augment long-term working capital. The company is mainly engaged in hire purchase, lease financing and investments. Its clients include individuals, firms as well as corporate bodies.

ITI s business activities include sugar, petrochemicals, industrial alcohol, etc. It has two subsidiaries -- ITI Pioneer AMC and ITI Capital Markets. ITI Pionee

r AMC has promoted Kothari Pioneer Mutual Fund. ITI has invested 55% of its capital in ITI Pioneer


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AMC and the remaining 45% has been subscribed to by Pioneering Management Corporation, US. During 1995-96, ITI Pioneer AMC Limited ceased to be a subsidiary ofthe company. During 1997-98, The Companys holding in ITI Capital Market Ltd was sold to Kothari Pioneer AMC Ltd.

During 2003-04, The Company launched its Prepaid Mobile product and a complete range of innovative value Added Services and Data products were launched in May 2004, by the introduction of DSL-high speed Internet product. The company becamethe first service provider to have launched DSL services in the state of Punjaband Chandigarh. During 2004-05, The Company expanded its services to 125 cities/towns with 2.47 lacs subscribers in Punjab.

The company is planning a venture into Video and Cable TV Services and making triple play services by an expansion into the neighbouring states of Punjab. A wholly owned subsidiary, Connect Broadband Services Limited was formed on July 2004, for the above purpose.

The Company

s services namely, Fixed Line Telephoney, Mobile Telephoney, Broadband Internet Access and Data Networking Access are offered under the brand name CONNECT

.


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Chapter 3

LITERATURE REVIEW


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Anderson (2008), in his single executive interview titled Developing a route to market strategy for mobile communications in rural India An interview with Gurdeep Singh, Operations Director, Uttar Pradesh, Hutch India suggests that managers need to go beyond traditional approaches to serving the poor, and innovate by taking into account the unique institutional context of developing markets. His practical implication says that the experience of Hutchison Essar in India providessome important lessons for mobile network operators (MNOs) and other firms in other developing markets who are hoping to serve the rural poor: Hutchison has recognized the value of corporate and noncorporate partners. The company has proactively established relationships with individual entrepreneurs, and has providedhas provided development support to other partners such as distributors. The company has recognized the value of leveraging existing local institutions, and has seen gaps in local infrastructure or missing services as potential opportunities rather than barriers to growth. The company has seen the rural market as an opportunity not just an obligation to be served because of universal service obligations. Also this article demonstrates that MNOs can deliver availability and affordability to achieve increased individual or household penetration through business model innovation. Mani (2008) addresses a number of issues arising from the growth of telecom services in India since the mid-1990s. It also discusses anumber of spillover effects for the rest of the economy and one of the more important effects is the potential to develop a major manufacturing hub in the country for telecom equipment and for downstream industries such as semiconductor devices. The telecom industry in India could slowly become an example of the service sector acting as a fillip to the growth of the manufacturing sector. A beginni

ng towards this has been made. The formation of a Telecom Equipment Export Forumand the announcement of the Indian Semiconductor Policy 2007 are steps in thisdirection. Success crucially depends on the response of the private sector to these incentives. Given the importance that a regulatory agency can play in this crafting, no effort should be lost in strengthening the powers of the TRAI. The benefits to the Indian economy from having both a strong services and manufacturing segments in the telecom sector cannot be undermined. Narayana (2008) estimates the contribution of telecommunication (or telecom) services to aggregate economic growth in India. Estimated contribution is distinguished between public andprivate sectors to highlight the impact of telecom privatization on economic growth. Knowledge of policy determinants of demand of telecom services is shown tobe essential to enhance growth contribution of telecom services. Using a recentsample survey data from Karnataka State in South India, price and income determi

nants of demand for telecom services are estimated by capacity of telephone exchanges.


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Estimation results offer evidence for significant negative own price elasticityand positive income elasticity of demand for telecom services. Sharma (2009) deals with the major challenges faced by Indias telecom equipment manufacturing sector, which lags behind telecom services. Only 35% of the total demand for telecomequipment in the country is met by domestic production. This is not favourableto long-term sustained growth of the telecom sector. The country is also far behind in R&D spending when compared to other leading countries. India needs to seean increase in R&D investment, industry-academia-government partnership, betterquality doctoral education and incentives to entrepreneurs for start-ups in telecom equipment manufacturing. In 2006-07, 65% of the total consumption of equipment was met through imports. This trend has far-reaching implications for the economy and should not be allowed to continue for long. In a country like India which has a problem of massive unemployment, the manufacturing sector should be promoted to create more employment opportunities. Shah (February, 2009), has analysed Indian telecom industry and studied the sector keeping in mind three companies; namely Bharti, R.Comm and idea in the background of recent global meltdown.The study suggests that though there is no sign of slowdown in this sector, butsurely a strong turmoil is going on in the industry. The study states that the sector is fairly immune from the current economic downturn & does provide a gooddefensive bet in medium term. With the help of newer technologies, wireless penetration is expected to increase in the near future, which is basically fuellingthe growth of the sector. While the 3G / Broadband adoption would ensure long term growth momentum, the article has thoroughly investigated about the intense competitive scenario, pricing pressure, high capital intensity & substantial regul

atory uncertainties currently faced by the industry. The article has also described the cause of being relatively safe of this industry. The causes described byShah are increasing rural coverage, rising affordability, declining handset/subscription costs, substantially low tariffs & established brand/distribution. However, the study also cautions the telecom industry that a steeper economic slowdown could start impacting the subscriber usage patterns as well as operator capital investments & thereby could substantially restrict revenue growth rates going forward.


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Chapter 4

CONCEPTUAL FRAMEWORK


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Analysis of Financial Statements/Financial Analysis/Financial Statements Analysis Financial Statements are the summarized statements of accounting data producedat the end of the accounting process by an enterprise through which it communicates accounting information to the external users. The external users can be investors, lenders, suppliers and trade creditors, customers, government and theiragencies, public at large and employees. Analysis of Financial Statements is a systematic process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm.

Customarily, a set of financial statements include: (i) (ii) (iii) Balance SheetProfit and Loss Account Schedules and notes forming part of the Balance Sheet and Profit & Loss Account

4.1

Essentials of Financial Statements 1. Accurate information 2. Understandability3. Comparable 4. Verifiable 5. Relevant 6. Timeliness

4.2

Parties interested in Financial Statements or Users of Financial Statements1. Investors and Potential Investors 2. Creditors 3. Customers 4. Employees andTrade Unions 5. Government and its Agencies 6. Stock Exchange


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4.3

Tools of Analysis of Financial StatementsRatio Analysis Cash Flow Statements

4.3.1 RATIO ANALYSISA Ratio gives the mathematical relationship between one variable and another. Ratio analysis helps in valuing the firm in quantitative terms. Ratios are classified as follows: 1. Liquidity Ratios 2. Turnover Ratios 3. Profitability Ratios 4. Ownership Ratios

1. Liquidity Ratios Liquidity implies firms ability to pay its debts in short run. This ability can be measured by Liquidity Ratios. Current Ratio and Quick Ratio are the two ratios which directly measure Liquidity. Receivables turnover Ratio and Inventory Turnover Ratio are the two ratios which in directly measure Liquidity.

A. Current ratio =

Current Assets Current Liabilities

Current assets which are converted into cash within one year. Current liabilities are liabilities which are to be repaid within a period of 1 year.

IDEAL RATIO = 2:1


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B. Quick ratio or Liquid ratio or Acid Test ratio = Quick Assets/Liquid Assets Current Liabilities Quick Assets = Current Assets Inventories- Prepaid expenses Ratio of quick assets to quick liabilities. Quick assets which can be converted into cash very quickly. Quick liabilities are liabilities which have to be necessarily paid with in 1 year. IDEAL RATIO = 1:1

2. Turnover Ratios (Activity Ratios) A. Accounts Receivable Turnover ratio or Debtors Turnover Ratio = Net Credit Sales Average Accounts Receivables Average Accounts Receivables = Opening receivables + Closing receivables 2 It shows the Relationship between debtors and sales

B. Inventory Turnover Ratio

= Cost of goods Sold Average Inventory

It indicates no. of times stock has been turned into sales in a year Ideal Ratio= 8 Cost of goods sold = Sales gross profit Opening Stock + Closing Stock 2 Stock Conversion Period = Cost of goods Sold * No of days in a year/Average Inventory Average Inventory =

C. Creditors Turnover ratio =

Net Credit Purchases Average Creditors


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Average Creditors = Opening Creditors + Closing Creditors 2 Relation ship between Creditors and Purchases

3. Profitability or Efficiency Ratios These Ratios measure the efficiency of forms activities and its ability to generate profits. (i) (ii) (iii) Gross Profit Margin Ratio Net Profit Margin Ratio Return On Equity

(i)

Gross Profit Margin Ratio =

Gross Profit Net Sales

Gross Profit = Sales Cost of goods sold Net Sales = Sales Sales Return - ExciseDuty There is no Ideal Ratio. Higher the ratio better will be the performance ofthe business.

(ii)

Net Profit Margin Ratio =

Net Profit Net Sales

It measures the overall efficiency of production, administration, selling, finan

cing, pricing and tax management. It shows the result of overall operation of the firm.

4. Ownership Ratios Capital Structure Ratios a) Debt Equity Ratio = Debt EquityLong Term Liabilities + Current Liabilities Share Holders Funds

=

Ratio 2 or Less Exposes Its Creditors Lesser Risk Ratio >2 Exposes Its CreditorsHigher Risk


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4.3.2 CASH FLOW STATEMENTIntroduction of Cash Cash, the most liquid asset, and also referred to as the life blood of a business enterprise is of vital importance to the daily operationof business firms. Its efficient management is crucial to the solvency of business because cash is the focal point of the fund flow in a business. Cash refers tothe cash as well as bank balance of the company to the end of the accounting period, as reflected in the balance sheet of the company. While the profits reflects the earning capacity of the company and cash reflects its liquidity position.

Introduction of Cash Flow CASH FLOW is the movement of cash and its equivalents.It includes the inflow and the outflow of cash during a particular period. Alltransactions which lead to increase in cash and cash equivalents are classifiedas inflows of cash and all those transactions which lead to decrease in cash andcash equivalents are classified as outflows of cash. Cash Flow Statement is prepared with an objective to highlight the sources and uses of cash and cash equivalents for a period. Cash Flow Statement is classified under operating activities, investing activities and financing activities.


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Chapter 5

ANALYSIS AND INTERPRETATION


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RATIO ANALYSIS

5.1 CURRENT RATIOProjected

S. No. 12

Telecom Players BSNLMTNL. TATA TELECOM BHARTI AIRTEL IDEA CELLULAR

2004-05 1.75 1.29 1.84 0.47 2.45

2005-06 1.98 1.34 1.19 0.44 0.74

2006-07 2.46 1.34 1.08 0.47 0.87

2007-08 2.47 1.35 1.44 0.57 0.43

2008-09

2009-10 2.63 1.37 1.13 0.70 0.21

3

4

5

2.25 1.35 1.31 0.69 0.36

IDEAL RATIO = 2:1

Figure 5.1


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Interpretation of figure 5.1The two basic components of this ratio are current assets and current liabilities. Current assets include cash and those assets which can be easily converted into cash within a short period of time, generally, one year, such as marketable securities or readily realizable investments, bills receivables, sundry debtors,(excluding bad debts or provisions), inventories, work in progress, etc. Prepaidexpenses should also be included in current assets because they represent payments made in advance which will not have to be paid in near future. Current liabilities are those obligations which are payable within a short period of tie generally one year and include outstanding expenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and whenthey become due. On the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been a deterioration in the liquidity position of the firm. A ratio equal to or near 2 : 1 is considered as a standard or normal or satisfactory. The idea of having doublethe current assets as compared to current liabilities is to provide for the delays and losses in the realization of current assets. However, the rule of 2 :1 should not be blindly used while making interpretation of the ratio. Firms havingless than 2 : 1 ratio may be having a better liquidity than even firms having mo

re than 2 : 1 ratio. This is because of the reason that current ratio measures the quantity of the current assets and not the quality of the current assets. Ifa firm s current assets include debtors which are not recoverable or stocks which are slow-moving or obsolete, the current ratio may be high but it does not represent a good liquidity position.


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Current Ratio of BSNL is increasing for each subsequent year i.e. from 1.75 in year 2004-05 to 2.25 in 2008-09. Forecast on the basis of regression analysis forthe year 2009-10 current ratio is 2.63. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. This is also because of slow nature of Debt collection whichmakes company less liquid than what it looks like in the trend.

The Current Ratio of MTNL and Tata Telecom is flatter over the subsequent year which means company is maintaining significant liquidity over the period of time.Their projected current ratio of the year 2009-10 is somewhat similar to the 2008-2009 i.e. 1.37 is projected for 2009-10 and 1.35 is the actual of 2008-09 forthe MTNL.

Current Ratio of Bharti Airtel Ltd. is 0.69 for the year 2008-2009. This means that the company is having fewer assets to cover the liability and also the investors should be weary of the fact that the company cannot pay off its short-termdebt if necessary

Current Ratio of IDEA is declining over the period of time i.e. 2.45in the year2004-05 to .36 for the year 2008-2009 and projected to be reduced till 0.21 forthe year 2009-10. This means that the company is having fewer assets to cover the liability and also the investors should be weary of the fact that the companycannot pay off its short-term debt if necessary and hence companys liquidity position is very bad as compared to any other telecom operator.

Conclusion From the above figure we can easily state that among all the telecomoperator BSNL is having highest current ratio and it represent that BSNL is having very good liquidity and can pay off their short term liability very easily asthey are marinating huge cash reserves.


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Interpretation of Figure 5.2The earnings per share is a good measure of profitability and when compared withEPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased. EPS of majority of thecompany have been reduced significantly except Bharti Airtel and Idea Cellular.Earning Per Share of BSNL have been reduced from 15.65 (2004-05) to 1.15 (2008-09) and projected from the regression analysis that it will reduce in 2009-10 to1.08. This may be mainly because of decrease in income of services over the period of time. Decrease in income from services can be attributed to increase in competitive rivalry as various international players like Vodafone and Reliance came into the Indian market with improved technology and made tariff wars to attract the customers.

EPS of Bharti Airtel have been increased significantly over the years i.e. 6.53(200405) to 40.79 (2008-09) and projected to be 49.662(2009-10).This is becauseof

improvement of technology by the company over the years as compared to other players like BSNL which made the company to capture the market share of these companies who doesnt go in tandem with the changing technology.

Conclusion From Earning per Share perspective Bharti Airtel is considered to bemost attractive company as the companys earning potential have been increased irr

espective of the increase in competition in the Indian telecom market. Market leaders of 2004-05 like BSNL and MTNL are having tough time because their market share as well as profit margins has been reduced over the period of time which leads to significant reduction in the earning power of the companies.


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5.3 Debtor Turnover Ratio

S. No. 12


2004-05 5.03 3.29 6.3 11.38 17.74

2005-06 5.73 3.51 5.62 12.57 20.01

2006-07 6.2 4.12 4.78 14.31 35.89

2007-08 5.92 4.95 3.25 12.28 38.28

2008-09 6.41 5.365 3.12 12.78 47.355

2009-10 6.743 5.924 1.995 13.417 55.105

34

5

Figure 5.3


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Interpretation of Figure 5.3Figure 4.3 represents the Debtor Turnover Ratio of companies over past five yearand the projected ratio for 2009-2010. A concern may sell goods on cash as wellas on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. The effectof a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors (or receivables). Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of concern to pay its short term obligationsin time depends upon the quality of its trade debtors. Accounts receivable turnover ratio or debtors turnover ratio indicates the number of times the debtors areturned over a year. The higher the value of debtors turnover the more efficientis the management of debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It is the reliable measure of the time of cash flow from credit sales. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm. Debtor Turnover Ratio of BSNL is 6.41 for theyear 2008-2009. So the debtor velocity is 365/6.41 which comes out as 56.94 days i.e. BSNL takes on an average 57 days to collect its money back from the debtors, which is again higher than the industry standards. Projected Debtor turnoverfor 2009-10 to improve and reach to 6.74 which mean on average 54 days to convert the debtors into cash.

Debtor Turnover Ratio of Bharti Airtel Ltd. is 12.78 for the year 2008-2009. So

the debtor velocity is 365/12.78 which comes out as 28.56 days i.e. Bharti takeson an average 28 days to collect its money back from the debtors, which is again lower than as compared to the industry. Projected Debtor turnover ratio to improve and reach to 13.41 which mean 27 days to convert debtor into cash.


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Debtor Turnover Ratio of IDEA is 47.33 for the year 2008-2009. So the debtor velocity is 365/47.33 which comes out as 7.71 days i.e. IDEA takes on an average 8days to collect its money back from the debtors, which is a good sign for the company and highest amongst the industry. Projection for 2009-10 is 55.10 which means only 6 days are taken to convert debtors into cash.

Debtor Turnover Ratio for Tata Telecom is worse amongst the industry and its position to convert debtors into cash has been deteriorating over the years ie from6.3 in 2004-05 to 3.12 in 2008-09 which means now they take 117 days to convertdebtors into cash. So it is the sign of unattractiveness of the company.

Debtor Turnover Ratio of MTNL is- 5.36 for the year 2008-2009. So the debtor velocity is 365/5.36 which comes out as 68 days i.e. MTNL takes on an average 68 days to collect its money back from the debtors, which is again higher when compared to the industry standards of 57 days (BSNL).

Conclusion Among all the players of telecom industry Idea and Bharti both have good liquidity position because their ability to convert debtors into cash is better from any other player in the industry which also signifies that their risk of loss due to bad debt will becomes low. BSNL is maintaining very low debtor turnover ratio which can be because of liberal credit which they offer to their customers.


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5.4 Debt Equity RatioProjected S. No. 1 23

Telecom Players BSNLTATA TELECOM BHARTI AIRTEL IDEA CELLULAR

2004-05 0.31 ------1.1 2.58

2005-06 0.29 0.02 0.65 4.96

2006-07 0.26 0.03 0.47 1.95

2007-08 0.24 0.12 0.33 1.84

2008-09

2009-10 0.235 0.39 0.22 1.002

0.270.34 0.28 1.525

4

Figure 5.4


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Interpretation of Figure 5.4Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the firms assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm. However, the interpretation ofthe ratio depends upon the financial and business policy of the company. The owners want to do the business with maximum of outsider

s funds in order to take lesser risk of their investment and to increase their earnings (per share) by paying a lower fixed rate of interest to outsiders. The outsiders creditors) on theother hand, want that shareholders (owners) should invest and risk their share of proportionate investments. A ratio of 1:1 is usually considered to be satisfactory ratio although there cannot be rule of thumb or standard norm for all typesof businesses. Theoretically if the owners interests are greater than that of creditors, the financial position is highly solvent. In analysis of the long-termfinancial position it enjoys the same importance as the current ratio in the analysis of the short-term financial position. Debt-to-Equity Ratio of BSNL is 0.27for the year 2008-09 which means that company is using very less debt instruments while it is relying more on the shareholders capital. This also indicates thecompanys assets are primarily supplied with equity. Debt-to-Equity Ratio of Tatatelecom is 0.34 for the year 2008-2009 which means that company is using its debt instruments in very less quantity while it is relying more on the shareholders capital. There is the continuous trend in the use of debt instrument by the company ie. Company was not using debt in 2004-05 and .02 in 2005-06 and expectedto be .39 till 2009-10. Debt-to-Equity Ratio of Bharti Airtel Ltd. is 0.28 for the year 2008-2009 which means that company is not using its debt instruments whi

le it is relying more on the shareholders capital. This also indicates the companys assets are primarily supplied with equity.


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Debt-to-Equity Ratio of Idea cellular is 1.52 for the year 2008-2009, which means that company using more of debt instruments. This also indicates the companys assets are primarily supplied with debt.

Debt-to-Equity Ratio for MTNL is 0 for the year 2009-2010, which means the company is totally dependent on Equity.

Conclusion It can be concluded that all the major telecom companies are relyingmore on the equity capital and not using debt instrument as the major source forfinancing the assets. Public players like MTNL are not using at all and other companies like BSNL are using them in very low quantity because of risky nature of return of telecom sector over the period of time.


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5.5 RETURN ON CAPITAL EMPLOYEDProjected S. No. 12


2004-05 10.09

2005-06 9.94

2006-07 9.05

2007-08 4.97

2008-09 1.46

2009-10 0.433 3.763 4.589 32.725 23.912

34

10.16 11.4119.27

5.95 11.5220.74

6.77 10.2829.06

6.48 6.5327.95

4.785 6.2328.4

5

7.52

10.44

14.96

16.92

20.64

Figure 5.5


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Interpretation of Figure 5.5The prime objective of making investments in any business is to obtain satisfactory return on capital invested. Hence, the return on capital employed is used asa measure of success of a business in realizing this objective. Return on capital employed establishes the relationship between the profit and the capital employed. It indicates the percentage of return on capital employed in the businessand it can be used to show the overall profitability and efficiency of the business. Return on capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. It is commonly used as a basis for various managerial decisions. As the primary objective of business is to earn profit, higher the returnon capital employed, the more efficient the firm is in using its funds. Return on Capital Employed Ratio of BSNL is 1.46 for the year 2008-2009, which indicatethat the company is earning 1.46 percent return on the net capital employed by company that consists of fixed assets, investments and net working capital. ROCEof the company is deteriorating with each succeeding year because increase in number of competitor with each year which lead to decrease in market share in dueto which income from services have been declining. Further more investments arerequired by the co. to acquire new technology like 3g which will provide returnin coming years. As the trend says the Return on capital will fall in the comingyears and will be around .433 percent.

Return on Capital Employed Ratio of MTNL is 4.785 for the year 2008-2009, which

indicate that the company is earning 4.8 percent return on the total capital employed that consists of fixed assets , investments and net working capital. Projected return on capital is even worse ie. 3.76 for 2009-10.

Return on Capital Employed Ratio of Tata telecom is 6.23 for the year 2008-2009,which indicate that the company is earning 6.2 percent return on the total capital


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employed that consists of fixed assets, investments and net working capital. Projected return on capital is even worse ie. 4.58 For 2009-10.

Return on Capital Employed Ratio of Bharti is 28.4 for the year 2008-2009, whichindicate that the company is earning 28.4 percent return on the total capital employed that consists of fixed assets , investments and net working capital. Projected return on capital is even better i.e. 32.76 For 2009-10. Company is having positive trend of return on capital employed.

Return on Capital Employed Ratio of Idea is 20.64 for the year 2008-2009, whichindicate that the company is earning 28.4 percent return on the total capital employed that consists of fixed assets , investments and net working capital. Projected return on capital is even better ie. 23.91 for 2009-10.It is the one of the few company in telecom sector with positive trend of return on capital employed.

Conclusion Return on capital employed is one of the key ratios that determine the fate of the company in the future. Through the graphs we can easily see that most of the companies are having negative trend in the past years due to their inability to meet the competition and rapid changes in technological environment.Only few of the private players like Bharti and Idea have improved their returnon capital and have positive trend in the returns over the past 5 years. So it is obvious that for the survival of the major public players like BSNL and MTNL rapid changes in strategies need to be adopted and structure and polices adopted

by Bharti and IDEA needs to be considered and reviewed by them.


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5.6 Price Earning RatioS. No. 12

Projected Telecom Players BSNLMTNL. TATA TELECOM BHARTI AIRTEL IDEA CELLULAR 2004-05 --------8% 13% 26% 2% 2005-06 59% 5% 7% 27% 18% 200607 34% 4% 7% 35% 23% 2007-08 8% 3% 4% 30% 29% 2008-092%

2009-10

1%7% 28%

1% 1%

34

3% 31%

5

39%

48%

Figure 5.6


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Interpretation of Figure 5.6A valuation ratio of a company

s current share price compared to its per-share earnings.

Calculated as:

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratiodoesn t tell us the whole story by itself. It s usually more useful to comparethe P/E ratios of one company to other companies in the same industry, to the market in general or against the company s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to comparethe P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

Conclusion From the figure 4.6 we can easily state that only expectation of investors of Bharti and Idea is growing i.e. the P/E ratio of Bharti Airtel and Ideais growing with each successive year but expectation from Idea is growing at increasing rate which means idea is one of the emerging leader in the industry andits expectations have been outperformed from the entire industry i.e. Accordingto the projection of 2009-10 P/E of Bharti is 31% whereas Idea is 48%. P/E of BSNL was the highest in 2005-06 when it was the leader of the industry but as thetime passes expectation of the investors have been declined and now it is only8 % and projected to be only 5%.


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5.7 NET PROFIT MARGIN RATIOProjected

S. No. 12


2004-05 30.4 16.1 22.2 14.8 1.6

2005-06 24.7 9.7 12.1 17.8 6.2

2006-07 22.5 8.5 11.2 22.5 11.4

2007-08 9.3 7.7 8.9 24 15.3

2008-09

2009-10

34

5

2 3.9 13.25 22.58 20.2

-3.88 1.26 7.2 26.864 24.83

Figure 5.7


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Interpretation of Figure 5.7This ratio also indicates the firm

s capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept inmind that the performance of profits also be seen in relation to investments orcapital of the firm and not only in relation to sales. Net Profit Ratio of BSNLis 2 for the year 2008-2009, which is lower in comparison with the industry ratio. This shows that BSNL had to pay other indirect expenses which led to fall inthe net profit. Through fig 4.8 we can also see that there is continuously negative trend from year 2004-05 to 2009-10.If this trend continues than according to my projection company would be in net loss in 2009-10 and the ratio would be around -3.88.

Net Profit Ratio of Bharti Airtel Ltd. is 22.58% for the year 2008-2009 which ishigher in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Companys trend line shows that company is earning greater profits in each successive year which makes company attractive in the industry. If the trend continues than projected ratio for 2009-10 will be 26.86 % .

Net Profit Ratio of IDEA is 20.2 for the year 2008-2009 which is higher in comparison with the industry ratio. According to the previous five year trends this company is one of the fastest growing company and its profits are increasing at increasing rate as compared to Bharti Airtel. So projection for 2009-10 will be 2

4.83 through regression analysis.

Net Profit Ratio of MTNL is 3.9 for the year 2008-2009, which is lower in comparison with the industry ratio. It shows the inefficiency amongst the public sector undertaking. Profits of the company are decreasing at an increasing rate whichshows that highly negative trend for the company and if it continues than projected ratio for 2009-10 will be 1.26.


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Net Profit Ratio of TATA Telecom is 13.25 for the year 2008-2009, which is lowerin comparison with the industry ratio. Profits of the company is rebounded theyear 2008-09 but on the whole company is providing negative trend line of its net profits and if it continues than projected ratio for 2009-10 will be 7.2 . Conclusion: Net profit ratio shows that Bharti Airtel and Idea cellular are havingpositive trend in past five years. Companys like BSNL and MTNL have to work hardto break out their negative trend. Completely new attitude and professional management have to be adopted by these public sector undertakings to compete with the private players like Bharti & Idea.


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5.8 ANALYSIS OF CASH FLOWS5.8.1 Net Cash From Operating ActivitiesProjected

S. No. 12


2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

34

5

17469.6 18709.05 14139.96 10981.84 6843.81 1212.71 213.31 357.64 2487.81 2060.275 323.24 1013.78 559.2 303.08 1086.67 3005.89 4547.2 8107.95 10459.85 11853.15 ---822.15 1605.11 2502.22 3170.496

4935.215 2457.238 902.042 14676.96 4010.531

Interpretation Cash from operations represents the inflow of cash from primary activities of business. From the above figure it is clearly stated that Cash fromoperations is highest of BSNL 17496.6 cr in 2004-05 but gradually it have beendecreased to 6843.81cr which

represents the loss of revenue by the company in its primary activities. On theother hand Companies like Bharti and Idea have increased their cash from operations in each subsequent year and gained majority of revenue of telecom sector. In2004-05 Bharti Airtel is having 3005.89 cr as cash from operations which have increased to 11853.15 cr in 2008-09 and if this trend continues than it will reach to 14676.96 cr in 2009-10. So, Public sector companies like BSNL and MTNL haveto take cost cutting measures as adopted by Bharti and Idea to gain the revenues from its business.


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5.8.2 Cash Used in Investing ActivitiesProjected

S. No. 12


2004-05

2005-06

2006-07

2007-08

2008-09

34

5

6,478.17 785.01 (76.44) 2,330.30 ----

6,500.83 277.08 894.19 5,000.30 286.94

3,266.88 259.74 647.83 7,975.10 2,275.09

3,724.85 692.32 716.69 11,648.00 5,956.18

7,438.14 429.69 2,005.71 10,894.00 7,993.26

2009-10 5,224.96 400.14 2,033.64 14,702.07 10,827.88

Interpretation Cash used in investing activities represents cash outflow in proc

urement of Long term assets which will yield return in the future. From the above figure it is clearly stated that Cash used in investing activities is highestof BSNL 6478 cr in 2004-05 but gradually it have been decreased which representsthe lack of investments in long term assets by the company as compared to otherplayers in the industry. On the other hand Companies like Bharti and Idea haveincreased their investments in assets in each subsequent year and due to which they have enjoyed better returns in telecom sector. In 2004-05 Bharti Airtel is having 2330.30 cr as cash from operations which have increased to 10894 cr in 200809 and if this trend continues than it will reach to 14702 cr in 2009-10.


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5.8.3 Cash Used in Financing ActivitiesProjected

S. No. 12


2004-05 612 423.09 208.09 4.2309 ----------

2005-06 3,560 395.24 97.23 -376.35 -558.01

2006-07 4,000 287.49 52.79 -340.13 -2340.07

2007-08 4,158 294.83 -389.14 -898.03 -2131.29

2008-09 1,823 227.03 -1204.38 672 -3106.7112

2009-10 3736.835 177.777 -1240.48 56.50164 -3893.35

34

5

Interpretation Cash used in financing activities represents the outflow of cashfor the purpose of procurement of funds for business. From the above figure it is clearly stated that Cash used by the BSNL in financing activities is highest in 2004-05 and it have been increasing in each subsequent years which represent that BSNL is continuously engaged in payment of dividends and interest for the borrowed funds and they are not raising funds from market. On the other hand Companies like Bharti and Idea have decreased their cash used in financing activitiesin each subsequent year which means that they have raised equity and debt in the subsequent years to fund their assets due to which cash from financing activities is increased in each year , which is good indicator for these companies


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Chapter 6

CONCLUSION


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ConclusionFrom the above finding and analysis various inferences can be drawn out which are as follows : BSNL is having highest current ratio which represents that BSNL is having very good liquidity position and can pay off their short term liabilityvery easily as they are maintaining huge cash reserves. From Earning per Shareperspective Bharti Airtel is considered to be most attractive company as the companys earning potential have been increased irrespective of the increase in competition in the Indian telecom market. Market leader of 2004-05 BSNL is having tough time because its market share as well as profit margins has been reduced overthe period of time which leads to significant reduction in the earning power ofthe companies. Among all the players of telecom industry Idea and Bharti both have good de

Project Report on Telecom companies by Puneet Jain 082 MBA DIAS

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