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Financial Statement Analysis:

1. Balance Sheet:
The balance sheet is helpful to quantify the overall health of a company by showing the
assets and liabilities of the enterprise. Moreover, it displays the solvency of a business by
disclosing how much assets are available for payment of liabilities. The proprietary
interest can be found out from the balance sheet. Several ratios like the liquidity ratio and
current ratio can be found out from the assessment of balance sheet of the company, and
that helps people to determine the long term and short term outlook of the company.
These numbers are of particular interest to people who are concerned about the
sustainability and wishes to buy or invest in the company.
2. Cash Flow Statement
The Cash Flow statement keeps a track of the outflow and inflow of cash for a given
business over a period. It critically looks at a company's ability to generate cash as
because without cash company cannot survive. Investors and analysts use the cash flow
information to identify trends over time. The patterns are helpful to ascertain the
sustainability of the business despite what other financial statements and performance
results have suggested. It also provides context for other financial ratios to help lenders
and business leaders to make informed decisions.
3. Income Statement
The primary advantage of Income Statement is the information it gives on revenues. It is
thorough with the normal costs associated with managing operations and additional costs
including taxes, applied to gross income earned. If the investors have access to the income
statement of the company, it is very for them to see earnings per share. A higher earnings per
share gives a notion of the well-being of the enterprise.

Reliance Communications:

Reliance Communications
4
3.5
3

Dividend per Share

2.5

Earnings Per Share


(Rs)

2
1.5
1
0.5
0

41699

41334

40969

The curve between total reserves and operating income Curve shows that there is a huge gap
between total reserves and the operating income of the Reliance Communications. Even if
having a significant difference between the above two cash items, the thing which needs to be
pondered upon is that the company didnt pay any dividend to the Shareholders during the year
2014.

Reliance Communications
4
3.5
3

Dividend per Share

2.5

Earnings Per Share


(Rs)

2
1.5
1
0.5
0

41699

41334

40969

As per the graph shown between earnings per share and dividend paid per share, it can be seen
that with increasing or maintained earnings per share, Reliance Communications didnt pay the
divided for the year 2014.

Bharti Airtel
70000.00
60000.00
50000.00

Total Reserves

40000.00

Operating Income

30000.00
20000.00
10000.00
0.00

41699

41334

40969

40603

For Bharti Airtel, the gap between the total reserves and the operating income is constant and
maintained. From the graph it can be inferred that the company believes in maintaining the above
mentioned figures and also the it has paid handsome dividends in all these years unlike Reliance
Communications.

Bharti Airtel
18
16
14

Dividend per Share

12

Earnings Per Share


(Rs)

10
8
6
4
2
0

41699

41334

40969

From the graph, it can be inferred that with the increase in the earning per share, the company
has also increased the dividend paid per share. This positive trend in dividend payments is a
positive sign for the company

Financial Ratio Analysis:


Liquidity Ratios:
The liquidity ratios indicate the capability of the company to pay off short-term liabilities.
Ideally, it must be equal to one. A liquidity ratio less than one shows that the company will not be
able to meet its short-term obligations. But, it necessarily doesnt mean that the ratio less than
one is bad for the reputation of the company. Sometimes in order to finance some of its potential
plans, companies squeeze out some assets or cash to financially support potential plans.

its sales, and use the funds to pay off secured and unsecured long
term loans (secured loans and unsecured loans decreased by around
50% and 10% respectively during the year 2012-2014) as compared
to the year 2011 & 2013.

2. Solvency ratios:

as the company is majorly dependent on shareholders funds.


Companies having high Debt equity ratios are vulnerable and will be
affected first in case of economic slow down.
Since long, the debt equity ratio of the Reliance Communication was
very high. The revenue had barely grown as the finance cost was
higher than the operating profits. This high debt equity ratio is not
favorable for the companys reputation in the market. It had been
struggling hard since several years to minimize this ratio by the
following ways:
1. Tower-sharing agreement with Reliance Jio helped the company to
reduce debt.
2. Increase in equity through QIP route
3. Raising funds through sale of real estate, selling their stake in its
undersea cable division (Globalcom) and warrants issued to
promoters.
For Bharti Airtel this ratio is very low which indicated that the
company is taking advantage of the Shareholders equity to increase
more and more profits (increase in reserves and surplus of the
company from 2011 to 2014). Based on this argument it can be said
that for Bharti Airtel the long-term financial position is good.
3. Operating efficiency ratios:
down, but after 2012 the ratio increased showing that the company is
growing fast and performing well in the market.
The asset turnover ratio shows the efficiency of the company to use
its assets into sales. The higher the ratio indicates that the company
is utilizing all its assets efficiently to generate sales.

For Reliance
Communications the
ratios were not that
low after 2011 because
it was able to generate
huge revenue against
3G services, which
was launched in 2011.
Also, as the liquidity
The
ratios
ratiossolvency
figures were
show
the capability
consistent
from 2012of
the
company
to pay
to 2014,
it shows
thatoff
the
the non-current
company believes
liabilities.
The debt
in maintaining
equity
ratio
is to
sufficient
funds
important
for investors
meet its short-term
as
this relates the longneeds.
term
liability
to of
Liquidity
ratios
Shareholders
funds in
Bharti Airtel indicate
the
company.
This
that the company is
ratio
shows
how
unable
to pay
offmuch
ashort-term
company liabilities.
is using its
debt
to buy assets
But looking
at the in
comparison
Reserves andwith
Surplus
Shareholders
in the Balance funds.
Sheet of
Neither
too
high
ratio
the company, it seems
nor
ratio isis
that too
the low
company
good
forathe
earning
lot through
companys reputation.
If the ratio is too high,
it shows that the
company is unable to
The Operating
generate good profits
Efficiency ratios tells
from debts. Too low
us the degree of the
ratio puts the company
efficiency in
into constant pressure
management as well as
of maximizing profits,
its operating activities.
For Reliance
Communications the
inventory turnover
ratio decreased during
the year 11-12, which
indicates that the
companys
performance slowed

As per the figures, the


asset turnover ratios
for Reliance
Communications were
less than Bharti Airtel.
i.e. Bharti Airtel uses
its assets efficiently
than reliance.

The Inventory turnover ratio shows the number of times the inventory was sold over the financial
period. The days in the period can then be divided by the inventory turnover formula to calculate
the days it takes to sell the inventory on hand or inventory turnover days. For Reliance
Communications as well as for Bharti Airtel the inventory turnover ratio decreased in 2011-12
and increased from 2012-14 which shows that the performance of the company has decreased
initially for a year and then increased from 2012 to 2014.This is also evident from the stock

market performance of the company which first decreased from 2011 to 2012 and then increased
from 2012 to 2014.
As

Reliance Communication
Bharti Airtel

The working capital ratio tells us how effectively the working capital to generate sales or
revenue. According to the graph a negative working capital shows that the liabilities are greator
than the assets or the amount which the company is liable to pay to its creditors.
Ordinarily, having negative anything is not a good thing, but with operating working capital it
can be. Mulford says companies with negative operating working capital (expressed as a
percentage of revenue) tend to be more adept at raising cash than companies with positive
operating working capital. If a company has positive working capital, his thinking goes, it tends
to use a portion of its growth and revenue to pay for the increase it will have in inventories and
receivables. But a company with a negative operating working capital can effectively borrow
from its vendors or customers as they grow, since it is being financed with customer funds, says
Mulford.
4. Profitability analysis

The operating profit margin is the part of the companys revenue which is left after paying off all
the operating production expenses such as raw material, administrative salaries and costs.
The operating profit margin for Bharti Airtel is greator than that for Reliance Communications as
the
Operating profit margin is a measurement of the proportion of a companys revenue that is left
over after paying for production costs such as raw materials, salaries and administrative costs.
Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance
costs and taxes out of operating profit and shows what is left for the shareholders as a percentage

of net sales. Together these ratios help in understanding the cost and profit structure of the firm
and analysing business inefficiencies.

Return on Capital Employed (ROCE) measures a companys profitability from its overall
operations by calculating the return generated on the total capital invested in the business (i.e.
equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount
of profit which the company generates on money invested by the equity shareholders. In short,
ROE draws attention to the return generated by the shareholders on their investment in the
business. Together these ratios can be used in comparing the profitability of the company with
other companies in the same industry.

5. Investment Analysis Ratio:

In real business, earnings never stay constant. If a company can grow its earnings, it takes fewer
years for the company to earn back the price you pay for the stock. If a companys earnings
decline it takes more years. As a shareholder, you want the company to earn back the price you
pay as soon as possible. Therefore, lower-P/E stocks are more attractive than higher P/E stocks
so long as the P/E ratio is positive. Also for stocks with the same P/E ratio, the one with faster
growth business is more attractive.
For airtel P/E ratio is higher for airtel bharti as compaired to reliance communications.
The DPS decreased from 09-14 for reliance communication due to the fact that the company is
struggling hard to reduce its debt by pushing the revenue generated throughout the year by QIP
route to increase its equity ratio. Also as most of the funding for airtel is through shareholder,
therefore for the profit earned, it has to pay handsome amounts of dividends so as to maintain the
shareholders interest.

Bharti Airtel vs Reliance Communications - The race is on


http://www.businesstoday.in/magazine/cover-story/bharti-airtel-vs-reliance-communications-the-race-is-on/story/1022.html

Dupont Analysis:

Scams:
http://www.dnaindia.com/money/report-rcom-acs-on-rs1126-crore-expenses-unusual1550087
increase in equity during 2013-2014http://www.rcom.co.in/Rcom/aboutus/ir/pdf/Abridged-Annual-Report-2013-14.pdf
FundraisedDuringthecurrentfinancialyear201415,theCompanyhasreceivedoverwhelmingresponseinthe
QualifiedInstitutionalPlacement(QIP)Programme.BeingthelargesteverprivatesectorQIPinthehistoryof
corporateIndia,theCompanyhasraised`4,808croreinthemaidenQIPissue.Itshowstheconfidenceofthe
Investors,whichwillstrengthenthefinancialpositionofourCompany.ThePromotershavesubscribedtothe
securitiesoftheCompanyfor`1,300croreunderpreferentialissue.

Also Duringthefinancialyear201314,thebusinessoftheCompanyhasbeenreorganisedintotwostrategic
customerfacinggeographicalbusinessunits:IndiaandGlobalOperations.Thissimplifiedsegmentreportingwill
leadtoenhancedtransparencyanddisclosuresofthefinancialperformanceoftheCompany.Thisisinlinewiththe
Companysendeavourforamoretransparentandrobustreportingstructurewhichwillbenefitallthestakeholders.

DividendDuringtheyearunderreview,theBoardofDirectorshasnotrecommendedanydividendontheequity
sharesoftheCompany

In 2013 RCom diverges into rcom and r properties so its debt is redistributed, what happened
http://www.moneycontrol.com/news/cnbc-tv18-comments/reliance-communications-to-demergereal-estate-business-_913055.html
RCom to demerge realty assets as Reliance Properties aims to monetise assets worth $2B
Read more at:
http://www.vccircle.com/news/real-estate/2013/07/08/rcom-demerge-realty-assets-reliance-properties-aims-monetise-assets

Reliance Communications (RCOM) has informed BSE (pdf) that its company board has
decided in-principle to demerge its real estate business into a separate company
called Reliance Properties Ltd.
The company informed this proposed demerger is part of the companys strategic plan
to divest non-core assets, and focus on its core wireless and enterprise business. It also
noted that this demerger will have no impact on RCOMs profitability since real estate
was not being used in its telecom business.
The new entity will be listed separately and all RCOM shareholders will receive pro-rate
shareholding in Reliance Properties free of cost, based on their existing shareholding in
RCOM.
Over the past few months, RCOM has inked quite a few deals to reduce its debts and is
reportedly in the process of signing few more deals for the same.
http://www.medianama.com/2013/07/223-reliance-communications-real-estatedemerger/

Domestically owned Reliance Communication, which has the weakest


balance sheet among the top-four operators, could also benefit from this
move.

Key PlayerReliance
Communications
Rcom faces to strengthen its BS.

Although most Indian telcos have similar problems, this is especially


worrying for RCom, the most highly leveraged listed Indian operator,
with a burdensome net debt of Rs367.66bn as of December 2015. The
company has struggled to reduce debt, albeit with some success.
Partly in preparation for the auction, RCom raised Rs61bn in mid-2014
from a share sale to institutional investors, which it used to repay
loans. That was part of a deleveraging drive, which includes cutting
5,000 staff since mid-2014 and increased outsourcing. In the
December quarter therefore, RCom's net debt fell by 10% year on year,
while net finance costs dropped by 13%. It also says that it has already
completed much of its capital-intensive investments, although it still
needs to invest about Rs10bn-15bn annually. The company says it will
reduce debt by Rs150bn over the next two years and expects
significant further improvements, especially through the monetisation
of core and non-core assets.
However, for the past few years, RCom has unsuccessfully tried to
monetise various assets. It is currently actively seeking to sell or
demerge its real estate holdings with an estimated monetisable value
of Rs120bn. It is also looking to sell its international telecoms services
business, Global Cloud Xchange, which includes its undersea cable
operations, as well as its direct-to-home television business. These can
still unlock substantial value. If RCom can get those sales right as it
continues to tighten its core operations and drive its data business, it
will remain in the top tier of Indian operato

Annual report 2014


http://economictimes.indiatimes.com/reliance-communicationsltd/chairmanspeech/companyid-15279.cms

Sharing Tower
RelianceCommunications(RCOM)andRelianceJIOInfocommhavesignedanagreementforsharingtower
infrastructurewithanaggregatevalueofINR120b.ThedealwillenableRelianceJIOtoutilizeupto45,000sites
fromRCOM'sexistingnetwork.Weestimateincrementalrevenueof~INR8bperyearandincrementalEBITDA
ofINR7b7.5bperyearforRCOM,assumingthatRelianceJIOrampsupto45,000sites.Weareupgrading
FY14/FY15EEBITDAby12%andtargetpriceby14%toINR111.ThestocktradesatanEVof7.5xFY14E
and6xFY15EEBITDA.MaintainNeutral.

http://www.moneycontrol.com/news_html_files/news_attachment/2013/
RCOM_Motilal_110613.pdf

Airtel 2013 news


https://doc.research-and-analytics.csfb.com/docView?
language=ENG&source=ulg&format=PDF&document_id=1013495371
&serialid=cWKTL18PVqXhuAqFgWPAFRUDLDWTvptSe519%2FrZOSHc
%3D

2014 new products

reliancecommunicationsVoice

fishy data related to reliance communiactions


http://markets.ft.com/research/Markets/Tearsheets/Financials?s=RCOM:NSI