ASSIGNMENT ON FUNDAMENTAL ANALYSIS OF BHARTI AIRTEL

SUBMITTED TO: ARSHWINDER KAUR CTIMIT

SUBMITTED BY: NAVJOT WALIA MBA B 701

Telecom Industry in India, India Telecome Industry

Telecom industry in India has a big market potentiality and is a fast growing sector. Government of India is eager to reconstitute this telecom industry by enacting effective policies for more investments from foreign companies, which results in a very competitive and deregulated market in the world.

Policies of telecom industry in India

Government of India implemented the unified access licensing regime, which enables basic and cellular mobile service to use any modern technology. In 1997, Telecom Regulatory Authority of India (TRAI) was formed to facilitate the growth of the telecom sector in India At 861.48 million connections in April 2011 Indian Telecom Industry is the third largest and fastest growing in the world. According to the Cellular Operators Association of India.The GSM cellular subscribe base has reached to 590.19 million in may 2011 from 580.66 million at the end of the April 2011. There were 826.93 million total wireless subscribers (including GSM and CDMA) in the company at the end of April 2011. As per projection, wireless telephony will continue to fuel growth in the Indian telephone industry with mobile subscribes base in India is expected to reach 1.159 billion by 2013. Among leading mobile operator in India include Bharti Telecom with 19.88% market share followed by Reliance with 16.80% Vodafone with 16.59 % Idea Cellular with 11.16% , state owned BSNL with 11.05% ,TATA with 10.8%.Aircel with 6.79% and others accounting for just about 6.93% of market share.

Over the last 5 years, nine out of every ten new telephone connections have been wireless. Consequently, wireless now accounts over 95% of the total telephone subscriber base, as compared to only 40% in 2003. And the numbers are still growing for ' Indian Telecom Industry '. ' Telecom Industry in India ' is regulated by 'Telecom Regulatory Authority of India' (TRAI). It has earned good reputation for transparency and competence. Three types of players exists in ' Telecom Industry in India ' community State owned companies like - BSNL and MTNL.

Private Indian owned companies like - Reliance Infocomm and Tata Teleservices. Foreign invested companies like - Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communications etc.

The ' Indian Telecom Industry ' services is not confined to basic telephone but it also extends to internet, broadband (both wireless and fixed), cable TV, SMS, IPTV, soft switches etc. The bottlenecks for ' Indian Telecom Industry ' are:

Slow reform process. Low penetration. Service providers bears huge initial cost to make inroads and achieving break-even is difficult.

Huge initial investments. Limited spectrum availability and interconnection charges between the private and state operators.

The Government Broadband Policy 2004, had a target to create 9 million broadband connections and 18 million internet connections in 2007. Broadband subscription reached 12.01 million in April 2011.' Indian Telecom Industry ' is currently expected to contribute nearly 1% to India's GDP which is heartening and estimated to grow further and brighten the ' Scenario of Indian Telecom Industry '.

Economic Analysis:
It include various economic activites in Telecom Industry in India. There is large amount of Foreign Direct Investment(FDI) in India .Gross Domestic Product(GDP), Saving, Investment, Inflation , Tax Structure , Infrastructure , Demographic factor, Balance of payment(BOP). Technology The latest technology in telecom is 3G. 3G is the third generation of tele standards and technology for mobile networking, superseding 2.5G. It is based on the International Telecommunication Union (ITU) family of standards under the IMT-2000.[1]

3G networks enable network operators to offer users a wider range of more advanced services while achieving greater network capacity through improved spectral efficiency. Services include wide-area wireless voice telephony, video calls, and broadband wireless data, all in a mobile environment.

2G/3G

VoIP

Technology

CDMA

WIMAX

Service providers provide different services on networks. BlackBerry is the latest one.BlackBerry services bring together smart phones and software services to provide customers with easy wireless access to email, phone, web and multimedia applications. At present, four

telecom operators - Reliance Communications, Airtel, Vodafone and Tata Teleservices - are providing BlackBerry services. Demographics
The following demographic statistics are from the CIA World Factbook Total Population 122 Crore (July 2011 est. Population Census) Rural Population

72.2%,

male: 381,668,992,

female: 360,948,755

Age structure: 014 years: 30.8%, male: 188,208,196, female: 171,356,024 1564 years: 64.3%, male: 386,432,921, female: 364,215,759 65+ years: 4.9%, male: 27,258,259, female: 30,031,289 (2007 est.) The median age of Indians is 25.1 years. The majority of the Indian population is in the age group of 15-64 years. Mostly users of mobile phones belong to this category of age. Hence, Indian holds a great potential market for telecom service providers. Even young generation of India is attracted more and more towards cell phones and this has become a trend and need of even small children in India. This assures a high growth in this industry in future. Profitability: Increased FDI Flows: The Telecom sector is one of the largest attractor of Foreign Direct Investment in the country, accounting for almost a fifth of FDI approvals since 1991.

Heavy investment in Infrastructure:

The cellular industry is responsible for the single largest chunk of investment by any individual industry.The industry has already invested over Rs. 20,000 crores and is expected to invest even more in the years to come. Revenue Generation for the Government of India The cellular telephony sector is poised for big growth going forward provided the government controls the sector and its players in a healthy manner. Basic and Cellular telephony form the back bone of communications in the country though the internet too has played a pivotal role. Employment Generation: As the number of licensees goes up and they start their operations with 77 networks on air, the employment opportunities in this sector will be huge.

Industry Classification
Life cycle position
The Telecom Industry in India is in its growth stage. Telecom is one area in India where significant improvements have happened. Now the private operators also are providing services which is giving rise to more choice. The Telecom sector in India is experiencing a stage of Mature Growth. The growth in sales is still above normal. Due to rapid growth of sales and profit margins, new players are getting attracted to the Industry giving rise to more and more competitors. This is leading to an increase in the level of supply and lower prices. Profit Margins will start declining over time. The new players in the industry are: Datacomm S Tel Ltd Unitech Wireless Ltd ByCell Telecommunications Swan Telecom Pvt. Ltd Alcatel Lucent ATC Tower Company of India Pvt. Ltd.

Aster infrastructure Pvt. Limited Nokia Siemens Networks

SWOT ANALYSIS OF INDIAN TELECOM INDUSTRY: Facts:

Indian Telecom market is one of the fastest growing markets in the world. Indian telecom network has about 562.21 million connections as on 31 December 2009. With 525.15 million wireless connections, Indian telecom has become the second largest wireless network in the world after China. About 15 million connections are being added every month. Wireless telephones are increasing at faster rate. The share of wireless telephones as on December 31, 2009 is above 93% of the total phones. The share of private sector in total telephone is about 82.33%.

Strengths:
Huge Customer potential Teledensity still being 48% and rural tele-density 21%. The broadband subscribers grew from 0.18 million in 2005 to6.2 million as on 30 April 2009 and about 7.98 million, at the end of the December 2009. High Growth Rate Wireless subscribers growing at a CAGR of 60 per cent per annum since 2004.

Allowed FDI limit ranging from 74% to 100% The total FDI equity inflows in telecom sector have been US$ 2223 million during April-November 2009-10

High return on Investment Easier to create economies of scale thereby increasing return on investment

Liberalization efforts by Govt. The share of private sector in total telephone connections is now 82.33% as per the latest statistics available for December 2009 as against a meager 5% in 1999.

Lower capital expenditure The Indian telecom market is a high density area, which means more population per tower. This means lower capital expenditure cost.

Weakness:
Poor Telecommunication Infrastructure. Result : Large number of call drops. Late adopters of New Technology India will be among the last countries in the world to get access to 3G technology. Some estimates suggest that nearly 132 countries across the world already have 3G technology and mobile services in one form or the other. Most competitive market 10 to 12 companies offer mobile services in most parts of India, globally, the average is 4.

A market strongly regulated by Government. Difficult to enter because of requirement of huge financial resources.

E.g Auction of 3G license has reached Rs 15814.15 crores.

Opportunities:
3G Telecom services and 4G services More Quality Service Mobile Number Portability will force the Service provider to improve their quality to avoid losing subscribers Value added Services (VAS) The mobile value added services include, text or SMS, menu based services, downloading of music or ringtones, mobile TV, videos, streaming, sophisticated m-commerce applications etc. Mobile banking, Mobile Ticketing etc

Boost to Telecom Manufacturing Companies Production of telecom equipments in value terms has increased from Rs. 412700 million (2007-08) to Rs.488000 million during 2008-09 and expected to increase to Rs. 575840 million during 2009-10.

Telecom Equipment Exports The Indian telecom industry is expected to reach a size of Rs 344,921 crore by 2012 at a growth rate of over 26 per cent, and generate employment opportunities for about 10 million people during the same period.The sector

would create direct employment for 2.8 million people and for 7 million indirectly, according to a Frost and Sullivan report. Horizontal Integration Entry Into other consumer segments leveraging the present channels E.g. DTH service like Reliance BIG TV, Tata SKY, Airtel digital TV by telecom majors like Reliance, Tata and Airtel Respectively. Other examples : Airtel website builder

Providing fibre Connectivity to 2,50,000 village panchayat by 2012. More scope in content related services, since, the consumer is influenced by local culture. Local festivals like Baisakhi, Chhath Puja, religious festivals like Diwali, Chrismas etc., National festivals like Independence Day etc.

Threats :
Telecommunication Policies e.g. Trai's 2G direction affecting new players most notably Tata Teleservices, Norways Telenor and Essar-owned Loop Telecom Renewal of 2G license on the basis of market rates of 3G auctions TRAI intentions of rolling out 4G or the fourth-generation technology, known as the ultra-broadband in 2-3 years raising fears rendering 3G services somewhat obsolete. Declining ARPU (average Revenue per user)

E.g. price wars like per-second billing which is deflating revenues and making sure the survival of the fittest

Partiality on the part of the Govt. E.g.Allowing 3G service in a PSU (MTNL,BSNL) before auctioning to Private Sector .

Content Piracy

Porters Generic Strategy

 Porters 5 Forces:

Customer Bargaining Power

Threat of New Entrants

Threat from Competition

Threat of Substitutes

Supplier Bargaining Power

1. Threat from Competition

Wireless Market Top 4 garnering 75% market share

 2. Customer Bargaining Power:

Lack of differentiation among Service Providers Cut throat Competition Low Switching Costs Number Portability will have Ve Impact Businesses & Consumers

3. Suppliers Bargaining Power:

4.Threat of Substitutes:

Landline CDMA Video Conferencing VOIP - Skype, Gtalk, Yahoo Messenger e-Mail & Social Networking Websites

5. Threat of New Entrants:

Huge License Fees to be paid upfront & High gestation period

Entry of MVNOs & WiMAX operators Spectrum Availability & Regulatory Issues Infrastructure Setup Cost - High Rapidly changing technology

Company Analysis:
Company name Bharti Airtel Limited. Business Description: It Provides GSM mobile services in all the 22 telecom circles in India, Srilanka, Bangladesh and now in 16 countries of Africa. It Provides telemedia services (fixed line and broadband services through DSL) in 87 cities in India. It Provides an integrated suite of Enterprise solutions, in addition to providing long distance connectivity both Nationally and Internationally. We also offer DTH and IPTV Services established July 07, 1995, as a Public Limited Company ISIN INE397D01024 proportionate revenue

Rs. 169,749 million (ended June 30, 2011-Audited) Rs. 122,438 million ( ended June 30, 2010-Audited) As per IFRS Accounts proportionate EBITDA

Rs. 57,058 million ( ended June 30, 2011 - Audited) Rs. 44,456 million ( ended June 30, 2010 - Audited) As per IFRS Accounts

Shares in Issue 3,797,530,096 as at June 30, 2011 listings in Bombay Stock Exchange Limited (BSE),National Stock Exchange of India Limited (NSE)

Financial position of the company:

Revenue:
Periods June September December March 2010 104143.0 103785.0 103053.0 107491.0 2011 122856.0 151602.0 157560.0 162654.0 2012 169828.0

Note: Units in Millions of Rupee

Earnings Per Share:

Periods June September December March 2010 6.51756 5.97 5.77981 5.39251 2011 4.43 4.37259 3.43197 3.69557 2012 3.2

Note: Units in Rupee

Consensus Estimates Analysis:

# of Estimates Mean SALES (in millions) Quarter Ending Sep-11 Quarter Ending Dec-11 Year Ending Mar-11 Year Ending Mar-12 Year Ending Mar-13 EARNINGS (per share) Quarter Ending Sep-11 Quarter Ending Dec-11 Year Ending Mar-11 Year Ending Mar-12 Year Ending Mar-13 LT Growth Rate (%) 2 2 45 43 43 4 3.64 4.34 17.11 19.25 27.52 13.97 3.65 4.44 20.60 27.00 39.77 22.29 3.63 4.25 14.40 14.70 19.60 6.80 3.85 4.67 -23.39 28.19 6.36 6 4 44 43 43 170,463.00 225,105.00 101,555.00 164,043.00 182,511.00 185,459.00 178,782.00 171,331.00 592,594.00 620,056.00 459,250.00 -718,743.00 752,650.00 686,789.00 590,490.00 821,343.00 870,689.00 769,663.00 697,364.00 High Low 1 Year Ago

Sales and Earnings Figures in U.S. Dollars (USD)

Valuation Ratios:
Company P/E Ratio (TTM) P/E High - Last 5 Yrs. P/E Low - Last 5 Yrs. Beta Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) 26.10 33.99 13.21 0.73 2.27 2.92 -8.67 -Industry 15.39 25.02 11.86 0.54 1.58 1.49 1.24 5.93 9.75 Sector 13.61 29.70 11.17 0.53 1.23 1.23 1.29 4.62 9.71 S&P 500 14.49 98.44 12.69 1.19 2.01 2.89 4.41 9.58 38.37

% Owned Institutions

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Dividends:
Company Dividend Yield Dividend Yield - 5 Year Avg. Dividend 5 Year Growth Rate Payout Ratio(TTM) 0.26 0.17 -7.91 Industry 2.77 2.21 4.75 31.95 Sector 3.21 2.40 7.87 33.56 S&P 500 2.30 2.38 -1.64 32.14

Growth Rates:
Company Sales (MRQ) vs Qtr. 1 Yr. Ago Sales (TTM) vs TTM 1 Yr. Ago Sales - 5 Yr. Growth Rate EPS (MRQ) vs Qtr. 1 Yr. Ago EPS (TTM) vs TTM 1 Yr. Ago EPS - 5 Yr. Growth Rate 38.23 46.77 38.61 -27.77 -31.86 21.64 Industry 6.50 9.05 8.37 0.92 -4.49 5.07 Sector 4.84 6.18 5.41 -0.22 -3.67 2.75 S&P 500 12.66 10.52 7.79 10.35 -6.68 3.94

Capital Spending - 5 Yr. Growth Rate 36.99

Financial Strength:
Company Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) 0.29 0.30 92.31 125.96 -Industry 1.42 1.52 26.84 36.59 0.01 Sector 1.36 1.47 36.45 46.53 0.10 S&P 500 0.75 1.10 111.90 151.41 23.17

Profitability Ratios:

Company Gross Margin (TTM) Gross Margin - 5 Yr. Avg. EBITD Margin (TTM) EBITD - 5 Yr. Avg Operating Margin (TTM) Operating Margin - 5 Yr. Avg. Pre-Tax Margin (TTM) Pre-Tax Margin - 5 Yr. Avg. Net Profit Margin (TTM) Net Profit Margin - 5 Yr. Avg. Effective Tax Rate (TTM) Effecitve Tax Rate - 5 Yr. Avg. 65.71 61.24 33.08 38.49 15.33 23.40 11.42 21.34 8.43 18.58 26.18 12.95

Industry 60.95 56.92 -35.72 17.83 17.55 16.97 17.17 10.80 11.64 33.73 31.83

Sector 59.00 57.19 -35.50 15.84 15.47 15.05 15.10 9.60 10.07 34.47 33.19

S&P 500 34.92 33.41 -20.87 -15.72 15.57 15.26 11.75 11.34 22.32 24.92

Efficiency:
Company Revenue/Employee (TTM) Net Income/Employee (TTM) Receivable Turnover (TTM) Inventory Turnover (TTM) Asset Turnover (TTM) --12.23 107.70 0.44 Industry Sector S&P 500 748,909 101,267 9.39 8.38 0.62

126,882,503 93,028,635 14,893,466 7.13 30.71 0.58 10,170,656 6.50 24.59 0.56

Management Effectiveness:
Company Return on Assets (TTM) Return on Assets - 5 Yr. Avg. Return on Investment (TTM) Return on Investment - 5 Yr. Avg. 3.71 11.57 5.18 16.48 Industry 6.46 7.78 7.90 10.12 Sector 5.56 6.42 7.10 8.55 S&P 500 7.21 6.38 9.42 8.44

Return on Equity (TTM) Return on Equity - 5 Yr. Avg.

11.96 24.96

10.72 13.41

9.62 11.53

24.95 20.71

COMPETITORS:

Hutch- Biggest competitor. Players such as Reliance & MTNL, Vodafone,Idea,Uninor,Videocon, for their low cost tariff plans

BPL Mobile to a certain extent but that has been taken over by Hutch.

SWOT ANALYSIS:
STRENGTHS: 1) Very strong customer support. 2) Congestion free & wide network. 3) Unique value added services. 4) Reputable venture. 5) Improved Customer Services. 6) Unique Investment Strategies. 7) Technologically far improved than others. 8) Largest Telecom Player in India - ~80Mn, 22.6% 9) Strategic Alliance with other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia - and Sing Tel 9) Pan India Presence 10) Strong Financials

WEAKNESS: 1) Poor network in rural areas. 2) Low GPRS speed. 3) Positioning fluctuations. 4) Outsourcing of Core Systems. 5) Lack of emerging market investment opportunity.

OPPORTUNITIES: 1) Huge wireless subscriber potential. 2) Ready-to-pay consumers for cutting edge services. 3)India- fastest growing mobile market in the world.

THREATS: 1) Software and digital content piracy. 2) Other players, especially BSNL ,Idea, Vodafone, etc.