COMPANY REPORT CARD 1. FACT SHEET. Aravali Crescent, 1 Nelson Mandela Road, New Delhi Telecommunications Service Provider.

Transcription

1 COMPANY REPORT CARD 1. FACT SHEET Registered Office Industry Aravali Crescent, 1 Nelson Mandela Road, New Delhi 17 Telecommunications Service Provider Chairman & MD Sunil Bharti Mittal Year of Incorporation July 7, 1995 Major Shareholders (on 24 th April, 9) Bharti Telecom Ltd 45.3% Pastel Ltd 15.58% Indian Continent Investment Ltd 6.27% Profile Flagship company of Bharti Enterprises Primary Stock Exchange NSE, BSE Market Capitalization (INR Cr)(as on 1,,115 date) Promoter % % Free Float % % 2. PRICE INFORMATION LATEST DATE PRICE AS ON DATE WEEK HIGH WEEK LOW BETA.78 FACE VALUE (INR) 5 3. BACKGROUND & BUSINESS Bharti Airtel is India s largest integrated and the first private telecom services provider. The businesses at Bharti Airtel have been structured into 3 Individual Strategic Business Units (SBU s)- I. Mobile Services : The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles II. Airtel Telemedia Services: 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. III. Enterprise Services: The Enterprise services provide end-to-end telecom solutions to corporate customers and national & international long distance services to carriers.

2 3. PRODUCTS & SERVICES OFFERED BY THE COMPANY: MOBILE POST PAID PRE PAID SPEED ON DEMAND BROADBAND & INTERNET AIRTEL PC SECURE AIRTEL NET PC IPTV WIRELESS INTERNET DATA CARD USB MODEM INTERNATIONAL CALLING CARDS AIRTEL HOME WORLD CALLING

3 4. PEER GROUP COMPARISON (AS ON 31 ST, 9): Parameter TATA COM. MTNL IDEA BHARTI AIRTEL R COMM NET Sales PBIDT PAT EPS PBDTIM % PATM % ROCE% ROE% COMPANY VS INDUSTRY (AS ON DATE): Parameter BHARTI AIRTEL INDUSTRY AVERAGE % INDUSTRY SUBSCRIBERS 119 million 543 million 22% NET Sales % PBIDT % PAT % PBDTIM % times PATM % times ROCE% times ROE% times PEER GROUP SUBSCRIBER TRENDS millio n Airtel Reliance Vodafone BSNL Idea Tata Others 1 Feb 9 Feb Net Adds during the years

4 6. FINANCIAL EVALUATION: INCOME STATEMENT: Parameter TOP LINE INCOME : Gross Sales (Cr) 37,352 27,12 18,4 11,664 8,112 Growth % 38.28% 46.64% 57.92% 43.78% Net Sales (Cr) 37,352 27,12 18,4 11,664 8,112 EXPENDITURE : Inc/ Dec in Stock (18.57) (151.46) (65.1) 9.74 (25.) Raw Material Cost Power & Fuel Cost Employee Cost Manufacturing Cost Administrative Exp Selling & Distribution Miscellaneous Exp (-) Total Exp(Cr) 24,182 16,3 11,186 7,74 5,296 (+) Other Income BOTTOM LINE PBIDT(Cr) 13,766 11,168 7,6 4,56 2,932 Growth % 23.26% 5.% 82.56% 38.33% (-) Interest (-) Depreciation PBT(Cr) 8,591 7,311 4,678 2,345 1,583 Provision for TAX PAT(Cr) 8,44 6,495 4,11 2,56 1,223 Growth % 23.84% 58.3%.6% 67.91% EPS EPS GROWTH % 23.85% 57% % 99.8%

5 ANALYSIS ITEM % OF THE TOP LINE % GROWTH IN 9 POWER & FUEL COST 6.7% 11.64% PROCESSING COST 15.9% 26.53% ADMINISTRATION EXPENSES 8.17% 56.57% MISCELLANEUS EXPENSES 17.28% 64.94% DEPRECIATION 12.51% 34.61% Sales of the Bharti Airtel increased at a growth rate of 38% for the year ending 31 st 9. However, the Operating Profit showed an increment of just 23%. This differential is attributed to the increased miscellaneous expenses - which include the losses due to fluctuation in the foreign exchange rates (the figure rose from Crores in 8 to Crores in 9). Miscellaneous expenses consume 17% of the total revenue of the company and have grown at a rate of 65% from the previous year 7-8. Another major portion of the gross revenue of Bharti Airtel is eaten up by the Other manufacturing costs which include the processing costs. The above table shows that 15% of the gross revenue earned by the company is consumed for the costs involved from getting a subscription till the activation of the service. Power & Fuel costs are another source of worry for the company % rise from last financial year brings out a clear carelessness on part of the company management. Depreciation charge being a non cash charge in a company s financial statements has gone up by 34.61% Growth in the Earnings per share (EPS) of the company has declined substantially as compared to the previous years where the growth was % for two consecutive years (6 & 7). DECLINING EPS GROWTH OF BHARTI 99.8 GROWTH% '6 '7 '8 '9 EPS EPS GROWTH Thus, declining Sales revenue of the company coupled with growing expenses under different heads - as can be analyzed in the previous tables -shows a sign of concern about the company s long term survival. This is because of the fact that there is a growing tariff war amongst the telecom industry players.

6 GRAPHICAL ANAYSIS REPRESENTING THE GROWTH OF SALES REVENUE AS COMPARED TO THE GROWTH IN VARIOUS EXPENSE ITEM. GROWTH IN SALES VS POWER & FUEL COST GROWTH IN SALES VS PROCESSING COST % G R O W T H '3 '4 '5 '6 '7 '8 '9 G R O W T H % 1 '3 '4 '5 '6 '7 '8 '9 GROWTH IN SALES GROWTH IN POWER & FUEL GROWTH IN SALES GROWTH IN PROCESSING COST GROWTH IN SALES VS ADMINISTRATIVE EXPENSES GROWTH IN SALES VS MISC EXPENSES G R O W T H % '3 '4 '5 '6 '7 '8 '9 G R O W T H % '3 '4 '5 '6 '7 '8 '9 GROWTH IN SALES GROWTH IN ADMINISTRATIVE EXPENSES GROWTH IN SALES GROWTH IN MISCELLANEOUS EXPENSES

7 DU PONT ANALYSIS Du - Pont Analysis is a useful fundamental analysis tool which measures the return generated by the company for its equity shareholders given by ROE in detail. It particularly dissects ROE into three parts: (1) Profitability (Net Profit Margin = Net Income/ Sales) (2) Asset Turnover (AT = Sales/ Total Assets) (3) Leverage Multiplier (LM = Total Assets/ Equity) PBITM% Sales/ Total Assets Assets/ Equity ROE Bharti Airtel has maintained a Profit Margin of over % in the past 3 years, hence proved its durable competitive advantage. Even though there has been an increase in sales in the past 5 years, it has not been able to utilize its asset turnover. There have been no equity buyback, but there has been an increase in the debt mainly in the form of unsecured from banks. The ROE has been uniform in the past 5 years with a rise in 7 which is attributable to the increase in profitability in that year. The company needs to concentrate on the asset turnover so as to increase the return on equity.

8 7. LATEST QUARTER RESULTS: Particulars Q3 Dec 9 Q3 Dec 8 Y o Y % Change Net Sales % (-) Total Expenditure % PBIDT % (+) Other Income % (-) Interest (225.66) % PBDT % (-) Depreciation % (-) Tax % PAT % ANALYSIS: Bharti Airtel unveiled a new plan Airtel Turbo under which the company reduced its roaming rates by nearly %. Thus, it has reduced the companies Income substantially. million subscribers were added during the quarter. However, there was a dip in the Net income of the company due the tariff cuts. Interest Expense reduced drastically by 156 % - which is assumed as a result of the huge investments sold during the year which had interest accrued along. Profit before interest tax and depreciation margin (PBITDM) % - A key gauge of the profitability was 37.75% against 37.98% in the preceding quarter, as a result of the sharp decline in tariffs.

9 SEGMENT ANALYSIS As on 31 st, 9: REPORTABLE SEGMENTS MOBILE SERVICES TELEMEDIA SERVICES ENTERRISE SERVICES - CARRIERS ENTERPRISE SERVICES CORPORATES SERVICE REVENUE 2,74,918,524 3,93,923 24,186,244 11,152,729 INTER SEGMENT REVENUE 7,814,275 2,184,489 43,3,27 3,941,886 TOTAL REVENUE 2,82,732,799 33,115,412 67,389,514 15,94,615 As can be analyzed from the above table, major portion of Bharti Airtel s revenue are generated from the mobile services segment. Mobile Service Segment includes pre paid and post paid service. The key financial results of the Mobile segment for the year ended 31 9 are presented below : PARTICULARS FY 7-8 FY 8-9 Y-o- Y Growth CUSTOMERS 61,984,721 93,923,248 52% GROSS REVENUE Rs. 218,697 mn Rs 34, 188 mn 39% EBIT Rs. 59, 269 mn Rs 68,746 mn 16% The above table shows that there has been an incredible growth in the customer base with Bharti Airtel in its mobile segment. However, the gross revenue has not increased in line with it with a growth of 39%. Also, the growth in the EBIT is further lower to a figure of 16% Average Revenue Per User 331 Q2-8 Q3-8 Q4-8 Q1-9 Q2-9 Q3-9 Q4-9 Q1-1 Q2-1 Q RPM (Rs) ARPU (Rs.) Taking into consideration the rising tariff war amongst the industry players, the margin of profitability in the mobile services segment seems to be quite less. This implies - if Bharti intends to continue with its existing top line or even plans to increase it; it will have to focus on the other service segments.

10 1 OUTLOOK Bharti Airtel being an integrated telecom service provider has announced that it has agreed to acquire 7% stake in Warid Telecom, Bangladesh as on January 12, 1. -Under the agreement, Bharti Airtel will make a fresh investment of $3 million to expand the operations of Warid Telecom and will have management and board control of the company. Kuwait based Zain Telecom s goard cleared Bharti Airtel s proposal to buy its African assets for $1.7 billion (around Rs. 48, Crore), marking Bharti s first successful attempt to acquire operations in Africa after two failures. After this deal, the key countries to be added to Bharti s network will be : (1) Tanzania (Zain has 39% share) (2) Zambia (7%) (3) Nigeria (25%) (4) Congo (45%) (5) Chad (7%) By giving decent profit figures they were able to hold the competitive intensity well, but the real test will come in the quarters ahead due to the intensified tariff war amongst the telecom companies. However, Bharti s plan to pursue overseas business can enable it to resist the domestic market competition. Further, Bharti expects the government's auction of third-generation wireless spectrum to be completed by April, 1. As a contrarian, we strongly recommend BUYING Bharti Telecom at current price with 1-2 year outlook