AIRTEL

COMPANY PROFILE
Bharti Airtel is one of India's leading private sector providers of telecommunications services
based on an aggregate of 48,853,758 customers as on August 31, 2008, consisting of
46,814,745 GSM mobile and 2,039,013 broadband & telephone customers.

The businesses at Bharti Airtel have been structured into three individual strategic business
units (SBU’s) - mobile services, broadband & telephone services (B&T) & enterprise services.
The mobile services group provides GSM mobile services across India in 23 telecom circles,
while the B&T business group provides broadband & telephone services in 94 cities. The
enterprise services group has two sub-units - carriers (long distance services) and services to
corporates. All these services are provided under the Airtel brand.

Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National Stock
Exchange of India Limited (NSE).

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

 Loved by more customers

 Targeted by top talent
 Benchmarked by more business

MISSION
“To Be Globally Admired For Telecom Services That Delight Customers.”

SWOT Analysis Bharti Airtel

Strengths
 Bharti Airtel has more than 65 million customers (July 2008). It is the largest cellular
provider in India, and also supplies broadband and telephone services - as well as many
other telecommunications services to both domestic and corporate customers.
 Other stakeholders in Bharti Airtel include Sony-Ericsson, Nokia - and Sing Tel, with whom
they hold a strategic alliance. This means that the business has access to knowledge and
technology from other parts of the telecommunications world.
 The company has covered the entire Indian nation with its network. This has underpinned
its large and rising customer base.
 Weaknesses
 An often cited original weakness is that when the business was started by Sunil Bharti
Mittal over 15 years ago, the business has little knowledge and experience of how a
cellular telephone system actually worked. So the start-up business had to outsource to
industry experts in the field.
 Until recently Airtel did not own its own towers, which was a particular strength of some of
its competitors such as Hutchison Essar. Towers are important if your company wishes to
provide wide coverage nationally.
 The fact that the Airtel has not pulled off a deal with South Africa's MTN could signal the
lack of any real emerging market investment opportunity for the business once the Indian
market has become mature.
Opportunities
 The company possesses a customized version of the Google search engine which will
enhance broadband services to customers. The tie-up with Google can only enhance the
Airtel brand, and also provides advertising opportunities in Indian for Google.
 Global telecommunications and new technology brands see Airtel as a key strategic player
in the Indian market. The new iPhone will be launched in India via an Airtel distributorship.
Another strategic partnership is held with BlackBerry Wireless Solutions.
 Despite being forced to outsource much of its technical operations in the early days, this
allowed Airtel to work from its own blank sheet of paper, and to question industry
approaches and practices - for example replacing the Revenue-Per-Customer model with a
Revenue-Per-Minute model which is better suited to India, as the company moved into
small and remote villages and towns.
 The company is investing in its operation in 120,000 to 160,000 small villages every year. It
sees that less well-off consumers may only be able to afford a few tens of Rupees per call,
and also so that the business benefits are scalable - using its 'Matchbox' strategy.
 Bharti Airtel is embarking on another joint venture with Vodafone Essar and Idea Cellular
to create a new independent tower company called Indus Towers. This new business will
control more than 60% of India's network towers. IPTV is another potential new service
that could underpin the company's long-term strategy.
Threats
 Airtel and Vodafone seem to be having an on/off relationship. Vodafone which owned a
5.6% stake in the Airtel business sold it back to Airtel, and instead invested in its rival
Hutchison Essar. Knowledge and technology previously available to Airtel now moves into
the hands of one of its competitors.
 The quickly changing pace of the global telecommunications industry could tempt Airtel to
go along the acquisition trail which may make it vulnerable if the world goes into recession.
Perhaps this was an impact upon the decision not to proceed with talks about the potential
purchase of South Africa's MTN in May 2008. This opened the door for talks between
Reliance Communication's Anil Ambani and MTN, allowing a competing Inidan industrialist
to invest in the new emerging African telecommunications market.
 Bharti Airtel could also be the target for the takeover vision of other global
telecommunications players that wish to move into the Indian market.
 CAPITAL STRUCTURE OF BHARTI-AIRTEL
The capital structure of Bharti-Airtel is explained below:

(In ‘000 Rs.) 2008 2007 2006

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

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

Nominal Value of Capital

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

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

Issue Price of shares

Share Premium
The Share premium at the beginning of financial year 2005 is Rs. 31,254,879,000. It changed to
Rs. 38,754,546,000 by the end of the financial year and to Rs. 39,259,225,000 at the end of
financial year 2006. While no new shares were issued the change is due to other reasons which
are illustrated below.

Dividend Distribution

For the year ending 2006-2007

The directors believe that there are tremendous growth opportunities available to the telecom
sector and the Company should leverage these by further expanding and strengthening its
existing network. This will enhance shareholder value in the long-term. Accordingly, the
directors did not recommend any dividend for the year ended March 31, 2007, in view of the
proposed investments in network expansion and operations.

However this does not explain the change in share capital. The change in share capital can be
explained by the following:

 The Company allotted 2,722,125 Equity Shares of Rs. 10/- each upon merger of Bharti
Cellular Limited (BCL) into the Company. During the year the Company allotted
18,242,237 equity shares upon conversion of Foreign Currency Convertible Bonds
(FCCBs) by their holders.
  During the year ended March 31, 2007 the Company had also issued 20,088,445 equity
shares of Rs. 10/- each fully paid up to M/s. Shyam Cellular Infrastructures Projects
Limited upon conversion of Optionally Convertible Redeemable Debentures (OCRDs).

For the year ending 2007-2008

The company did not declare any dividends because of the reasons as mentioned previously.
But during the year,
� The Company allotted 165400 equity shares on exercise of stock options to the employees of
the company under the Company’s ESOP Scheme 2006.
� The Company also allotted 1889453 equity shares upon conversion of Foreign Currency
Convertible Bonds (FCCBs) by their holders.
Due to these the corporate actions, the issued, subscribed and paid-up equity share capital
increased from 1,893,879,304 (March 31, 2006) to 1,895,934,157 equity shares as of March 31,
2007.
Rights Issue

No rights issue was brought out for the period 2006-2007.

MARKET CAPITALIZATION

The company had a market capitalization of over Rs. 760 billion for the year ending 31st March
2006 and was among the top 10 listed entities in India. For the year ending 31st March 2007,
the Company had a market capitalization of USD 38 bn and is among the top 5 listed entities in
India.

MV/BV Ratio
st st st
31 March 2008 31 March 2007 31 March 2006
Capital +Reserves (in Rs) (A) 1,148,883,838,000 73,623,863,000 53,200,292,000

No. Of Equity Shares(B) 1,895,934,157 1, 893,879,304 1,853,366,767

Book Value(BV) 60.59 38.87 28.70

= A/B
 Market Value(MV) 730.60 412.85 206.85

MV/BV 12.05 10.62 7.21

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

FINANCIAL STATEMENTS

Consolidated Balance Sheet

All Figures in ‘000

2008 2007 2006
Capital 19,259,346 19,060,053 18,560,889
Reserves 95,173,342 54,395,531 34,639,403
LTL 55,474,673 49,853,367 50,951,920
CL 98,446,711 66,991,634 43,199,744
Total 268,354,072 190,300,585 147,351,956
Fixed Assets 216,814,497 153,481,269 107,594,459
Investments 7,058,179 7,196,981 9,318,953
CA 44,454,766 29,622,335 30,438,533
Total 268,327,442 190,300,585 147,351,945

Consolidated Income Statement

All Figures in ‘000

2008 2007 2006
 Sales 177,944,343 112,905,793 79,441,940
COGS 220,849 674,043 721,037
Operating Expenses 105,121,756 71,445,970 48,780,762

Depreciation 23,533,010 14,323,385 10,193,626

PBIT 43,455,272 25,113,966 18,101,946

Interest 2,558,440 2,256,011 2,459,184

PBT 46,013,712 22,857,955 15,642,762

Tax 6,055,561 2,737,160 3,536,023

PAT 40,332,265 20,120,794 12,106,739

Consolidated Cash Flow Statement

All Figures in ‘000

2008 2007 2006

Opening CIH 3,074,285 3,841,352 1,316,310

CFF 3,401,320 3,763,474 -4,230,893

CFI - -50,843,891 -23,303,010
79,750,547
CFO 81,079,547 46,313,349 30,058,945

Closing CIH 7,804,605 3,074,284 3,841,352

RATIO ANALYSIS

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

CURRENT RATIO
Current Ratio = Current Asset / Current Liability
It is a simple guide to the ability of a company to meet its short term obligations. The current
ratio is a good diagnostic tool as it measures whether or not your business has enough
resources to pay its bills over the next 12 months. Higher the ratio higher is the liquidity.
The current ratio of Bharti Airtel Ltd has consistently remained less than 1. So its current
liability is greater than the current assets which implies that its short term liquidity
requirements might be financed by long term sources.

LIQUID RATIO
Liquid Ratio = (Current Asset – Inventory) / Current Liability
A better approach to measure the ability of a company to meet its short term liability is by
excluding the inventory from the current asset. This is done because it is unlikely to turn
inventory to cash immediately. It is thus a measure of how quickly a company’s asset can be
converted to cash. This ratio is also called the acid test and quick ratio.

Liquid Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 0.7 0.44 0.45

Since the companies are all service oriented, they do not have inventories and hence the liquid
ratios are almost similar to the current ratios calculated above. The liquid ratio of Bharti Airtel
Ltd is well below 0.5 which indicates that it is able to meet only half of the current obligations
from its current assets. The liquid ratios of VSNL and BSNL are much healthier than Bharti Airtel
Ltd.

ABSOLUTE CASH RATIO

Absolute Cash Ratio = (Cash + Near Cash Items) / Current Ratio
This ratio is still better in calculating the liquidity as it does not take into the debts in the
current asset.

Absolute Current Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 0.09 0.05 0.08

Absolute Current Ratio is very low for Bharti Airtel Ltd. This shows that very little cash reserve is
being maintained to meet the short term obligations
DEBTOR DAYS
Debtor Days = Debtors / Sales per day
This ratio measures the number of times that receivables turn over during the year. The lower
the turnover of receivables, the shorter the time between sale and cash collection. If a
company's debtor days is significantly higher than industry norms, the underlying reason (poor
collection methods, high risk customers, low sales) needs to be pinpointed.
Debtor Days measures the average time in days that receivables are outstanding. The higher
the number of days outstanding, the greater the collection risk. Debtor days may suggest a
concern over credit control and collections.
The Debtor days for Bharti Airtel Ltd has decreased over the last year. In a year credit sales
takes place only for 29 days and it is much lower as compared to its competitors thus indicating
it has healthy debt collection practices.

CREDITOR DAYS
Creditor Days = Creditors / Purchase of goods per day
This ratio measures the number of times that Accounts Payable turns over during the year
relative to the Sales. Lower turnover rates suggest a shorter time period between purchase and
payment. Higher than industry rates may suggest cash shortages, or expansion of trade credit.
Creditor days tells the average length of time trade debt is outstanding.

Creditor Days 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 40.31 82.98 133.20

Creditor days for VSNL and BSNL could not be calculated because COGS is not available for
them. Bharti Airtel Ltd follows a trend of increasing Creditor days thus indicating it takes longer
to pay to its creditors. In a year it makes purchases on credit for 133 days.

INVENTORY DAYS
Inventory Days = Inventory / COGS per day
A financial measure of a company's performance that gives an idea of how long it takes a
company to turn its inventory into sales. Generally, the lower (shorter) the Inventory days the
better, but it is important to note that the average varies from one industry to another.
Inventory Days 2004-2005 2005-2006 2006-2007 2007-2008
Bharti Airtel Ltd - 159.88 96.09 790.24

Inventory days for VSNL and BSNL could not be calculated because COGS is not available for
them. Bharti Airtel Ltd being a telecom service based company has very little inventory. In
2006-2007 the inventories were doubled but the COGS were halved.

SOLVENCY RATIOS
It’s the company’s ability to meet its long term obligations. Also called the capital structure it is
one of the major financing decisions for the company. A proper mix of debt and equity is said to
be always beneficial for the company rather than pure equity. Existence of debt disciplines the
management to some extent.

DEBT RATIO
Debt Ratio = Debt / Total Assets
This ratio shows how much the business is in debt, making it a good way to check the business’s
long-term solvency. The lower the debt ratio, the less total debt the business has in comparison
to its asset base. On the other hand, businesses with high debt ratios are in danger of becoming
insolvent and/or going bankrupt.

Debt Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 0.35 0.26 0.21

EQUITY RATIO
Equity Ratio = Equity / Total Assets
It helps in determining the extent of funding from equity channel.
 Equity Ratio 2004-2005 2005-2006 2006-2007 2007-2008
Bharti Airtel Ltd - 0.36 0.39 0.43

DEBT TO EQUITY RATIO

Debt to Equity Ratio = Debt / Equity

The debt to equity ratio is a financial ratio indicating the relative proportion of equity and debt
used to finance a company's assets. It is considered to be a good practice to use both Debt
(financial leverage) and Equities to finance the assets.

Debt Equity Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 0.97 0.67 0.49

Bharti Airtel Ltd has reduced the Debt to Equity ratio consistently. This is because of the
company is reinvesting the Profits into the business. This shows the strong confidence on the
future outlook of the business.

INTEREST COVERAGE RATIO

Interest Coverage Ratio = PBIT / Interest Expense
A ratio used to determine how easily a company can pay interest on outstanding debt.
The lower the ratio, the more the company is burdened by debt expense. When a company's
interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be
questionable. An interest coverage ratio below 1 indicates the company is not generating
sufficient revenues to satisfy interest expenses.

Interest Coverage Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 7.36 11.13 16.99

DEBT SERVICE COVERAGE RATIO

DSCR = PBIT / Total Debt Service
It is the amount of cash flow available to meet annual interest and principal payments on debt.
Debt service coverage ratio is used by financial lenders as a rule of thumb to give a preliminary
assessment of whether a potential borrower is already in too much debt. More specifically, this
ratio shows the proportion of income that is already spent on loan service payments.

DSCR 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd 1.16 0.68 0.91

Profitability ratios are used to analyse the profitability of the company. Different stakeholders
will have different perspective on the profitability ratios.
Shareholders: They may be concerned about the ability of the company to maintain and
improve the value of their investments. They look to the company to generate sufficient profits
for dividend payments and increase in market value of the shares they own.

Lenders: They will be interested to see whether the company has the ability to pay the interests
of the debts.
Management and employees: They will be interested in knowing the performance of the
company and its future outlook and profitability gives a good idea about the same.

GROSS PROFIT (PBDITA) / SALES RATIO

Gross Profit / Sales = Profit before Depreciation Interest Tax and Amortization / Sales
This ratio helps in determining extent to which the sales are greater than the operating
expenses.

Gross Profit/Sales Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 35.62% 34.93% 37.65%

The gross profit for Bharti Airtel Ltd has improved as compared to the last year. The profitability
is extremely good as it is sustained with growing sales.

OPERATING PROFIT (PBIT) / SALES RATIO

Operating profit / Sales = Profit before Interest Tax / Sales
Operating profit is obtained by deducting the Depreciation and Amortization from Gross profit.

Operating Profit / Sales Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 22.79% 22.24% 24.42%

The Operating profit of Bharti Airtel has improved over last years. The depreciation has more
than doubled over last 2 years because of increase in Assets but the sales has increase in sales
has ensured a healthy profit.

NET PROFIT (PAT) / SALES RATIO

Net Profit / Sales = Profit After Tax / Ratio
Net profit is obtained by deducting the Tax from the operating profit. This is finally the profit
that the company gets to earn after incurring all kinds of expenses.

Net Profit / Sales Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 15.24% 17.82% 22.67%

The PAT of Bharti Airtel Ltd has significantly improved in the last year. This is significant
especially when the call tariffs are reducing. Increase in sales is the main contributing factor for
increase in profits.

RETURN ON INVESTMENT
Return on Investment shows the profits earned from investments in different perspective like
Networth, Capital employed and Total assets.
RONW
RONW = PAT / (Capital + Reserve)
This is the best measure of profitability to evaluate overall return. This ratio measures return
relative to investment in the company. Return on Net Worth indicates how well a company
leverages the investment in it.
 RONW 2004-2005 2005-2006 2006-2007 2007-2008
Bharti Airtel Ltd - 23.00% 27.00% 35.00%

RONW for Bharti Airtel Ltd. is much higher as compared to its competitors. This is mainly
because the company finances its future investments from its own profits and the PAT has
increased by 233% over last 2 years.

ROCE
ROCE = PBIT / (Capital + Reserve + Long Term Liability)
ROCE should always be higher than the rate at which the company borrows; otherwise any
increase in borrowing will reduce shareholders' earnings.

ROCE 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 17.00% 20.00% 26.00%

Bharti Airtel Ltd’s ROCE is much higher than the borrowing rate which is around 10%. So the
shareholders’ earnings are not reduced.

ROTA
ROTA = PBIT / Total Assets
A ratio that measures a company's profits before interest and taxes (PBIT) against its total
assets. The ratio is considered an indicator of how effectively a company is using its assets to
generate earnings before contractual obligations must be paid.
The greater a company's profits in proportion to its assets, the more effectively that company is
said to be using its assets.

ROTA 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 0.12 0.13 0.16
Bharti Airtel has the highest ROTA as compared to its competitors which indicates that it uses
its assets most efficiently. Another positive is that it’s constantly in an increasing trend.

EPS
EPS = PAT / No of shares
The portion of a company's profit allocated to each outstanding share of common stock. EPS
serves as an indicator of a company's profitability.
Earnings per share is generally considered to be the single most important variable in
determining a share's price.
An important aspect of EPS is that the capital that is required to generate the earnings (net
income) in the calculation is often ignored. Two companies could generate the same EPS
number, but one could do so with less equity (investment) - that company would be more
efficient at using its capital to generate income and, all other things being equal would be a
"better" company. Investors also need to be aware of earnings manipulation that will affect the
quality of the earnings number. It is therefore important not to rely on any one financial
measure, but to use it in conjunction with statement analysis and other measures.

EPS 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 6.39 10.61 21.27

The EPS for Bharti Airtel Ltd has significantly increased as compared to the last year. This is
because of the doubling of the profits in just 1 year. Since ROTA of Bharti Airtel Ltd is also
higher as compared to its competitors so it is most efficient and profitable of the three
companies.

EFFICIENCY RATIOS
Total Assets Turnover Ratio
Total Assets Turnover Ratio = Sales / Total Assets

Total Assets Turnover Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 0.54 0.59 0.66
The above ratios indicate that Bharti Airtel Ltd is the most efficient in generating sales. This
ratio has consistently increased over the last 3 years.

DEBT TURNOVER RATIO

Debt Turnover Ratio = Sales / Debt
This ratio would be of greater significance to the lenders as it indicates how sales of a company
against the debts.

Debt Turnover Ratio 2004-2005 2005-2006 2006-2007 2007-2008

Bharti Airtel Ltd - 1.56 2.26 3.21

Bharti Airtel Ltd has been able to increase its Debt Turnover ratio due to sharp increase in its
sales as compared to its borrowings.

FIXED ASSET TURNOVER

Fixed Asset Turnover Ratio = Sales / Fixed Assets
This ratio gives an indication of how efficiently a company uses its fixed assets in doing its
business.

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

Bharti Airtel Ltd - 0.74 0.74 0.82

Bharti Airtel Ltd has improved its Fixed Turnover ratio primarily by increasing its sales as
compared to the increase in Fixed assets. It’s more efficient in utilizing its Fixed assets than
BSNL but less as compared to VSNL.

CURRENT ASSET TURNOVER

Current Asset Turnover = Sales / Current Assets

Current Assets Turnover 2004-2005 2005-2006 2006-2007 2007-2008

Ratio
Bharti Airtel Ltd - 2.61 3.81 4

INVENTORY TURNOVER
Inventory Turnover = Sales / Inventory
This financial ratio measures the number of times inventory is turned over during the year. High
inventory turnover suggests good levels of liquidity. Conversely it can indicate a shortage of
needed inventory for sales. Low inventory turnover can indicate poor liquidity, overstocking, or,
more optimistically, a planned inventory buildup.

Inventory Turnover 2004-2005 2005-2006 2006-2007 2007-2008

Ratio
Bharti Airtel Ltd - 251.53 636.29 372.16

DUPONT ANALYSIS
Financial statement analysis is employed for a variety of reasons. Outside investors are seeking
information as to the long run viability of a business and its prospects for providing an adequate
return in consideration of the risks being taken. Creditors desire to know whether a potential
borrower or customer can service loans being made. Internal analysts and management utilize
financial statement analysis as a means to monitor the outcome of policy decisions, predict
future performance targets, develop investment strategies, and assess capital needs. As the
role of the credit manager is expanded cross-functionally, he or she may be required to answer
the call to conduct financial statement analysis under any of these circumstances. The DuPont
ratio is a useful tool in providing both an overview and a focus for such analysis
A comprehensive financial statement analysis will provide insights as to a firm's performance
and/or standing in the areas of liquidity, leverage, operating efficiency and profitability. A
complete analysis will involve both time series and cross-sectional perspectives. Time series
analysis will examine trends using the firm's own performance as a benchmark. Cross sectional
analysis will augment the process by using external performance benchmarks for comparison
purposes. Every meaningful analysis will begin with a qualitative inquiry as to the strategy and
policies of the subject company, creating a context for the investigation. Next, goals and
objectives of the analysis will be established, providing a basis for interpreting the results. The
DuPont ratio can be used as a compass in this process by directing the analyst toward
significant areas of strength and weakness evident in the financial statements.
ROCE = (PBIT/Sales) X (Sales/Total Assets) X (Total Assets/Capital Employed)
The ratio provides measures in three of the four key areas of analysis, each representing a
compass bearing, pointing the way to the next stage of the investigation.

HIGHLIGHTS OF DUPONT ANALYSIS

Sound financial statement analysis is an integral part of the management process for any
organization. The DuPont ratio, while not the end in itself, is an excellent way to get a quick
snapshot view of the overall performance of a firm in three of the four critical areas of ratio
analysis, profitability, operating efficiency and leverage. By identifying strengths and/or
weaknesses in any of the three areas, the DuPont analysis enables the analyst to quickly focus
his or her detailed study on a particular spot, making the subsequent inquiry both easier and
more meaningful. Some caveats, however, are to be noted.
The DuPont ratio consists of very general measures, drawing from the broadest values on the
balance sheets and income statements (e.g., total assets are the broadest of asset measures). A
DuPont study is not a replacement for detailed, comprehensive analysis. Further, there may be
problems that the DuPont decomposition does not readily identify. For example, an average
outcome for net profitability may mask the existence of a low gross margin combined with an
abnormally high operating margin. Without looking at the two detailed measures,
understanding of the true performance of the firm would be lost.
The ROCE first can be broken down into the three segments we already looked at. Then each of
these can be broken up further to study the finer details. Each component comprises of several
sub-components which give a complete holistic view of the workings of a company comprising
its investment, financing and operating decisions. A proper decomposition is very important to
actually pin-point the exact area which are out-performing or underperforming, this analysis
gives us a better idea as to where exactly is the company lacking, is it something very superficial
or fundamental. Thus all this can be used to understand the future prospects as well its current
efficiency.
Down below we have carried out the DuPont analysis for Bharti Airtel for three years. The time-
series analysis in terms of ratios has already been studied in the previous segments, here we
are focusing more on the finer implications of the ratios and seeing how one derives from the
other and finally where does it fit in the larger picture.

CALCULATION OF EVA
We have calculated the EVA of the company over the last 3 years. In 2006 due to the huge
surge in the stock markets the cost of equity became costly and this has led to the negative
EVA.

Rupees in '000 Rs.

2008 2007 2006
Interest rate(I) 0.0461 0.0453 0.0483
Tax ratio(t) 0.1316 0.1197 0.226
1-t 0.8684 0.8803 0.774
Cost of Debt,Kd=I*(1-t) 0.04 0.0399 0.0374
Risk free return(Rf) 7.46% 7.46% 7.46%
Beta(β) 1.09 1.09 1.09
Market opening in the new financial 11279.96 6492.82 5590.6
yr
Market closing in the new financial yr 13072.1 11279.96 6492.82
Market Return(Rm) 0.1589 0.7373 0.1614
Cost Of Equity,Ke =Rf+β(Rm-Rf) 0.1665 0.7969 0.1692

Debt 55474673 49853367 50951920

Equity 114432688 73455584 53200292
Capital Employed,CE 169907361 123308951 104152212
WaCC 0.1252 0.4908 0.1047
Capital Charge,CC=WaCC*CE 21272401.6 60520033.15 10904736.6
PAT 40,332,265 20120794 12,106,739
Interest 2558440 2,256,011 2,459,184
Tax Benefits 336690.704 270044.5167 555775.584
NOPAT 42,554,014 22,106,760 14,010,147
EVA=NOPAT-CC 21,281,613 -38,413,273 3,105,411

CONCLUSION
Based on the detailed analysis of Indian Telecom Industry, Bharti Airtel Limited and its
competitors we conclude the following regarding the financial health of Bharti Airtel Limited:
Growth:
The company’s sales have grown over 70% CAGR in the last 2 years. It stands at Rs 17,794
Crores in 2008 up from Rs 7,944 Crores in 2006. Bharti Airtel Ltd is the market leader in mobile
phone services with over 22% market share in terms subscriber base. With about 6 million
mobile subscribers being added every month in India, the future growth of Bharti Airtel Ltd
looks very strong.
Profitability:
The PAT/Sales of the company stands at 22.67% in 2008 and has grown from 15.24% in 2006. In
2008, RONW stood at 35%, ROCE was 26% and ROTA was 16%. This indicated the return on
investment was extremely healthy. The EPS was Rs 21.27 in 2008 up from Rs 6.39 in 2006. All
these parameters suggest that the company is achieving increased levels of profitability in spite
of massive growth.
Solvency:
The Debt Ratio has decreased from 0.35 in 2006 to 0.21 in 2008. The DER has also decreased
from 0.97 in 2006 to 0.49 in 2008. The Interest coverage ratio has improved from 7.36 to 16.99
which is a positive sign. The Debt service coverage ratio however stands at 0.91 in 2008 and
needs improvement. The business expansion is being funded more by the Profits rather than
external borrowings.
Liquidity:
Liquidity is a cause of concern. Current Ratio and Liquid Ratio in 2008 stands at 0.45.
Absolute cash ratio is much less at 0.08. However the Debtor days are 29.10 which show the
debt collection practices of Bharti Airtel Ltd is much more effective as compared to its
competitors. The low liquidity could be attributed to the fact that the company invests heavily
in growth.
Efficiency:
Total Assets Turnover Ratio has increased from 0.54 in 2006 to 0.66 in 2008. Debt Turnover
Ratio, Fixed Assets Turnover Ratio and Current Assets Turnover Ratio have all improved and are
higher as compared to its competitors. This points that Bharti Airtel Limited is more efficient in
using its resources.
Overall the company has very strong fundamentals for future performance.