Financial Accounting Project Report on Bharti Airtel Limited

Table of Contents
1. ACKNOWLEDGEMENTS 2. OBJECTIVE 3. EXECUTIVE SUMMARY 5. INDIAN ECONOMY AND THE TELECOM SECTOR 5.1 GUIDELINES FOR FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR 5.2 TRAI GUIDELINES AND OBJECTIVES 5.4 CELLULAR OPERATORS ASSOCIATION OF INDIA (COAI) 6. COMPANY ANALYSIS 6.1 ABOUT THE COMPANY 6.2 CAPITAL STRUCTURE OF BHARTI-AIRTEL 6.3 FINANCIAL STATEMENS 6.4 ACCOUNTING POLICIES 7. Ratio Analysis 7.1 LIQUIDITY RATIOS 7.1.1 Current Ratio 7.1.2 Liquid Ratio 7.1.3 Absolute Cash Ratio 7.1.4 Debtor Days 7.1.5 Creditor Days 7.1.6 Inventory Days 7.2 LEVERAGE RATIOS 7.2.1 Debt Ratio 7.2.2 Equity Ratio 7.2.3 Debt to Equity Ratio 7.3 PROFITABILITY RATIOS 7.3.1 Gross Profit (PBDITA) / Sales Ratio 7.3.2 Operating Profit (PBIT) / Sales Ratio 7.3.3 Net Profit (PAT) / Sales Ratio 7.4 RETURN ON INVESTMENT 7.4.1 RONW 7.4.2 ROCE 7.4.3 ROTA 7.4.4 EPS 7.5 EFFICIENCY RATIOS 7.5.1 Total Assets Turnover Ratio 7.5.2 Debt Turnover Ratio 7.5.3 Fixed Asset Turnover 7.5.4 Current Asset Turnover 7.5.5 Inventory Turnover 9. CASH FLOW ANALYSIS 11. CONCLUSION 12. APPENDIX 13. REFERENCES

1. ACKNOWLEDGEMENTS
We wish to express our heartfelt gratitude and immense respect to Dr. D.V.Ramana, our Faculty and Mentor in Financial Accounting. His threadbare explanation of the minutest of concepts helped in generating a lot of interest in the subject. We would also like to thank IIBR for providing the necessary infrastructure which made our work easier.

2. OBJECTIVE
The basic objective of doing the project is to analyze the financial statements of a company, analyze the environment in which it is operating and evaluate its performance over the last 3 years. Hence a thorough Environment Industry & Company analysis is done to understand the external factors influencing the company

3. EXECUTIVE SUMMARY
To analyse the performance of the company specifically we covered the following topics: 1. Ratio Analysis 2. Du Pont Analysis 3. Cash Flow Analysis We also did a thorough analysis of its competitors like BSNL & VSNL to get a feel of how the company is doing though in some places we were handicapped by the unavailability of financial statements of the competitors.

4. ENVIRONMENT ANALYSIS 4.1 GOVERNMENT POLICIES

The telecom sector in India is at present governed by the legislations viz, The Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933. The reforms process in the telecom sector in India began in early 80s with allowing manufacture of customer premise equipment by private sector. Telecom Services in the Metro cities of Delhi & Mumbai were corporatised under Mahanagar Telephone Nigam Ltd. (MTNL) and International Telecom Services were corporatised under Videsh Sanchar Nigam Ltd (VSNL). Subsequently, Center for Development of Telematics (C-DOT) was set up in 1984 to develop indigenous technology. While the initial mandate of C-DOT in 1984 was to design and develop digital exchanges and facilitate their large scale manufacture by the Indian Industry, the development of transmission equipment was also added to its scope of work in 1989. To accelerate decision making Government also set up a High Powered Telecom Commission in 1989. To meet the resource requirement and achieve the nations telecom targets, the government decided to invite the participation of private players, and the telecom sector was opened up in 1992. The policy abolished the regime of public sector supremacy and paved the way for private participation in the economy. Gone were the days of 2 year waiting period to get a telephone connection.

National Telecom Policy 1994

In 1994, the Government announced the National Telecom Policy which defined certain important objectives, including availability of telephone on demand, provision of world class services at reasonable prices, improving Indias competitiveness in global market and promoting exports, attractive FDI and stimulating domestic investment, ensuring Indias emergence as major manufacturing / export base of telecom equipment and universal availability of basic telecom services to all villages. It also announced a series of specific targets to be achieved by 1997.

Telecom Regulatory Authority of India (TRAI)

The entry of private service providers brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India (TRAI) was, thus, established with effect from 20th February 1997 by an Act of Parliament, called the Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including fixation/revision of tariffs for telecom services which were earlier vested in the Central Government. TRAIs mission is to create and nurture conditions for growth of telecommunications in the country in manner and at a pace, which will enable India to play a leading role in emerging global information society. One of the main objectives of TRAI is to provide a fair and transparent policy environment, which promotes a level playing field and facilitates fair competition. In pursuance of above objective TRAI has issued from time to time a large number of regulations, orders and directives to deal with issues coming before it and provided the required direction to the evolution of Indian telecom m[arket from a Government owned monopoly to a multi operator multi service open competitive market. The directions, orders and regulations issued cover a wide range of subjects including tariff, interconnection and quality of service as well as governance of the Authority. The TRAI Act was amended by an ordinance, effective from 24 January 2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal (TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was set up to adjudicate any dispute between a licensor and a licensee, between two or more service providers, between a service provider and a group of consumers, and to hear and dispose of appeals against any direction, decision or order of TRAI

New Telecom Policy 1999

The most important milestone and instrument of telecom reforms in India is the New Telecom Policy 1999 (NTP 99). The New Telecom Policy, 1999 (NTP-99) was approved on 26th March 1999, to become effective from 1st April 1999. NTP-99 laid down a clear roadmap for future reforms, contemplating the opening up of all the segments of the telecom sector for private sector participation. It clearly recognized the need for strengthening the regulatory regime as well as restructuring the departmental telecom services to that of a public sector corporation so as to separate the licensing and policy functions of the Government from that of being an operator. It also recognized the need for resolving the prevailing problems faced by the operators so as to restore their confidence and improve the investment climate. Key features of the NTP 99 include: Strengthening of Regulator. National long distance services opened to private operators. International Long Distance Services opened to private sectors. Private telecom operators licensed on a revenue sharing basis, plus a one-time entry fee. Resolution of problems of existing operators envisaged.

Direct interconnectivity and sharing of network with other telecom operators within the service area was permitted. Department of Telecommunication Services (DTS) corporatised in 2000. Spectrum Management made transparent and more efficient.

All the commitments made under NTP 99 have been fulfilled; each one of them, in letter and spirit, some even ahead of schedule, and the reform process is now complete with all the sectors in telecommunications opened for private competition.

Broadband Policy 2004

Recognizing the potential of ubiquitous Broadband service in growth of GDP and enhancement in quality of life through societal applications including tele-education, tele-medicine, e-governance, entertainment as well as employment generation by way of high-speed access to information and web based communication; Government has announced Broadband Policy in October 2004. The main emphasis is on the creation of infrastructure through various technologies that can contribute to the growth of broadband services. These technologies include optical fibre, Asymmetric Digital Subscriber Lines (ADSL), cable TV network; DTH etc. Broadband connectivity has been defined as Always On with the minimum speed of 256 kbps. It is estimated that the number of broadband subscribers would be 20 million by 2010. With a view to encourage Broadband Connectivity, both outdoor and indoor usage of low power Wi-Fi and Wi-Max systems in 2.4 GHz-2.4835 GHz band has been delicensed. The use of low power indoor systems in 5.15-5.35 GHz and 5.725-5.875 GHz bands has also been delicensed in January 05. The SACFA/WPC clearance has been simplified. The setting up of National Internet Exchange of India (NIXI) would enable bringing down the international bandwidth cost substantially, thus making the broadband connectivity more affordable. The prime consideration guiding the Policy includes affordability and reliability of Broadband services, incentives for creation of additional infrastructure, employment opportunities, induction of latest technologies, national security and brings in competitive environment so as to reduce regulatory interventions. By this new policy, the Government intends to make available transponder capacity for VSAT services at competitive rates after taking into consideration the security requirements. The service providers permitted to enter into franchisee agreement with cable TV network operators. However, the Licensee shall be responsible for compliance of the terms and conditions of the licence. Further in the case of DTH services, the service providers permitted to provide Receive-Only-Internet Service. The role of other facilitators such as electricity authorities, Departments of ITs of various State Governments, Departments of Local Self Governments, Panchayats, Departments of Health and Family Welfare, Departments of Education is very important to carry the advantage of broadband services to the users particularly in rural areas. Target has been set for 20 million broadband connections by 2010 and providing Broadband connectivity to all secondary and higher secondary schools, public health institutions and panchayats by 2010. In rural areas, connectivity of 512 KBPS with ADSL 2 plus technology (on wire) will be provided from about 20,000 existing exchanges in rural areas having optical fibre connectivity. Community Service Centres, secondary schools, banks, health centres, Panchayats, police stations etc. can be provided with this connectivity in the vicinity of above-mentioned 20,000 exchanges in rural areas. DOT will be subsidizing the infrastructure cost of Broadband

network through support from USO Fund to ensure that Broadband services are available to users at affordable tariffs.

INDIAN ECONOMY AND THE TELECOM SECTOR

The Indian Telecommunications network with 621 million connections (as on March 2010) is the third largest in the world. The sector is growing at a speed of 45% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. Presently, all the telecom services have been opened for private participation. The Government has taken following main initiatives for the growth of the Telecom Sector:

The Indian Telecom subscriber count has reached 806.13 Million by end of January 2011, thanks to unabated growth in mobile subscribers. India added 18.99 Million new Mobile subscribers in January to take the total mobile subscriber count to 771.18 Million. According to the latest report released by Telecom Regulatory Authority of India (TRAI), India has 538.38 million Urban Subscribers while 267.74 million Rural subscribers. The mobile growth in rural areas is higher at 3.07% as compared to urban which was about 2.06% in January. The share of Urban Subscriber has declined to 66.79% from 67% where as share of Rural Subscribers has increased from 33% to 33.21%. With this, the overall Tele-density in India reaches 67.67 percent.

5.1 GUIDELINES FOR FOREIGN DIRECT INVESTMENT IN TELECOM SECTOR

The government has liberalized the FDI rules in the telecom sector. The FDI ceiling has been raised from 49% to 74% in certain telecom services (such as Basic, Cellular, Unified Access Services, National/International Long Distance, V-Sat, Public Mobile Radio Trunked Services (PMRTS), Global Mobile Personal Communications Services (GMPCS) and other value added services). The remaining 26 per cent will be owned by resident Indian citizens or an Indian Company (i.e. foreign direct investment does not exceed 49 percent and the management is with the Indian owners). 100% FDI permitted under automatic route in the manufacturing sector The majority Directors on the Board including Chairman, Managing Director and Chief Executive Officer (CEO) shall be resident Indian citizens, enforced through licence agreement. 1. Singapore Telecom (SingTel) made an investment of US$1.07 B through a Mauritius entity for a stake in Bharti Televentures. 2. Vodafone acquired a 10% stake in Bharti Televentures for 6700 crore rupees( approximately US$ 1.5B) 3. Subsequently, Vodafone made an investment of $12 US B when it acquired a controlling 67% stake in Hutch Essar.

TELECOM DISPUTES SETTLEMENT & APPELLATE TRIBUNAL (TDSAT)

With a view to further strengthen the regulator the TRAI Act, 1997 was amended in the year 2000 and a separate body viz., The Telecom Dispute Settlement and Appellate Tribunal (TDSAT) was constituted for resolution of disputes in Telecom Sector. The appellate tribunal consists of a chairperson and two members appointed by the Indian Parliament. The selection of Chairperson and members of the Appellate tribunal is made by the Central Government in consultation with the Chief Justice of India. The TDSAT is empowered to adjudicate any dispute between: Licensor and a Licensee. Two or more Service Providers. A Service Provider and a Group of Consumers.

5.4 CELLULAR OPERATORS ASSOCIATION OF INDIA (COAI)

The Cellular Operators Association of India (COAI) was constituted in 1995 as a registered, nonprofit, nongovernmental society dedicated to the advancement of communication, particularly modern communication through Cellular Mobile Telephone Services. With a vision to establish and sustain a world-class cellular infrastructure and facilitate affordable mobile communication services in India, COAI main objectives are to protect the common & collective interests of its members. Keeping the mandate given to it, COAI is the official voice for the Indian Cellular industry and on its behalf it interacts with: the policy maker, the licensor, the regulator, the spectrum management agency and the industry (telecom / nontelecom) associations.

Chapter 1 : INTRODUCTION

1.1 ABOUT THE COMPANY

Bharti Airtel Limited commonly known as Airtel, is an Indian telecommunications company that operates in 19 countries across south asia, africa and the Channel Islands. It operates a GSM network in all countries, providing 2G or 3G services depending upon the country of operation. Airtel is the fifth largest telecom operator in the world with over 207.8 million subscribers across 19 countries at the end of 2010. It is the largest cellular service provider in India, with over 164.61 million subscribers at the end of 2011 April. Airtel is the 3rd largest in-country mobile operator by subscriber base, behind China Mobile and China Unicom.

Airtel also offers fixed line services and broadband services. It offers its telecom services under the Airtel brand and is headed by Sunil Bharti Mittal. Bharti Airtel is the first Indian telecom service provider to achieve this Cisco Gold Certification. To earn Gold Certification, Bharti Airtel had to meet rigorous standards for networking competency, service, support and customer satisfaction set forth by Cisco. The company also provides land-line telephone services and broadband Internet access (DSL) in over 96 cities in India. It also acts as a carrier for national and international long distance communication services. The company has a submarine cable landing station at Chennai, which connects the submarine cable connecting Chennai and Singapore. It is known for being the first mobile phone company in the world to outsource everything except marketing and sales and finance. Its network (base stations, microwave links, etc.) are maintained by Ericsson, Nokia Siemens Network and Huawei, business support by IBM and transmission towers by another company (Bharti Infratel Ltd. in India). Ericsson agreed for the first time, to be paid by the minute for installation and maintenance of their equipment rather than being paid up front. This enabled the company to provide pan-India phone call rates of Rs. 1/minute (U$0.02/minute). Call rates have come down much further.During the last financial year [200910], Bharti has roped in a strategic partner Alcatel-Lucent to manage the network infrastructure for the Telemedia Business.
Company History Bharti Tele-Ventures was incorporated on July 7, 1995 as a company with limited liability under the Companies Act, for promoting telecommunications services. Bharti Tele-Ventures received certificate for commencement of business on January 18, 1996. The Company was initially formed as a wholly-owned subsidiary of Bharti Telecom Limited. The chronology of events since Bharti Tele-Ventures was incorporated in 1995 is as follows: Calendar year & Events 1995 Bharti Cellular launched cellular services 'AirTel' in Delhi 1997 British Telecom acquired a 21.05% equity interest in Bharti Cellular 1998 Bharti Telecom and British Telecom formed a 51%: 49% joint venture, Bharti BT Internet for providing Internet services 2002 Comes out with issue of 18.53 crore equity shares through book building route with a floor price of Rs 45 per share, received bid for 18.55 crore shares. Through the issue, it becomes the first company in India to come out with 100% book building issue 2003 AirTel unveils new scheme for pre-paid customers giving away free talk time worth Rs 10 crore Prof. V S Raju has been inducted on the Board of Directors of the Company. AirTel introduces MTV Club Card in Chennai Airtel slashes SMS rates to 60 paise; excludes Delhi and Mumbai Bharti cellular, wholly owned subsidiary of Bharti Tele-Ventures, increases its stake to 100% in Bharti Mobile

2004 Bharti Tele-Ventures enters into a three year service agreement with Ericsson 2005 Bharti inks $125-m deal with Nokia for rural network expansion Bharti Tele Ventures announces agreement with Vodafone 2007 Bharti Airtel, telecom major, has come out with a slew of initiatives including buying out SingTel's 50 per cent stake in joint venture under sea cable company Network i2i for $110 million. 2008

Bharti Airtel Ltd on February 13, 2008 has announced that it has achieved the 60 million mobile, fixed line and broadband customers. Bharti Airtel tied up with US-based Apple Inc to bring the popular GSM-based iPhone in the country. Bharti Airtel Ltd has forged a technology alliance with Infosys Technologies Ltd to launch its Direct-toHome (DTH) television services. Infosys, through its digital convergence platform, will offer a suite of products including devices, application servers and interactive applications for Airtel's DTH services.

2009

Bharti Airtel signed a five-year managed services deal with Alcatel-Lucent for its fixed-line and broadband operations. Bharti Airtel launched the 'Airtel Advantage' initiative. The initiative is aimed at offering the added advantage to Airtel customers to be in touch with each other at an affordable rate of 50 paise per minute, be it a national long distance call (STD) or a local call.

2010

On 14, February 2010, Zain Ghana issued a resolution to accept a $10.7 billion buyout offer from Bharti Airtel Limited (Bharti) to enter into exclusive discussions until 25 March 2010, regarding the sale of its African unit, Zain Africa BV. Bharti Airtel submitted its bid for 3G spectrum auction which starts from April 9, 2010.

CAPITAL STRUCTURE OF THE COMPANY

Rs in (crores)

From Year To Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

Class Of Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share Equity Share

Authoriz ed Capital

Paid Up Issued Paid Up Face Paid Up Capital Shares (Nos) Value Capital 3797530096 3797530096 1898239796 1897907446 1895934157 1893879304 1853366767 1853366767 1853366767 1853366767 106235060 5 1,898.77 5 1,898.77 10 1,898.24 10 1,897.91 10 1,895.93 10 1,893.88 10 1,853.37 10 1,853.37 10 1,853.37 10 1,853.37 10 106.24

2,500.00 1,898.77 2,500.00 1,898.77 2,500.00 1,898.24 2,500.00 1,897.91 2,500.00 1,895.93 2,500.00 1,893.88 2,500.00 1,853.37 2,500.00 1,853.37 2,500.00 1,853.37 2,500.00 1,853.37 110 106.24

3. 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. 4. Dividend Distribution For the year ending 2005-2006 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, 2006, 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, 2006 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 2006-2007 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 Companys ESOP Scheme 2005. 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. 5. Rights Issue No rights issue was brought out for the period 2005-2007. 6. Market Capitalisation
st

The company had a market capitalization of over Rs. 760 billion for the year ending 31 March 2006 and was among
st

the top 10 listed entities in India. For the year ending 31 March 2007, the Company had a market capitalisation of USD 38 bn and is among the top 5 listed entities in India

BALANCE SHEET
Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Sources of funds
Owner's fund Equity share capital 1,898.80 1,898.77 1,898.24 1,897.91 1,895.93 Share applicati on money 278.6 186.09 116.22 57.63 30 Preferen ce share capital Reserves & surplus 41,932.10 34,650.19 25,627.38 18,283.82 9,515.21

Loan funds
Secured loans 17.1 39.43 51.73 52.42 266.45 Unsecure d loans 11,880.40 4,999.49 7,661.92 6,517.92 5,044.36 Total 56,007.00 41,773.97 35,355.48 26,809.71 16,751.95

Uses of funds
Fixed assets Gross block 61,437.50 44,212.53 37,266.70 28,115.65 26,509.93 Less : revaluati on reserve 2.1 2.13 2.13 2.13 2.13 Less : accumula ted depreciat ion 20,736.70 16,187.56 12,253.34 9,085.00 7,204.30 Net block 40,698.70 28,022.84 25,011.23 19,028.52 19,303.51 Capital work-inprogress 6,497.60 1,594.74 2,566.67 2,751.08 2,375.82 Investme nts 11,813.00 15,773.32 11,777.76 10,952.85 705.82

Net current assets

Current assets, loans & advances Less : current liabilities & provision s Total net current assets Miscella neous expenses not written Total

13,730.10 9,225.08 10,466.63 8,439.38 5,406.81

16,732.40 12,842.00 14,466.89 14,362.33 11,042.67

-3,002.30 -3,616.92 -4,000.26 -5,922.95 -5,635.86

0.09 0.2 2.66 56,007.00 41,773.97 35,355.48 26,809.71 16,751.95

Notes:
Book value of unquote d investm ents 11,708.00 11,619.95 9,898.56 9,379.62 580.43 Market value of quoted investm ents 105.1 4,216.67 1,887.76 1,574.29 125.85 Conting ent liabilitie s 49,771.40 3,921.50 4,104.25 7,140.59 7,615.04 Number of equity shareso utstandi ng (Lacs)

37975.3

37975.3

18982.4 18979.07 18959.34

PROFIT AND LOSS A/C

Mar ' 11 Mar ' 10 Income Operating income

(in crore)
Mar ' 09 Mar ' 08 Mar ' 07

38,015.80

35,609.54

34,048.32

25,761.11

17,851.61

Expe nse s Material consumed

244.1

313.63

281.65

33.85

22.08

Manufacturi ng expenses 14,204.20 Personnel expenses 1,304.50 Selling expenses 3,180.20 Adminstrati ve expenses 5,680.00 Expenses capitalised Cost of sales Operating profit Other recurring income Adjusted PBDIT Financial expenses Depreciatio n Other write offs Adjusted PBT 24,613.00 13,402.80

11,882.41 1,401.66 2,404.91 5,982.64 -293.31 21,691.93 13,917.61

8,627.13 1,397.54 2,210.43 8,608.03 -269.25 20,855.54 13,192.78

7,339.01 1,297.88 1,842.51 4,588.53 15,101.78 10,659.34

5,017.27 1,076.95 1,126.34 3,351.31

10,593.96 7,257.65

154.9 13,557.70 296.7 4,193.70 417.9 8,649.40

148.98 14,066.60 283.35 3,890.08 207.84 9,685.32

235.99 13,428.77 434.16 3,206.28 178.82 9,609.50

266.91 10,926.24 393.43 3,166.58 266.07 7,100.16

101.7 7,359.35 282.07 2,353.30 137.8 4,586.17 566.79 4,019.39

T ax charges 1,007.60 1,177.87 321.78 632.43 Adjusted PAT 7,641.80 8,507.45 9,287.72 6,467.73 Non recurring items 63.3 969.48 -1,497.74 -162.87 Other non cash adjustments 11.8 -50.78 -46.15 -60.67 Reported net profit 7,716.90 9,426.15 7,743.84 6,244.19 Earnigs before appropriatio n 34,495.40 27,928.98 19,541.05 11,778.12 Equity dividend 379.8 379.79 379.65 Preference dividend Dividend tax Retained earnings 60.1 34,055.50 64.54 27,484.65 64.52 19,096.89 11,778.12 -

3.92

9.92 4,033.23

5,489.61

5,489.61

ACCOUNTING POLICIES
1. BASIS OF PREPARATION These financial statements have been prepared under the historical cost convention on the accrual basis of accounting, in accordance with the generally accepted accounting principles in India and the provisions of the Companies Act, 1956 as adopted consistently by the Company. 2. FIXED ASSETS Fixed Assets are stated at cost of acquisition and subsequent improvements thereto, including taxes, duties, freight and other incidental expenses related to acquisition and installation. Capital work-in-progress is stated at cost. Site restoration cost obligations are capitalized when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. The fixed component of license fee payable by the Company for cellular and basic circles, upon migration to the National Telecom Policy (NTP 999), i.e. Entry Fee and the one time license fee paid by the Company for acquiring new licenses (post NTP-99) has been capitalized as an asset.

3. DEPRECIATION / AMORTISATION
Depreciation is provided on straight-line method at the rates and in the manner prescribed in Schedule XIV to the Companies Act, 1956 on all assets, except for the following on which depreciation is provided on straight line method to write off the cost of the fixed assets over their estimated useful lives as below: Useful lives Building 20 years Building on Leased Land

Office Equipment 5 years2 years Computer / Software 3 years Vehicles 5 years Furniture and Fixtures 5 years Plant & Machinery 3 years / 5 years/ 10 years / 15 years Leasehold Land Period of lease Leasehold Improvements Period of lease or 10 years whichever is less Software up to Rs. 500,000 is written off in the year placed in service. Bandwidth capacity is amortized over the period of the agreement subject to a maximum of 15 years. Additional depreciation is provided as appropriate, towards diminution in value of assets. The Entry Fee capitalised is being amortised equally over the period of the license and the one time licence fee is being amortized equally over the balance period of licence from the date of commencement of commercial operations. The site restoration cost obligation capitalized is being depreciated over the period of the useful life of the related asset. 4. REVENUE RECOGNITION AND RECEIVABLES Mobile Services: Service revenue is recognised on completion of provision of services. Service revenue includes income on roaming commission and access charges passed on to other operators, and are net of discounts and waivers. Revenue, net of discount, from sale of goods is recognised on transfer of all significant risks and rewards to the customer and when no significant uncertainty exists regarding realisation of the consideration. Processing fees on recharge coupon is being recognised over the estimated customer relationship period or coupon validity period, as applicable.
5. INVENTORIES Inventories are valued at the lower of cost and net realisable value. Cost is determined on First in First out basis 6. INVESTMENT Current Investments are valued at lower of cost and fair market value. Long term Investments are valued at cost. Provision is made for diminution in value to recognise a decline, if any, other than that of temporary nature. 7. LEASES a) Operating Lease Lease rentals in respect of assets taken on 'Operating Lease' are charged to the Profit and Loss Account on a straight-line basis over the lease term. b) Finance Lease Assets acquired on 'Finance Lease' which transfer risk and rewards of ownership to the Company are capitalized as assets by the Company at the present value of the related lease payments Amortization of capitalized leased assets is computed on the Straight Line method over the useful life of the assets. The finance charge is allocated over the lease term so as to produce a constant periodic rate of interest on the remaining balance of liability. 8. EARNING PER SHARE The earnings considered in ascertaining the Company's Earnings per Share ('EPS') comprise the net profit after tax. The number of shares used in computing basic EPS is the weighted average number of shares outstanding during the year. The diluted EPS is calculated on the same basis as basic EPS, after adjusting for the effects of potential dilutive equity shares unless impact is anti dilutive. 9. PROVISIONS Provisions are recognised 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.

10. Activation Income

Activation revenue and related direct activation costs, not exceeding the activation revenue, are deferred and amortized over the related estimated customers relationship period, as derived from the estimated customer churn period.

11. Investing and other activities

Income on account of interest and other activities are recognised on an accrual basis. Dividends are accounted for when the right to receive the payment is established.

12. Provision for doubtful debts

The Company provides for amounts outstanding for more than 90 days in case of active subscribers and for all amounts outstanding from customers who have been deactivated as reduced by security deposits or in specific cases where management is of the view that the amounts are not recoverable. For receivables due from the other operators on account of their NLD and ILD traffic, IUC and roaming charges, the Company provides for amounts outstanding for more than 120 days from the date of billing net of any amounts payable to the operators or in specific cases where management is of the view that the amounts are not recoverable.

RATIO ANALYSIS Meaning of Ratio:- A ratio is simple arithmetical expression of the relationship of one number to another. It
may be defined as the indicated quotient of two mathematical expressions. According to Accountants Handbook by Wixon, Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. Ratio Analysis:- Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgement, otherwise complex situations.

ADVANTAGE OF RATIO ANALYSIS

1. Helpful in analysis of Financial Statements. 2. Helpful in comparative Study. 3. Helpful in locating the weak spots of the business. 4. Helpful in Forecasting. 5. Estimate about the trend of the business.

6. Fixation of ideal Standards. 7. Effective Control. 8. Study of Financial Soundness.

LIMITATIONS OF RATIO ANALYSIS

1. 2. 3. 4. 5. 6. 7. 8. Comparison not possible if different firms adopt different accounting policies. Ratio analysis becomes less effective due to price level changes. Ratio may be misleading in the absence of absolute data. Limited use of a single data. Lack of proper standards. False accounting data gives false ratio. Ratios alone are not adequate for proper conclusions. Effect of personal ability and bias of the analyst.

Various Financial Ratio Analysis are used to analyse the financial performance of Bharti Airtel Ltd. Its performance is also compared against RELIANCE and IDEA for 3 years from 2009 to 2011.

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

1.1 Current Ratio

Current Ratio = Current Asset / Current Liability Current Assets:-Current assets includes those assets which can be converted into cash with in a years time. Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors(Debtors Provision) + Stock(Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses. Current Liabilities :- Current liabilities include those liabilities which are repayable in a years time.

Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable with in a Year. Significance :- According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio. It means that current assets of a business should, at least , be twice of its current liabilities. The higher ratio indicates the better liquidity position, the firm will be able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of working capital. The biggest drawback of the current ratio is that it is susceptible to window dressing. This ratio can be improved by an equal decrease in both current assets and current liabilities.

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.

CURRENT RATIO BHARTI AIRTEL RELIANCE IDEA

2011 0.81 2.17 0.96

2010 0.71 2.73 1.39

2009 0.72 1.65 0.59

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. In comparison, the current ratios of RELIANCE is better.

1.2 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 companys asset can be converted to cash. This ratio is also called the acid test and quick ratio.
LIQUID RATIO BHARTI AIRTEL RELIANCE IDEA 2011 0.8 2.14 0.86 2010 0.71 2.7 1.31 2009 0.64 1.63 0.55

1.3 DEBTORS DAYS

1.4 INVENTORY TURN OVER RATIO

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 TURNOVER RATIO 2011 2010 2009 1,105.11 1,307.05 547.8 BHARTI AIRTEL RELIANCE 41.2 253.76 230.69 243.4 IDEA

2 LEVERAGE RATIOS
Its the companys 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.

2.1 DEBT TO EQUTIY 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 This ratio can be expressed in two ways: (1) First Approach : According to this approach, this ratio expresses the relationship between long term debts and shareholders fund. Formula: Debt Equity Ratio=Long term Loans/Shareholders Funds or Net Worth Long Term Loans:- These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public Deposits etc. Shareholders Funds :- These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account.

(2)Second Approach : According to this approach the ratio is calculated as follows:Formula: Debt Equity Ratio=External Equities/internal Equities Debt equity ratio is calculated for using first approach. Significance :- This Ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of is considered safe. If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by long-term lenders. The lower this ratio, the better it is for long-term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders
DEBT/EQUITY RATIO BHARTI AIRTEL RELIANCE IDEA 2011 0.27 0.37 0.57 2010 0.11 0.43 0.53 2009 0.25 0.48 1.54

Here the risk of bharti airtel is increase from the last year,in this case the reliance is much better than airtel and idea.because their risk is increase from last year.

2.2 DEBT TO TOTAL FUND RATIO

This Ratio is a variation of the debt equity ratio and gives the same indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds, i.e., both equity and debt. Formula: Debt to Total Funds Ratio = Long-term Loans/Shareholders funds + Long-term Loans Significance :- Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In other words, the proportion of long term loans should not be more than 67% of total funds. A higher ratio indicates a burden of payment of large amount of interest charges periodically and the repayment of large amount of loans at maturity. Payment of interest may become difficult if profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower ratio is better from the long-term solvency point of view. .
TOTAL DEBT/EQUITY RATIO BHARTI AIRTEL RELIANCE IDEA 2011 0.27 0.48 0.57 2010 0.13 0.59 0.67 2009 0.28 0.81 1.84

Here the ratio of Bharti airtel is very low which is not better than both Reliance and Idea ,the Bharti has to pay less amount of interest charges periodically and the repayment of less amount of loans at maturity than Reliance & Idea

3 PROFITABILITY RATIOS
Profitability ratios are used to analyse the profitability of the company. Different stakeholders will have different perspective on the profitability ratios. Profitability ratios are calculated to provide answers to the following questions: Is the firm earning adequate profits? What is the rate of gross profit and net profit on sales? What is the rate of return on capital employed in the firm? What is the rate of return on proprietors (shareholders) funds? What is the earning per share? Profitability ratio can be determined on the basis of either sales or investment into business.

3.1 GROSS PROFIT RATIO= GROSS PROFIT/SALES RATIO

GROSS PROFIT MARGIN(%) BHARTI AIRTEL RELIANCE IDEA

2011 5.03 15.84

2010 28.15 21.84 20.51

2009 29.33 29.26 25.81

2008 29.08 28.82 24.05

Sales down as compare to 2009-2010

3.2 Operating Profit (PBIT) / Sales Ratio

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

OPERATING MARGIN(%) BHARTI AIRTEL RELIANCE IDEA

2011 35.13 16.18 27.37

2010 39.08 34.66 31.63

2009 38.74 41.73 37.07

3.3 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 MARGIN(%) BHARTI AIRTEL RELIANCE IDEA

2011 3.33 8.71

2010 26.36 30.47 9.91

2009 22.58 17.45 15.33

2008 23.99 18.63 11.44

The PAT of Bharti Airtel Ltd has significantly improved in the year 2010. This is significant especially when the call tariffs are reducing. Increase in sales is the main contributing factor for increase in profits. BUT in year 2010 the RELIANCE has profit margin 30.47% which is much better than bharti airtel.

4. EFFICIENCY RATIO 4.1 TOTAL ASSETS TURN OVER RATIO:

4.2 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 BHARTI AIRTEL RELIANCE IDEA 2011 0.61 0.62 0.61 2010 0.87 0.76 0.74 2009 0.99 0.77 0.61

4.3

5. RETURN ON INVESTMENT
Return on Investment shows the profits earned from investments in different perspective like Networth, Capital employed and Total assets.

5.1 RONW (Retrun on net worth)

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.

5.2 ROCE (Return on capital employed)

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 BHARTI AIRTEL RELIANCE IDEA 2011 0.24 0.04 0.19 2010 0.34 0.07 0.18 2009 0.38 0.14 0.26