Fundamental Analysis

RAI BUSINESS SCHOOL

PROJECT ON SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

FUNDAMENTAL ANLAYSIS OF BHARTI

AIRTEL

In partial fulfillment of

POST GRADUATE PROGRAM IN PLANNING AND NTREPRENEURSHIP

SUBMITTED To SUBMITTED BY

Mrs. Bindu Agrawal SANJEET KUMAR SINGH SR. LECTURER 22/PGPPE/08E/168 RBS, Delhi Sem- IV, RBS, New Delhi

ACKNOWLEDGEMENT 

I am grateful to those who have helped me in compiling the matter for this project. While I take this opportunity to thank all of them-they are too numerous to be mentioned in this brief preface.

I would like to acknowledge my deep sense of gratitude to Mrs. . Bindu Agrawal (Faculty , RBS Delhi) for her valuable help at all stage.

Lastly no words can adequately express my dept e.g. gratitude to my all faculty members of RBS DELHI and I

also thanks my friends for their support.

TO WHOM SO EVER IT MAY CONCERN

This is to certify that Sanjeet Kumar Singh as a student of Rai Business School, Delhi, Batch (2008-2010) PTU University Enrollment number 22/PGPPE/08E/168 has completed Project FUNDAMENTAL ANLAYSIS OF BHARTI AIRTEL in completed under Guidance.  

   Mrs. Bindu Agrawal   (LECTURER, R.B.S. Delhi)

INDEX

1. INTRODUCTIN

2. ECONOMIC ANALYSIS

3. IMPACT OF BUDGET ON TELECOME INDUSTRY

4. INDUSTRY ANALYSIS

5. INDIAN TELECOMMUNICATION INDUSTRY

6. POLICIES OF TELECOME INDUSTRY IN INDIA

7. COMPANY ANALYSIS OF BHARTI AIRTEL8. CONCLUSION

9. BIBLOGRAPHY

INTRODUCTION

FUNDAMENTAL ANALYSIS

Fundamental analysis is the examination of the underlying forces that affect the

well being of the company, industry groups and companies. As with most analysis the

goal is to develop a forecast of future price movement and profit from it. At the company

level, fundamental analysis may involve examination of financial data, management ,

business concept and competition. At the industry level their might be an examination of

supply and demand forces of the products. For the national economy fundamental

analysis might focus on economic data to asses the present and future growth of the

economy.

Fundamental analysis is a method of evaluating a security by attempting to

measure its intrinsic value by examining related economy, financial and other qualitative

and quantitative factors. Fundamental analysis attempt to study every thing that can effect

the securities value including macro economic factors and individual specific factors.

Three phase of the fundamental analysis

A. Understanding of the Macro Economic environment and developments

(Economy analysis)

B. Analyzing the prospectus of the industry to which the firm belongs(Industry

analysis)

C. Assessing the projected performance of the company( Company analysis)

ECONOMIC ANALYSIS

The purpose of analyze economic condition of the country in fundamental

analysis to asses the general economic situation both within the country and inter

nationally.

The economy is like the tide and the various industry groups and individual

companies are like boats. When economy expands most industry groups and companies

benefits and grows. When the economy decline, most sectors and companies usually

suffer. The stock market does not operate in a vacuum it is an integral part of the whole

economy of a country, more so in a free economy that of United States and to some

extent in mixed economy like ours.

To gain an insight into the complexities of stock market. One needs to develop a

sound economic understanding and be able to interpret the impact of important economic

indicators on stock markets.

The following are some important factors which should be taken into account while

doing fundamental analysis:

Economic Growth

Per capita income

Industrial Production

Inflation

Interest Rates

Foreign Exchange Reserves

Budgetary Deficit

Domestic Savings and Investment

Tax Rates

Infrastructure

Political Situation

IMPACT OF BUDGET ON TELECOME INDUSTRY

The Finance Minister has announced the allocation of Rs 2,400 crore from the Universal Service Obligation Fund (USOF) to subsidize mobile, Internet and landline operations in rural India.

With the government planning to subsidize construction of 11,000 telecom towers across 2.4 lakh villages, the road ahead for the rural sector seems smooth.

These steps definitely promise greater spending on telecom infrastructure in around 3 lakh villages which are yet to see the telecom revolution.

According to budget estimates, for 2009-10, the government expects to collect Rs 48,335.33 crore from the telecom sector, with 3G spectrum sales contributing 75% to the total. In FY 2008-09, the government's receipts from the sector stood at Rs 13,174.29 crore.

The industry is also elated about the CVD exemption on the manufacture of cellphones and accessories.

The industry's happiness did not last long with Pranab Mukherjee announcing the increase in Minimum Alternate Tax (MAT) from 10% to 15%, which came as a huge blow to the sector.

The broadcasting segment can cheer. There is a small decrease in duty for LCD panels from 10% to 5%, which will bring down prices by a maximum of Rs 3,000 per LCD TV set. LCD TV shipments that stood at around 1.3 mn units in 2008 are expected to grow in excess of 50% year-on-year as the preference for flat panel televisions continues to soar amongst Indian viewers.

However, the industry in general seems happy on the increased spends on robust infrastructure upgrades and on rural areas, which will possibly add another chapter to the telecom story in India.

INDUSTRY ANALYSIS

The purpose of industry analysis is to review prevailing conditions within specific

industry and its segments. The company's industry obviously influences the outlook for

the company. Even the best stocks can post mediocre returns if they are in an industry

that is struggling.

“It is often said that a weak stock in a strong industry is preferable to a strong stock in a

weak industry.”

To assess the industry group potential, an investor would want to consider the overall

growth rate, market size, and its importance to economy. While the individual company

is still important, its industry group is likely to exert as much as, or more, influence on

the stock price. When stock move the usually move as groups; there are very few lone

guns out there. An understanding of the industry sector involved, including the maturity

of the sector and any cyclical effects that the overall economies have on it, is also

necessary.

The followings are some important factors which should be considered in

Fundamental Analysis

Growth: A growing industry gives room for profitability.

Profitability: Average profitability of the industry should be attractive.

Demand-Supply: the wider demand supply gap, the better is the industry’s

fortune in the future

Entry barrier

Competition and Market share:

Technology trends

Government Policy

Capacity Utilization

Bargaining power of buyers

Indian Telecommunication industry

Indian Telecommunication industry, with about 464.82 million mobile phone connections (June 2009) , is the third largest telecommunication network in the world and the second largest in terms of number of wireless connections. For the past decade or so, telecommunication activities have gained momentum in India. Efforts have been made from both governmental and non-governmental platforms to enhance the infrastructure. The idea is to help modern telecommunication technologies to serve all segments of India’s culturally diverse society, and to transform it into a country of technologically aware people.

' Telecom Industry in India ' is regulated by 'Telecom Regulatory Authority of India' (TRAI). It has earned good reputation for transparency and competence.

Two types of players exists in ' Telecom Industry India ' community –

State owned companies like - BSNL and MTNL. Private companies like - Reliance Infocomm and Tata Teleservices,

Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communications etc.

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.

Major services and market potentiality of Telecom industry in IndiaTelecommunication sector in India is primarily subdivided into two segments, which are

Fixed Service Provider (FSPs) and Cellular Services.

Telecom industry in India constitutes some essential telecom services like telephone, radio, television and Internet.

Telecom industry in India is specifically emphasizing on latest technologies like GSM( Global System for Mobile Communications), CDMA(Code Division Multiple Access), PMRTS(Public Mobile Radio Trunking Services), Fixed Line and WLL(Wireless Local Loop ).

Growth of telecom industry in India

Indian telecom industry continued to register significant growth in 2008-09. Indian telecom network, with about 414 million connections in February 2009, is

the third largest in the world, while it is credited with the second largest wireless network in the world.

At the current pace, the target of 500 million connections by 2010 is well within reach .The Government of India has reiterated its commitment to reach out to the remote and uncovered areas and to augment the broadband facilities in rural areas.

Economic Survey 2008-09 GrowthGrowth of telephones over the years

(in million)March06

March07

March08

Feb.09

Fixed lines 40.23 40.77 39.41 37.73

CDMA 32.67 44.62 68.38 92.14

GSM 69.19 120.47 192.70 283.98

Wireless(CDMA & GSM) 101.86 165.09 261.08 376.12

Gross Total 142.09 205.86 300.49 413.85

Source : Department of Telecommunicationspoint to point

COMPANY ANALYSIS

The purpose of company analysis to analyze the financial and non-financial

aspects of a company to determine whether to buy, sells, or holds onto the shares of a

particular company

After determining the economic and industry conditions, the company itself is

analyzed to determine its financial health. This is usually done by studying the company's

financial statements. From these statements a number of useful ratios can be calculated.

The ratios fall under five main categories: profitability, price, liquidity, leverage, and

efficiency. When performing ratio analysis on a company, the ratios should be compared

to other companies within the same or similar industry to get a feel for what is considered

"normal." These are quantitative factors of company analysis; there are also some

qualitative factors which should be considered also.

Find out as much as possible about the company and their products.

Do they have any “core competency” or “fundamental strength” that puts them ahead of all the other competing firms?

What advantage do they have over their competing firms?

Do they have a strong market presence and market share? Or do they constantly

have to employ a large part of their profits and resources in marketing and finding

new customers and fighting for market share?

Following are some more important aspects about company

Shareholding pattern

Growth

Technology

Expansion Plan

Profitability

Capital History

Marketing Capabilities

Most important its financial statement

After you understand the company & what they do, how they relate to the

market and their customers, you will be in a much better position to decide whether

the price of the companies stock is going to go up or down.

So fundamental analysts use different tools and ratios to compare all sorts

of companies no matter what business they are in or what they do!

Financial ratiosA financial ratio is an expression of the relationship between two selected items from the income statement or the balance sheet. Ratio analysis helps you to evaluate the weak and strong points in your financial and managerial performance. Financial ratio analysis is calculation and comparison of ratio which are derived from the information in a company’s financial statements. The level and historical trends of these ratios can be used to make inferences about a company’s financial condition its operations and attractiveness as an investment.1. Balance sheet ratio analysis

Current ratioQuick ratio

2. Income statement ratio anlysisGross margin ratioNet profit margin ratio

3. Management/efficiency ratiosInventory turnover ratiosAccount receivable ratio

4. Overall profitability analysisReturn on assets ratioReturn on investment ratio

5. Market test or valuation ratiosEarning per share

COMPANY ANALYSIS OF BHARTI AIRTEL

Bharti Airtel

Bharti Airtel formerly known as Bharti Tele-Ventures LTD (BTVL) is India's largest cellular service provider with more than 110 million subscribers as of Sep 2009.

With this, Bharti is now the world's third-largest, single-country mobile operator and sixth-largest integrated telecom operator.

It also offers fixed line services and broadband services.

It offers its TELECOM services under the Airtel brand and is headed by Sunil Bharti Mittal.

The company also provides telephone services and Internet access over DSL in 14 circles.

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.

The businesses at Bharti Airtel have always been structured into three individual strategic business units (SBU's)

- Mobile Services,

- Airtel Telemedia Services

- & Enterprise Services.

The mobile business provides mobile & fixed wireless services using GSM technology across 23 telecom circles while

The Airtel Telemedia Services business offers broadband & telephone services in 95 cities and has recently launched a Direct-to-Home (DTH) service, Airtel digital TV. The company provides end-to-end data and

Enterprise services to the corporate customers through its nationwide fiber optic backbone, last mile connectivity in fixed-line and mobile circles, VSATs, ISP and international bandwidth access through the gateways and landing station.Globally, Bharti Airtel is the 3rd largest in-country mobile operator by subscriber base, behind China Mobile and China Unicom.

MARKET SHARE OF DIFFERENT TELECOM INDUSTRIES IN INDIA

In India, the company has a 24.6% share of the wireless services market, followed by 17.7% for Reliance Communications and 17.4% for Vodafone

COMPANY ANALYSIS OF BHARTI AAIRTEL BY USING DIFFERENT RATIOS

1. Balance sheet ratio analysis

YEAR March 05 March 06 March 07 March 08 March 09

RATIOSLIQUIDITY RATIOSCurrent Ratio 0.47 0.44 0.47 0.57 0.69Quick Ratio 0.49 0.45 0.47 0.55 0.65

Interpretation :- Bharti airtel’s both current and quick ratios are moving upward means shows increasing trends. These shows company has good liquidity position .Company is able to pay day to obligations of company.

2. INCOME STATEMENT RATIO ANALYSIS

YEAR

RATIOS

March 05 March 06 March 07 March 08 March 09

Income statement

RatiosGross profit Ratio

24.29 23.14 27.47 29.08 29.33

Net profit Ratio 14.83 17.80 22.46 23.99 22.58

Interpretation :- High income ratio shows company is at good profitability condition. As we see that net profit ratio in 2009 decline. But this is minor decline. This is due to high inflation rate and global meltdown. But company did not effected very much.

3. MANAGEMENT/EFFICIENCY RATIOS

YEAR

RATIOS

March 05 March 06 March 07 March 08 March 09

Management /efficiency RatiosInventory Ratio 257.80 634.52 373.35 453.06 547.83

Account receivable ratio

11.38 12.57 14.31 12.28 12.78

Interpretation :- High inventory turnover ratio and high debtor turnover ration shows the management’s efficiency in using inventory and collecting debts respectively. Bharti airtel’s both ratios are high in 2009 as compare to previous years. Company is efficient in using inventory properly and company able to collecting cash from debtors on time. In this way it shows good prospectus for investors to invest in this company in future.

4. OVERALL PROFITABILITY NALYSIS

YEAR

RATIOS

March 05 March 06 March 07 March 08 March 09

Overall profitability analysisReturn on asset Ratio

257.80 634.52 373.35 453.06 547.83

Return on investment ratio

0.75 0.72 0.75 1.03 1.00

Interpretation :- High return on asset ratio shows that company’s overall profitability is goods. Bharti airtel’s this ratios is high in 2009 as compare to previous years. So its overall profitability is good whether its return on inventment ratio has reduced by .03 point. It may be due to inflation and global meltdown reason.

5.MARKET TEST OR VALUATION RATIOS

YEAR

RATIOS

March 05 March 06 March 07 March 08 March 09

Market test or valuation ratioEarning per share ratio

6.53 10.62 21.27 32.90 40.79

Interpretation :- High earning per share is considered good from investor’s point of view. Bharti airtel’s this ratio is increasing year by year. It shows that investors has good prospectus in bharti airtel if they will purchase is share.

Calculation of Intrinsic value for March FY2010

EXPECTED EPS = 26.52 EXPECTED PE RATIO= 14.28 INTRINSIC VALUE FOR MARCH 2010= 26.52*14.28=378.70

Market Price 299.70

INTRINSIC VALUE IS GREATER THAN MARKET PRICE THEREFOR INVESTOR ARE SUGGESTED TO BUY BHARTI AIRTEL’S SHARE AT CURRENT LEVEL ON 299.70

CONCLUSIONOn the basis of this assignment’s data we can say that there will be benefit to investors to invest their money in telecom industry because telecom industry is growing industry. And Indian government is also providing various facilities in the development of telecom industry. In india BHARTI AIRTEL is growing company. On the basis of its various ratios like Current ratio, Quick ratio , Net profit margin ratio, Inventory turnover ratios, Account receivable ratio, Return on assets ratio, Return on investment ratio , Earning per share we can say that company has good profitability condition, good liquidity position, good market condition because earning per share is increasing every year.AND ON THE BASIS OF INTRINSIC VALUE WE CAN SAY THAT INVESTOR CAN TAKE BENEFIT IN FUTURE BY PURCHASING BHARTI AIRTEL’S SHARE.

BIBLOGRPHY

www.airindia.co.in

www. wikipedia .org

http://search.ebscohost.com

Business India

Economics Times