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FUNDAMENTAL ANLAYSIS OF BHARTI AIRTEL
SUBJECT:- SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
MS. MANISHA GUPTA
KULBEER KAUR ROLL NO:- 80804317030 SHAVIKA GAGNEJA ROLL NO:- 80804317065 MBA 3rd
PUNJAB INSTITUTE OF MANAGEMENT AND TECHNOLOGY (MANDI GOBINDGARH)
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)
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
INDIAN ECONOMY ANALYSIS
INDIA GDP GROWTH RATE
• • • India Gross Domestic Product (GDP) expanded 6.10% over the last 4 quarters. The India Gross Domestic Product is worth 1217 billion dollars or 1.96% of the world economy, according to the World Bank. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. India GDP Growth Rate chart Year Mar Jun 6.10 7.80 7.70 9.20 9.00 Sep Dec Average 5.95 5.80 7.48 9.30 9.30
2009 5.80 2008 8.60 2007 9.70
2006 10.40 9.80 10.60 9.30 10.03
12 10 8 6 4 2 0 2006 2007 2008 2009 GDP
WE SAW THAT GDP GROWTH RATE OF INDIA’S SHOWS DECLINING TREND. MAIN REASON BEHIND THIS
IS LESS RAIN AND GLOBAL ECONOMY MELTDOWN. BUT AS WE SEE IN JUNE
2009 GDP RATE INCREASES TO 6.10 AS COMPARE TO MARCH 2009’S 5.8. IT SHOWS THAT INDIA’S GDP RATE IS INCREASING. IT SHOWS GOOD PROSPECTUS FOR INVESTORS IN FUTURE. AND INVESTOR CAN GET BENEFIT BY INVESTING IN INDIAN
INDIA’S INFLATION RATE
Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices index, and the GDP deflator, which measures inflation in the whole of the domestic economy. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Services are the major source of economic growth, accounting for more than half of India's output with less than one third of its labor force. The economy has posted an average growth rate of more than 7% in the decade since 1997, reducing poverty by about 10 percentage points.
India Inflation Rate chart
2009 10.45 9.63 8.03 8.70 8.63 2008 5.51 2007 6.72 2006 4.39 5.47 7.87 7.81 7.75 7.56 6.72 6.67 6.61 5.31 5.31 5.26 6.14
9.29 11.89 11.72 7.69 8.33 5.69 6.45 7.89 6.90 9.02 7.26 5.98 9.77 10.45 10.45 9.70 6.40 5.51 6.84 7.63 5.51 6.72 5.51 6.72
Interpretation:- As graph shows that inflation rate is rising year by year. Inflation in economy is not good from investor’s point of view. When inflation rate rises it become the reason of extra costs to business, thereby squeezing their profit margin and leading to real decline in profitability and there by reducing the dividends on variable income securities.
INDIA INTEREST RATE
India benchmark interest rate stands at 3.25 percent. In India, interest rate decisions are taken by the Reserve Bank of India's Central Board of Directors. The official interest rate is the benchmark repurchase rate. India Interest Rate chart, Year 2009 2008 2007 2006 Jan 4.00 6.00 6.00 5.25 Feb 4.00 6.00 6.00 5.50 Mar 3.50 6.00 6.00 5.50 Apr 3.25 6.00 6.00 5.50 May 3.25 6.00 6.00 5.50 Jun 3.25 6.00 6.00 5.50 Jul 3.25 6.00 6.00 5.75 Aug 3.25 6.00 6.00 6.00 Sep 3.25 6.00 6.00 6.00 Oct 3.25 6.00 6.00 6.00 Nov 3.25 6.00 6.00 6.00 5.00 6.00 6.00 Dec
Interpretation :- Data in graph shows that in 2009 interest rate are less than previous year. Means government is helping the businessmen so that the can continue their business without any difficulty in economic crisis type of condition by reducing the interest rate. Low interest rate is good from investor’s point of view.
INDIA CURRENT ACCOUNT
Current Account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). The balance of trade is typically the most important part of the current account. This means that changes in the patterns of trade are key drivers in the current accounts of most of the world's economies. However, for the few countries with substantial overseas assets or liabilities, net factor payments may be significant. Positive net sales to abroad generally contributes to a current account surplus; negative net sales to abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. The net factor income or income account, a sub-account of the current account, is usually presented under the headings income payments as outflows, and income receipts as inflows. Income refers not only to the money received from investments made abroad (note: investments are recorded in the capital account but income from investments is recorded in the current account) but also to the money sent by individuals working abroad, known as remittances, to their families back home. If the income account is negative, the country is paying more than it is taking in interest, dividends, etc. For example, the United States' net income has been declining exponentially since it has allowed the dollar's price relative to other currencies to be determined by the market to a point where income payments and receipts are roughly equal of trade forms part of the current account, which also includes other transactions such as income from the international investment position as well as international aid. If the current account is in surplus, the country's net international asset position increases correspondingly. Equally, a deficit decreases the net international asset position. India Current Account chart, historical data, forecast and news. India is leading exporter of gems and jewelry, textiles, engineering goods, chemicals, leather manufactures and services. India is poor in oil resources and is currently heavily dependent on coal and foreign oil imports for its energy needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main trading partners are European Union, United States, China and UAE . Year 2009 2008 2007 2006 Mar 4.7 -1.5 4.3 4.5 Jun -5.8 -9.0 -6.7 -4.1 -12.5 -4.3 -6.3 -13.0 -4.5 -3.7 Sep Dec Total -1.1 -36.1 -11.3 -9.5
Interpretation: - India’s current account shows negative current account. Means import is greater than export. Investor doesn’t take it positively. As compare to previous year negative balance payment has increased.
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.
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 India
Telecommunication 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 Growth
Growth of telephones over the years
March 06 Fixed lines CDMA 40.23 March 07 40.77 March 08 39.41 (in million) Feb. 09 37.73
GSM Wireless (CDMA & GSM)
Source : Department of Telecommunications point to point
450 400 350 300 250 200 150 100 50 0 Mar-06 M ar-09 Mar-08 Feb-09
Fixed line CDMA GSM Wireless(CDMA &GSMA Gross Total
Interpretation :- Graph shows that India telecom industry is growing in CDMA, GSMA and wireless (CDMA & GSMA) sectors . It shows overall upward trend of growth rate in these sectors. It will beneficial for investors to invest in telecom industry. Because it is growing industry. Future prospects are good in this industry.
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 ratios A 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 ratio Quick ratio 2. Income statement ratio anlysis Gross margin ratio Net profit margin ratio 3. Management/efficiency ratios Inventory turnover ratios
Account receivable ratio 4. Overall profitability analysis Return on assets ratio Return on investment ratio 5. Market test or valuation ratios Earning per share
COMPANY ANALYSIS OF BHARTI AIRTEL
• • • • • • • • Bharti Airtel (BSE: 532454), 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 Essar
Bharti Airtel 24.6 40.3 Reliance Communicationa Vodafone Essar Others Slice 5
COMPANY ANALYSIS OF BHARTI AAIRTEL BY USING DIFFERENT RATIOS
1. Balance sheet ratio analysis YEAR RATIOS LIQUIDITY RATIOS
Current Ratio Quick Ratio 0.47 0.49 0.44 0.45 0.47 0.47 0.57 0.55 0.69 0.65
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Mar05 Mra06 Mar07 Mar08 Mar09
0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Mar05 Mra06 Mar07 Mar08 Mar09 Quick ratios
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
Income statement Ratios Gross profit Ratio Net profit Ratio
0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Mar- Mra- Mar- Mar- Mar05 06 07 08 09
30 25 20 15 10 5 0 Mar- Mra- Mar- Mar- Mar05 06 07 08 09 Net profit ratio
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 Ratios Inventory Ratio Account receivable ratio
700 600 500 400 300 200 100 0 Mar05 Mra06 Mar07 Mar08 Mar09
Inventory turnover ratio
16 14 12 10 8 6 4 2 0 Mar- Mra05 06 Mar- Mar- Mar07 08 09
Account receivable artio
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 March 05 March 06 March 07 March 08 March 09
Overall profitability analysis Return on asset Ratio Return on investment ratio
700 600 500 400 300 200 100 0 Mar05 Mra06 Mar07 Mar08 Mar09
Return on assets ratio
1.2 1 0.8 0.6 0.4 0.2 0 Mar05 Mra06 Mar07 Mar08 Mar09 Return on investment ratio
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
Market test or valuation ratio Earning per share ratio 6.53 10.62 21.27 32.90 40.79
45 40 35 30 25 20 15 10 5 0 Mar05 Mar06 Mar07 Mar08 Mar09
Earning per share ratio
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
On 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.