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of requirements for Master in Business Administration, GGSIPU Training Period: June-July, 2009 Submitted By: PUNEET JAIN Enroll. No. 0821233908 Summer Training Project Report
UNDER THE GUIDANCE OF Internal Guide: Mrs. Haritika Chhatwal (Faculty) DIAS (GGSIPU) External Guide:Mr. Raj Pal Nanda C.A.O (NTR region) BSNL
DELHI INSTITUTE OF ADVANCE STUDIES (APPROVED BY AICTE, HRD MINISTRY, GOVT. OF INDIA) AFFILIATED TO GURU GOBIND SINGH INDRAPRASTHA U N IV E R SIT Y , D E L H I PLOT NUMBER- 6, SECTOR- 25, ROHINI, DELHI- 110085
STUDENT UNDERTAKING
I, Puneet Jain hereby declares that the project report Financial comparison of BSNL with other Major players in telecom industry assigned to me at BSNL during my training session for the partial fulfillment of MBA degree from DELHI INSTITUTE OF ADVANCE STUDIES, affiliated to IP UNIVERSITY is the original work of me and the information provided by me is authentic and true to the best of my knowledge.
This project work has not been submitted by anyone to any other institution or university for the award of MBA or any other degree.
PUNEET JAIN
(MBA III SEMESTER)
Acknowledgement
The success of any project study depends upon a number of factors among which the proper guidance from the experts in the industry and a faculty plays an important role.
I take this opportunity to convey my sincere thanks and gratitude to all those who have directly or indirectly helped and contributed towards the completion of this project.
I take here a great opportunity to express my sincere and deep sense of gratitude to Lecturer Mrs. Hartika Chhatwal , for giving us an opportunity to work on this project. The support & guidance from madam, was of great help & it was extremely valuable. I would like to express my gratitude to madam for her constant support and encouragement.
I take this platform to convey my gratitude to the officials of BSNL for their prompt response and guidance. I would like to express my gratitude to Mr. Raj Pal Nanda (Chief Accounts Officer, TR Section, Finance) for his constant support and encouragement. Without his outright support and prompt response, it would not be possible to do any justice as well as bring authenticity to the project.
Puneet Jain
Executive Summary
This is a brief report of eight weeks Summer Internship project titled Financial Comparison of BSNL with Other major players in Telecom Industry conducted in Northern Telecom Region, Eastern Court, and BSNL. This report examines the analysis of the statement like Balance sheets and Profit and Loss A/c of past five years to know the performance of the company in comparison with other players in the industry.
Data of BSNL is collected from the companys annual reports and the data of other players like Airtel, Idea, TATA and MTNL is searched on their websites. Then data of all these companies are arranged in the uniform manner so that financial factors can be drawn out easily.
With the help of theoretical knowledge on the part of ratios and cash flow, all the relevant ratios of each and every company for past five years have been founded. With the help of regression analysis projected performance of various companies for 2009-10 have been forecasted. After a thorough study and discussion with the companys professional, comments were taken so that Interpretation of these ratios became easy and accurate.
After analyzing the project, it can be concluded that despite of having good liquid assets BSNL is having weak financial position as compared to any other private player in the industry. Companys performance have been deteriorated over the years and if the trend remains continue than it have been projected that company will have to suffer net losses in the upcoming year 2009-10. So, it is high time for the company to take some strict measure to meet the intense competitive industry. Hence it have been advised for the company to use cost cutting like voluntary retirement of useless chunk employees as it is having highest no. of useless employees and having golden handshake with the highly intellectual professionals in the industry especially form Bharti Airtel. Similarly various other recommendations have been given in the project.
TABLE OF CONTENT
S. No. Chapter 1 Particulars Research Study 1.1 Objectives of Study 1.2 ResearchMethodology 1.2.1 Research Design 1.2.2 Data collection Company Profile 2.1 Industry Profile 2.2 Company Profile (BSNL) 2.2.1 Board of Directors 2.2.2 Basic Service offered 2.2.3 Organisation Structure 2.2.4 Accounting Policies of 2.3 Competitors Profile 2.3.1 Bharti Airtel 2.3.2 Reliance Comm 2.3.3 Vodafone 2.3.4 Idea Cellular 2.3.5 Aircel 2.3.6 MTNL 2.3.7 BPL Mobile 2.3.8 HFCL Infotel Literature Review Conceptual Framework 4.1 Essentials of Financial Statement 4.2 Parties Interested 4.3 Tools of Financial Analysis 4.3.1 Ratio Analysis 4.3.2 Cash Flow Statements Finding And Analysis 5.1 Current Ratio 5.2 Earning Per Share 5.3 Debtor Turnover Ratio
Chapter 2
Chapter 3 Chapter 4
Chapter 5
Debt Equity Ratio Return on Capital Employed Price Earning Ratio Net Profit Margin Ratio Analysis of Cash Flows 5.8.1 Net Cash From operating Activities 5.8.2 Net Cash Used in Investing Activities 5.8.3 Net Cash Used in Financing Activities
Chapter 6
Conclusion 6.1 Conclusion 6.2 Suggestions Limitations Bibliography Annexure BSNL P&L (5 Years) BSNL Balance Sheet (5 Years) BSNL Cash Flows (5 Years) Bharti Airtel Balance Sheet (5 Years) Bharti Airtel P&L (5 Years) Bharti Airtel Cash Flows (5 Years) MTNL Balance Sheet (4 Years) MTNL P&L (4 Years) MTNL Cash Flows (4 Years) Idea Balance Sheet (4 Years) Idea P&L (4 Years) Idea Cash Flows (3 Years) Tata Comm P&L (5 Years) Tata Comm Balance Sheet (5 Years) Tata Comm Cash Flows (5 Years) Miscellaneous
Chapter 10
Chapter 1
RESEARCH STUDY
1.1
The basic objective of doing the project is to : Analyze the financial statements of past 5 years of BSNL and Other major competitors in the telecom industry. Predict the performance in next year (2009-10) on the basis of last 5 year performance. Describe the trends of various financial factors of BSNL over past 5 years. Studying the relationship among the various financial factors as disclosed in the financial statements of various companies in the Indian telecomm Industry.
Minor objectives are: 1. Know the Financial Position: The basic objective of studying the Financial statements of the company is to know the financial position of the company.
2. Help in planning: Financial Analysis helps in planning and forecasting. Over a period of time, a firm or industry develops certain norms that indicate future success & failure.
3. Inter- Intra firm Comparison: Ratio Analysis provides the data for inter-firm comparison as well as intra firm comparison. Ratios highlight the factors associated with successful and unsuccessful firms. They also reveal attractiveness and unattractiveness of the firm in the industry, over-valued and under-valued firms.
1.2
RESEARCH METHODOLOGY
Methodology is the basic framework and the approach that has to be followed to carry out the approach used to collect the data, the sources of primary data, i.e., from where and how it has been collected. Research is a diligent and systematic inquiry or investigation into a subject in order to discover or revise facts, theories, applications etc. Methodology is system of methods followed by particular discipline. Thus, Research Methodology is the way how we conduct our research.
In the present project report type of research conducted is Quantitative research. Exploratory research is undertaken which involves extensive scanning of secondary data. For my project most of the finance related books have been considered . The best websites are considered which gives all the efficient and effective information. References for the project are from the websites and books and the companys annual reports. It is assured that the project has been completed with full dedication, sincerity and required intensity of hard work.
Generally three types of research are included in research design. These are as follows:
Exploratory research Descriptive and diagnostic research Experimental research In the present project report both primary and secondary data is taken so descriptive and exploratory research is done. This research focuses on discovery of insights and relationships among various financial factors among various companies.Companies which are taken as a sample of Indian Telecom Industry is based on the market share.2 from the Top five companies and 2 from the Bottom five companies (Ratings have been provided to 10 companies in the telecom industry according to their respective market share )have been considered for comparison with BSNL.
Chapter 2
COMPANY PROFILE
2.1
INDUSTRY PROFILE
Today the Indian telecommunications network with over 375 Million subscribers is second largest network in the world after China. India is also the fastest growing telecom market in the world with an addition of 9- 10 million monthly subscribers. The teledensity of the Country has increased from 18% in 2006 to 33% in December 2008, showing a stupendous annual growth of about 50%, one of the highest in any sector of the Indian Economy. The Department of Telecommunications has been able to provide state of the art world-class infrastructure at globally competitive tariffs and reduce the digital divide by extending connectivity to the unconnected areas. India has emerged as a major base for the telecom industry worldwide. Thus Indian telecom sector has come a long way in achieving its dream of providing affordable and effective communication facilities to Indian citizens. As a result common man today has access to this most needed facility. The reform measures coupled with the proactive policies of the Department of Telecommunications have resulted in an unprecedented growth of the telecom sector.
The thrust areas presently are: 1. Building a modern and efficient infrastructure ensuring greater competitive environment 2. With equal opportunities and level playing field for all stakeholders. 3. Strengthening research and development for manufacturing, value added services. 4. Efficient and transparent spectrum management 5. To accelerate broadband penetration 6. Universal service to all uncovered areas including rural areas. 7. Enabling Indian telecom companies to become global players.
Recent things to watch in Indian telecom sector are: 1. 3G and BWA auctions 2. MVNO 3. Mobile Number Portability 4. New Policy for Value Added Services
5. Market dynamics once the recently licensed new telecom operators start rolling out 6. Services. 7. Increased thrust on telecom equipment manufacturing and exports. 8. Reduction in Mobile Termination Charges as the cost per line has substantially reduced 9. Due to technological advancement and increase in traffic.
India's telecom sector has shown massive upsurge in the recent years in all respects of industrial growth. From the status of state monopoly with very limited growth, it has grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an essential necessity for the people of India. This changing phase was possible with the economic development that followed the process of structuring the economy in the capitalistic pattern. Removal of restrictions on foreign capital investment and industrial de-licensing resulted in fast growth of this sector. At present the country's telecom industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone companies were present, fixed landlines were popular in most parts of the country, with government of India setting up the Telecom Regulatory Authority of India, and measures to allow new players country, the featured products in the segment came in to prominence. Today the industry offers services such as fixed landlines, WLL, GSM mobiles, CDMA and IP services to customers. Increasing competition among players allowed the prices drastically down by making the mobile facility accessible to the urban middle class population, and to a great extend in the rural areas. Even for small shopkeepers and factory workers a phone connection is not an unreachable luxury. Major players in the sector are BSNL, MTNL, Bharti Teleservices, Hutchison Essar, BPL, Tata, Idea, etc. With the growth of telecom services, telecom equipment and accessories manufacturing has also grown in a big way.
Indian Telecom sector, like any other industrial sector in the country, has gone through many phases of growth and diversification. Starting from telegraphic and telephonic systems in the 19th century, the field of telephonic communication has now expanded to
make use of advanced technologies like GSM, CDMA, and WLL to the great 3G Technology in mobile phones. Day by day, both the Public Players and the Private Players are putting in their resources and efforts to improve the telecommunication technology so as to give the maximum to their customers.
Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance Communication. However, across the globe, CDMA has been loosing out numbers to popular GSM technology, contrary to the scenario in India.
The other reason that has tremendously helped the telecom Industry is the regulatory changes and reforms that have been pushed for last 10 years by successive Indian governments. According to Telecom Regulatory Authority of India (TRAI) the rate of market expansion would increase with further regulatory and structural reforms. Even though the fixed line market share has been dropping consistently, the overall (fixed and mobile) subscribers have risen to more than 200 million by first quarter of 2007. The telecom reforms have allowed the foreign telecommunication companies to enter Indian market which has still got huge potential. International telecom companies like Vodafone have made entry into Indian market in a big way. Currently the Indian Telecommunication market is valued at around $100 billion (Rupees 400,000 crore). Two telecom players dominate this market - Bharti Airtel with 27% market share and Reliance Communication with 20% along with other players like BSNL
(Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that has been puzzling is broadband Internet. Despite the manner in which the countrys Internet market has been booming, Indias move into high-speed broadband Internet access has been distinctly slow. And, while there appears to be considerable enthusiasm amongst the population for the Internet itself, this has not been reflected in broadband subscription numbers. In 2006 India witnessed a good surge in broadband users with the total subscriber base in the country expanding by almost 200% to just over 2 million by years end. Despite this surge, broadband penetration in India still remains around only 0.2%; broadband services still account for only 25% of the total Internet subscriber base, still in itself comparatively low. So, if 70% of total population is rural, the scope for growth in this Industry is unprecedented. The Ministry of Communications and Information Technology (MCIT) is has very aggressive plans to increase the pace of growth, targeting 250 million telephone subscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers is set to occur in rural India. Indias rural telephone density has been languishing at around 1.9%. The subscriber addition rate has been strong in the last 12 months but the regulatory developments will increase competition and thus curtail the long-term growth rates of individual companies. The savings through the setting of tower companies will partly go towards the higher capex and opex costs from more stringent spectrum allocation norms for the incumbents. The Telecommunications sector has been consistently adding more than 7 million subscribers for the last 6 months, a very healthy net addition rate infact. All the private operators GSM as well as the CDMA operators have been very consistent in their performance. The sector provides very strong revenue as well as earnings visibility over the next 12 months. However the recent regulatory developments are seem to be negative for the telecom companies as it will increase the number operators per circle which will intensify competition.
2.2
COMPANY PROFILE
It has about 47.3 million line basic telephone capacity, 4 million WLL capacity, 20.1 Million GSM Capacity, more than 37382 fixed exchanges, 18000 BTS, 287 Satellite Stations, 480196 Rkm of OFC Cable, 63730 Rkm of Microwave Network connecting 602 Districts, 7330 cities/towns and 5.5 Lakhs villages.
BSNL is the only service provider, making focused efforts and planned initiatives to bridge the Rural-Urban Digital Divide ICT sector. In fact there is no telecom operator in the country to beat its reach with its wide network giving services in every nook & corner of country and operates across India except Delhi & Mumbai.
BSNL is numero uno operator of India in all services in its license area. The company offers vide ranging & most transparent tariff schemes designed to suite every customer.
BSNL cellular service, CellOne, has more than 17.8 million cellular customers, garnering 24 percent of all mobile users as its subscribers. That means that almost every fourth mobile user in the country has a BSNL connection. In basic services, BSNL is miles
ahead of its rivals, with 35.1 million Basic Phone subscribers i.e. 85 per cent share of the subscriber base and 92 percent share in revenue terms. BSNL has more than 2.5 million WLL subscribers and 2.5 million Internet Customers who access Internet through various modes viz. Dial-up, Leased Line, DIAS, Account Less Internet (CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country. BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure that provides convergent services like voice, data and video through the same Backbone and Broadband Access Network. At present there are 0.6 million DataOne broadband customers.
1. Internet: Keeping the global network networked, the countrywide Internet Services of BSNL includes Internet dial up/Leased Access service, for web browsing and E-mail Applications.
2. ISDN: Integrated Service Digital Network Service of BSNL utilizes a unique digital network providing high speed and high quality voice, data and image transfer over the same line. It can facilitate both desktop video & high quality video conferencing.
3. Intelligent Network Service: Intelligent Network Service (In service) offers various value-added services such as: - Free Phone Services (FPH) - India Telephone Card (Prepaid Card) - Account Card Calling (ACC) - Virtual Private Network (VPN) - Tele-voting - Premium Rate Service (PRM) - Universal Access Number (UAN)
4.
Sulabh: It is the best available incoming-only plan. If anyone require the landline b-fone predominantly for receiving incoming calls only, BSNL brings you Sulabh Plan. The rentals in this plan are extremely low. If you desire to make outgoing calls, this facility can also be given separately (or one can also use ITC Cards with Sulabh Plan). These plans are now very popular.
5. WLL (Wireless Land Line): There are two versions of WLL. These are explained as follows:
WLL Fixed (FWT): It is the Fixed Wireless Transmission. In this case, there is a small box fitted with a small antenna at ones premises and a normal telephone instrument is connected to the box. There is no Telephone copper wire connection as in the conventional telephone.
WLL Mobile: In this case, Subscriber can carry a small handset of CDMA technology. There is no antenna or any other equipment at your premises. Branded as Tarang, this is the most reliable and affordable service giving ones the best of both fixed line & mobile telephone.
6. Mobile Services: BSNLs Cellular Service is the Indias growing Cellular Service. BSNLs Cellular Service has taken the cellular telephone to the masses through innovative technology and strategic pricing. This ambitious service uses state-of-the-art GSM technology to attain global excellence and leadership. BSNLs entry into this sector has brought GSM cellular service at an affordable cost to the common man. Customers have respond tremendous faith in BSNL and it has enrolled over 1.07 crores Cellular customers.
7. BSNL Internet Service: BSNL, Indias no.1, Internet Service Provider, provides Internet service throughout the country (except Delhi and Mumbai). Sancharnet Card: BSNL has also launched Internet Card. This card is a prepaid Internet Access Card.
8. BSNL Broadband: The Broadband service from BSNL is widely used by almost all the companies of India.
The financial statements of Bharat Sanchar Nigam Limited(BSNL) are prepared under the historical cost convention adopting the accrual method of accounting in accordance with Indian Generally Accepted Accounting Principles and in accordance with the provisions of the Companies Act, 1956 (the Act).
2. REVENUE RECOGNITION Income from services is accounted for on accrual basis and in conformity with Accounting Standard 9 of ICAI. Accordingly, a) Revenue for all services is recognized when earned and are realizable at the time of billing. Unbilled revenues from the billing date to the end of the year are recorded as accrued revenue during the period in which the services are provided. Provision is made in respect of bills considered to be disputed (by the management), debts outstanding for more than two years and for debts due for less than 2 years, to the extent considered necessary by the management. b) Installation Charges recovered from subscribers at the time of new telephone connections are recognized as income in the first year of the billing. c) In terms of an arrangement between the Department of Telecommunications (DoT) and the Company, the charges for telecommunication services and other infrastructural services provided by BSNL to DoT are neither being billed nor provided for. d) Sale proceeds of scrap arising from maintenance and project works are taken into miscellaneous income in the year of sale. e) Income from SIMs, recharge coupons of Mobile, Prepaid Calling Cards, and Prepaid internet connection cards are treated as income of the year in which the payment is received since the extent of use of these cards within the financial year could not be ascertained.
f) Wherever there is uncertainty in realization of income, such as liquidated damages, claims on Government Departments & local authorities etc., these are recognized on collection basis.
3. FIXED ASSETS 3.1 Fixed assets are carried at cost less depreciation. Cost includes directly related establishment and other expenses including employee remuneration and benefits, directly identifiable to the construction or creation of the assets.
3.2 Expenditure on replacement of assets, equipments, instruments and rehabilitation works is capitalized if, in the opinion of the management, it results in enhancement of revenue generating capacity. 3.3 Assets are capitalized to the extent completion certificates have been obtained, wherever applicable. 3.4 The cost of stores and materials at the time of issue to a project is debited to CWIP. 3.5Cables are capitalized as and when ready for connection to the main system. 3.6Intangible assets are stated at cost of acquiring the same less accumulated depreciation /amortization.
4. DEPRECIATION/AMORTIZATION Depreciation is provided based on the Written Down Value Method at the rates prescribed in Schedule XIV to the Companies Act, 1956 except for Subscriber Installation. The Subscriber Installation is depreciated over the useful life of 5 years on Written Down Value method. Assets costing up to Rs. 5,000 are depreciated fully in the year of purchase. Similarly, partition works costing up to Rs. 2,00,000 are depreciated fully in the year of construction. The depreciation on machinery & tools used both for project and maintenance work is charged to profit and loss account instead of capitalization. All telephone exchange buildings, administrative offices and captive consumption assembling premises/workshops are considered as normal building and not as factory building. Accordingly depreciation is charged uniformly. Intangible assets such as Entry License Fee for Telecom Service operations are amortized over the license
period (i.e. 20 years) and standalone computer software applications are amortized over the license period subject to maximum of 10 years as per straight line method.
5. IMPAIRMENT OF ASSETS Assets, which are impaired by disuse or obsolescence, are segregated from the concerned assets category and shown as Decommissioned Assets and provision made for the loss, if any, due to the difference between their net carrying cost and the net realizable value.
6. INVESTMENTS Long-term investments are carried at cost, after providing for any diminution in value, if such diminution is of a permanent nature.
7. INVENTORIES Inventories are valued at cost or net realizable value as the case may be - cost ascertained generally on weighted average method; obsolete/non moving inventories are valued at net realizable value.
8. TAXES ON INCOME Taxes on Income for the current period are determined on the basis of taxable income and tax credits computed in accordance with the provisions of the Income Tax Act, 1961. In accordance with the AS-22, Deferred Tax Liability is recognized on the timing differences between accounting income and the taxable income for the period taking into consideration the contents of Accounting Standard Interpretations 3 and quantified using the tax rates in force or substantively enacted as on the Balance Sheet date. Deferred Tax Assets are recognized and carried forward to the extent there is a virtual certainty that such deferred tax assets can be realized.
9. PROVISIONS Provisions are recognized 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. CONTINGENT LIABILITIES Liabilities, though contingent, are provided for if there are reasonable chances of maturing such liabilities as per management. Other contingent liabilities and claims, not acknowledged as debts, are disclosed by way of notes.
11. EARNING PER SHARE Earning Per Share ("EPS") comprises the Net Profit after tax (excluding extraordinary income net of tax). The number of shares used in computing Basic & Diluted EPS is the weighted average number of shares outstanding during the year.
2.3
COMPETITOR PROFILE
Market Share of Telecom Companies as on 31st Jan09
Their business encompasses a complete range of telecom services covering mobile and fixed line telephony. It includes broadband, national and international long distance services and data services along with an exhaustive range of value-added services and applications. Our constant endeavour is to achieve customer delight by enhancing the productivity of the enterprises and individuals we serve.
Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002, coinciding with the joyous occasion of the late Dhirubhai Ambanis 70th birthday, was among the initial initiatives of Reliance Communications. It marked the auspicious beginning of Dhirubhais dream of ushering in a digital revolution in India. Today, the company can proudly claim that they were instrumental in harnessing the true power of information and communication, by bestowing it in the hands of the common man at affordable rates.
They endeavour to further extend their efforts beyond the traditional value chain by developing and deploying complete telecom solutions for the entire spectrum of society. It was established in the year 2004 as Reliance Infrastructure Developers Private Limited, Reliance Communications started laying 60,000 route kilometers of a pan-India fibre optic backbone with high capacity, integrated (wireless and wireline), convergent (voice, data and video) digital network and to offer services spanning the entire infocomm value chain. It is capable of delivering a range of services spanning the entire infocomm (information and communication) value chain, including infrastructure and services for enterprises as well as individuals, applications, and consulting.
Vodafone is the worlds leading international mobile communications company. It currently has equity interests in 27 countries across 5 continents and 40 partner networks with over 289 million proportionate customers worldwide. Vodafone has partnered with the Essar Group as its principal joint venture partner for the Indian market.
Essar Global Limited (EGL) is a diversified business group spanning the manufacturing and services sectors of Steel, Energy, Power, Communications, Shipping & Logistics, and Projects. The group has operations and investments in India, Canada, USA, Africa, the Middle East, the Caribbean and South East Asia and employs 30,000 people worldwide.
Vodafone Essar Ltd provides services like 2G, which are based on 1800 Mhz and 900Mhz GSM digital technology. They offers voice and data services. In addition, they offers postpaid connections activation, prepaid SIM cards and recharge coupons sale, service activation/deactivation, postpaid tariff plan change, customer query resolution, prepaid/postpaid SIM card replacement and upgradation, mobile number change, and information on and subscription of value added services through stores.
A brand known for many firsts, Idea was the first to launch GPRS and EDGE in the country. Idea has received international recognition for its path-breaking innovations when it won the GSM Association Award for "Best Billing and Customer Care Solution" for 2 consecutive years.
IDEA Cellular is part of the Aditya Birla Group, India's first truly multinational corporation. The group operates in 25 countries, and is anchored by over 1,25,000 employees belonging to 25 nationalities.
The Indian telecommunications market for mobile services is divided into 22 "Service Areas" classified into "Metro", Category "A", Category "B" and Category "C" service areas by the Government of India. These classifications are based principally on a Service Area's revenue generating potential
Customer Service and Innovation are the drivers of this Cellular Brand. A brand known for their many firsts, IDEA is the only operator to launch General Packet Radio Service (GPRS) and EDGE in the country. IDEA has seen phenomenal growth since its inception, the company's footprint idea is to first achieve critical mass, then drill deep instead of spreading thin, however, does not increasing geographic footprint only, it also drills deep and successfully attempts to provide excellent network coverage in all its circles of operations.
Aircel commenced operations in 1999 and became the leading mobile operator in Tamil Nadu within 18 months. In December 2003, it launched commercially in Chennai and quickly established itself as a market leader a position it has held since.
Aircel began its outward expansion in 2005 and met with unprecedented success in the Eastern frontier circles. It emerged a market leader in Assam and in the North Eastern provinces within 18 months of operations. Till today, the company gained a foothold in 14 circles including Chennai, Tamil Nadu, Assam, North East, Orissa, Bihar, Jammu & Kashmir, Himachal Pradesh, West Bengal, Kolkata, Kerala, Andhra Pradesh, Karnataka and Delhi.
The Company has currently gained a momentum in the space of telecom in India post the allocation of additional spectrum by the Department of Telecom, Govt. of India for 13 new circles across India. These include Delhi (Metro), Mumbai (Metro), Andhra Pradesh,
Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra & Goa, Rajasthan, Punjab, UP (West) and UP (East).
Aircel has won many awards and recognitions. Voice and Data gave Aircel the highest rating for overall customer satisfaction and network quality in 2006. Aircel emerged as the top mid-size utility company in Business worlds List of Best Mid-Size Companies in 2007. Additionally, Tele.net recognized Aircel as the best regional operator in 2008.
With over 16 million customers in the country, Aircel, the fastest growing telecom company in India, has revved up plans to become a full-fledged national operator by end of 2009.
2.3.6 MTNL
Mahanagar Telephone Nigam Limited (MTNL) was set up in 1st April of the year 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of India's key metros, Delhi (the political capital) and Mumbai (the business capital of India). The company has also been in the forefront of technology induction by converting 100% of its telephone exchange network into the state-of-the-art digital mode.
MTNL as a company, over last nineteen years, grew rapidly by modernizing the network, incorporating the State-of-the-art technologies and a customer friendly approach. The Company providing various types of telecommunication services including Telephone, telex, wireless, data communication, telematic and other like forms of communication (Internet).
First digital exchange world technology brought to India by the company during the year
1986. Phone Plus services was offered by the company in the year 1988, it gives multiplied benefits to telephone users. During the year 1992, the company introduced Voice Mail Service. MTNL had introduced the Integrated Services Digital Network (ISDN) services in the period of 1996. Apart from this IVRS (Interactive Voice Response System) like local assistance changed number information, and fault booking system ensuring round the clock service, a CD-ROM version of the telephone directory and an on-line directory enquiry through PC was introduced during the year 1997. To facilitate the clientele, MTNL launched the country's first toll-free service in Delhi in the period of 1998. During the year 1999, MTNL brought in the most widely using service called Internet (Network of Networks), the extreme level of information exchange.
During the year 2001, the company launched GSM Cellular Mobile service under the brand name Dolphin and in the same year MTNL also launched Wireless in Local Loop (WLL) Mobile services under the brand name Garuda.
The Company established Wi-Fi & digital certification services in the identical year. MTNL bagged the award for excellence in cost reduction in the year 2004. State of the art training centre of the company 'CETTM' was commissioned in the year of 2004. The Company introduced the broadband services under the brand name of 'TRI BAND' during the year 2005. MTNL-STPI IT Services Ltd is a 50:50 Joint Venture between Software Technology Parks of India (STPI) and the company. The Company has restructured Millennium Telecom Ltd (MTL) as a Joint Venture company of MTNL and BSNL with 51% and 49% equity participation respectively.
To remain market leader in providing world class Telecom and IT related services at affordable prices, the company partaking its all efforts in the same business area and MTNL wants to become a global player, also find a place in the Fortune 500' companies.
Further, it ranks very high on parameters like, customer satisfaction, billing performance, voice quality etc and was thus ranked first in the category of Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA) of mobile service providers, operating in Mumbai. Superior coverage and optimum sound clarity are the strengths of BPL Mobile. BPL Mobile Communications Limited provides its customers with world class mobile services, through the use of state-of-the-art technology and network and this includes use of unique network design, the Qualnet, Camel Phase 2 Intelligent Network (IN) platform and GPRS facilitating ultra modern services like Multimedia Messaging Services (MMS), mobile browsing and Java based mobile phone games. Mr. S. Subramaniam, CEO of the company, heads this leading telecommunication company of India.
The products and services offered by BPL Mobile Communications Limited are as follows Prepaid Connections
Postpaid Connections Prepaid Recharge Coupons Bill Payments Value Added Services (VAS) Service Inquiries SIM Replacements Handset Sales
Other group companies are Kothari Sugars and Chemicals and Madras Safe Deposit. In Sep.'94, it came out with a rights issue of 21.79 lac shares (premium: Rs 30) aggregating Rs 8.72 cr, to augment long-term working capital. The company is mainly engaged in hire purchase, lease financing and investments. Its clients include individuals, firms as well as corporate bodies.
ITI's business activities include sugar, petrochemicals, industrial alcohol, etc. It has two subsidiaries -- ITI Pioneer AMC and ITI Capital Markets. ITI Pioneer AMC has promoted Kothari Pioneer Mutual Fund. ITI has invested 55% of its capital in ITI Pioneer
AMC and the remaining 45% has been subscribed to by Pioneering Management Corporation, US. During 1995-96, ITI Pioneer AMC Limited ceased to be a subsidiary of the company. During 1997-98, The Companys holding in ITI Capital Market Ltd was sold to Kothari Pioneer AMC Ltd.
During 2003-04, The Company launched its Prepaid Mobile product and a complete range of innovative value Added Services and Data products were launched in May 2004, by the introduction of DSL-high speed Internet product. The company became the first service provider to have launched DSL services in the state of Punjab and Chandigarh. During 2004-05, The Company expanded its services to 125 cities/towns with 2.47 lacs subscribers in Punjab.
The company is planning a venture into Video and Cable TV Services and making triple play services by an expansion into the neighbouring states of Punjab. A wholly owned subsidiary, Connect Broadband Services Limited was formed on July 2004, for the above purpose.
The Company's services namely, Fixed Line Telephoney, Mobile Telephoney, Broadband Internet Access and Data Networking Access are offered under the brand name 'CONNECT'.
Chapter 3
LITERATURE REVIEW
Anderson (2008), in his single executive interview titled Developing a route to market strategy for mobile communications in rural India An interview with Gurdeep Singh, Operations Director, Uttar Pradesh, Hutch India suggests that managers need to go beyond traditional approaches to serving the poor, and innovate by taking into account the unique institutional context of developing markets. His practical implication says that the experience of Hutchison Essar in India provides some important lessons for mobile network operators (MNOs) and other firms in other developing markets who are hoping to serve the rural poor: Hutchison has recognized the value of corporate and noncorporate partners. The company has proactively established relationships with individual entrepreneurs, and has provided has provided development support to other partners such as distributors. The company has recognized the value of leveraging existing local institutions, and has seen gaps in local infrastructure or missing services as potential opportunities rather than barriers to growth. The company has seen the rural market as an opportunity not just an obligation to be served because of universal service obligations. Also this article demonstrates that MNOs can deliver availability and affordability to achieve increased individual or household penetration through business model innovation. Mani (2008) addresses a number of issues arising from the growth of telecom services in India since the mid-1990s. It also discusses a number of spillover effects for the rest of the economy and one of the more important effects is the potential to develop a major manufacturing hub in the country for telecom equipment and for downstream industries such as semiconductor devices. The telecom industry in India could slowly become an example of the service sector acting as a fillip to the growth of the manufacturing sector. A beginning towards this has been made. The formation of a Telecom Equipment Export Forum and the announcement of the Indian Semiconductor Policy 2007 are steps in this direction. Success crucially depends on the response of the private sector to these incentives. Given the importance that a regulatory agency can play in this crafting, no effort should be lost in strengthening the powers of the TRAI. The benefits to the Indian economy from having both a strong services and manufacturing segments in the telecom sector cannot be undermined. Narayana (2008) estimates the contribution of telecommunication (or telecom) services to aggregate economic growth in India. Estimated contribution is distinguished between public and private sectors to highlight the impact of telecom privatization on economic growth. Knowledge of policy determinants of demand of telecom services is shown to be essential to enhance growth contribution of telecom services. Using a recent sample survey data from Karnataka State in South India, price and income determinants of demand for telecom services are estimated by capacity of telephone exchanges.
Estimation results offer evidence for significant negative own price elasticity and positive income elasticity of demand for telecom services. Sharma (2009) deals with the major challenges faced by Indias telecom equipment manufacturing sector, which lags behind telecom services. Only 35% of the total demand for telecom equipment in the country is met by domestic production. This is not favourable to long-term sustained growth of the telecom sector. The country is also far behind in R&D spending when compared to other leading countries. India needs to see an increase in R&D investment, industry-academia-government partnership, better quality doctoral education and incentives to entrepreneurs for start-ups in telecom equipment manufacturing. In 2006-07, 65% of the total consumption of equipment was met through imports. This trend has far-reaching implications for the economy and should not be allowed to continue for long. In a country like India which has a problem of massive unemployment, the manufacturing sector should be promoted to create more employment opportunities. Shah (February, 2009), has analysed Indian telecom industry and studied the sector keeping in mind three companies; namely Bharti, R.Comm and idea in the background of recent global meltdown. The study suggests that though there is no sign of slowdown in this sector, but surely a strong turmoil is going on in the industry. The study states that the sector is fairly immune from the current economic downturn & does provide a good defensive bet in medium term. With the help of newer technologies, wireless penetration is expected to increase in the near future, which is basically fuelling the growth of the sector. While the 3G / Broadband adoption would ensure long term growth momentum, the article has thoroughly investigated about the intense competitive scenario, pricing pressure, high capital intensity & substantial regulatory uncertainties currently faced by the industry. The article has also described the cause of being relatively safe of this industry. The causes described by Shah are increasing rural coverage, rising affordability, declining handset/subscription costs, substantially low tariffs & established brand/distribution. However, the study also cautions the telecom industry that a steeper economic slowdown could start impacting the subscriber usage patterns as well as operator capital investments & thereby could substantially restrict revenue growth rates going forward.
Chapter 4
CONCEPTUAL FRAMEWORK
Analysis of Financial Statements/Financial Analysis/Financial Statements Analysis Financial Statements are the summarized statements of accounting data produced at the end of the accounting process by an enterprise through which it communicates accounting information to the external users. The external users can be investors, lenders, suppliers and trade creditors, customers, government and their agencies, public at large and employees. Analysis of Financial Statements is a systematic process of the critical examination of the financial information contained in the financial statements in order to understand and make decisions regarding the operations of the firm.
Customarily, a set of financial statements include: (i) (ii) (iii) Balance Sheet Profit and Loss Account Schedules and notes forming part of the Balance Sheet and Profit & Loss Account
4.1
Essentials of Financial Statements 1. Accurate information 2. Understandability 3. Comparable 4. Verifiable 5. Relevant 6. Timeliness
4.2
4.3
1. Liquidity Ratios Liquidity implies firms ability to pay its debts in short run. This ability can be measured by Liquidity Ratios. Current Ratio and Quick Ratio are the two ratios which directly measure Liquidity. Receivables turnover Ratio and Inventory Turnover Ratio are the two ratios which in directly measure Liquidity.
A. Current ratio =
Current assets which are converted into cash within one year. Current liabilities are liabilities which are to be repaid within a period of 1 year.
B. Quick ratio or Liquid ratio or Acid Test ratio = Quick Assets/Liquid Assets Current Liabilities Quick Assets = Current Assets Inventories- Prepaid expenses Ratio of quick assets to quick liabilities. Quick assets which can be converted into cash very quickly. Quick liabilities are liabilities which have to be necessarily paid with in 1 year. IDEAL RATIO = 1:1
2. Turnover Ratios (Activity Ratios) A. Accounts Receivable Turnover ratio or Debtors Turnover Ratio = Net Credit Sales Average Accounts Receivables Average Accounts Receivables = Opening receivables + Closing receivables 2 It shows the Relationship between debtors and sales
It indicates no. of times stock has been turned into sales in a year Ideal Ratio = 8 Cost of goods sold = Sales gross profit Opening Stock + Closing Stock 2 Stock Conversion Period = Cost of goods Sold * No of days in a year/Average Inventory Average Inventory =
Average Creditors = Opening Creditors + Closing Creditors 2 Relation ship between Creditors and Purchases
3. Profitability or Efficiency Ratios These Ratios measure the efficiency of forms activities and its ability to generate profits. (i) (ii) (iii) Gross Profit Margin Ratio Net Profit Margin Ratio Return On Equity
(i)
Gross Profit = Sales Cost of goods sold Net Sales = Sales Sales Return - Excise Duty There is no Ideal Ratio. Higher the ratio better will be the performance of the business.
(ii)
It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. It shows the result of overall operation of the firm.
4. Ownership Ratios Capital Structure Ratios a) Debt Equity Ratio = Debt Equity Long Term Liabilities + Current Liabilities Share Holders Funds
Ratio 2 or Less Exposes Its Creditors Lesser Risk Ratio >2 Exposes Its Creditors Higher Risk
Introduction of Cash Flow CASH FLOW is the movement of cash and its equivalents. It includes the inflow and the outflow of cash during a particular period. All transactions which lead to increase in cash and cash equivalents are classified as inflows of cash and all those transactions which lead to decrease in cash and cash equivalents are classified as outflows of cash. Cash Flow Statement is prepared with an objective to highlight the sources and uses of cash and cash equivalents for a period. Cash Flow Statement is classified under operating activities, investing activities and financing activities.
Chapter 5
RATIO ANALYSIS
S. No. 1
2
2008-09
3
4
Figure 5.1
Current Ratio of BSNL is increasing for each subsequent year i.e. from 1.75 in year 2004-05 to 2.25 in 2008-09. Forecast on the basis of regression analysis for the year 2009-10 current ratio is 2.63. This indicates that the company can successfully pay off its debt while at the same time still have cash left over to continue operating. This is also because of slow nature of Debt collection which makes company less liquid than what it looks like in the trend.
The Current Ratio of MTNL and Tata Telecom is flatter over the subsequent year which means company is maintaining significant liquidity over the period of time. Their projected current ratio of the year 2009-10 is somewhat similar to the 2008-2009 i.e. 1.37 is projected for 2009-10 and 1.35 is the actual of 2008-09 for the MTNL.
Current Ratio of Bharti Airtel Ltd. is 0.69 for the year 2008-2009. This means that the company is having fewer assets to cover the liability and also the investors should be weary of the fact that the company cannot pay off its short-term debt if necessary
Current Ratio of IDEA is declining over the period of time i.e. 2.45in the year 2004-05 to .36 for the year 2008-2009 and projected to be reduced till 0.21 for the year 2009-10. This means that the company is having fewer assets to cover the liability and also the investors should be weary of the fact that the company cannot pay off its short-term debt if necessary and hence companys liquidity position is very bad as compared to any other telecom operator.
Conclusion From the above figure we can easily state that among all the telecom operator BSNL is having highest current ratio and it represent that BSNL is having very good liquidity and can pay off their short term liability very easily as they are marinating huge cash reserves.
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
15.65
15.05 26.54 6.53 0.1
15.28
9.21 16.83 10.62 0.56
14.03
7.4 16.44 21.27 1.94
4.44
6.46 10.68 32.9 3.96
1.15
5.45 18.1 40.79 3.96
1.08
2.129 10.809 49.662 5.44
3
4
Figure 5.2
EPS of Bharti Airtel have been increased significantly over the years i.e. 6.53 (200405) to 40.79 (2008-09) and projected to be 49.662(2009-10).This is because of
improvement of technology by the company over the years as compared to other players like BSNL which made the company to capture the market share of these companies who doesnt go in tandem with the changing technology.
Conclusion From Earning per Share perspective Bharti Airtel is considered to be most attractive company as the companys earning potential have been increased irrespective of the increase in competition in the Indian telecom market. Market leaders of 2004-05 like BSNL and MTNL are having tough time because their market share as well as profit margins has been reduced over the period of time which leads to significant reduction in the earning power of the companies.
S. No. 1
2
3
4
Figure 5.3
Debtor Turnover Ratio of Bharti Airtel Ltd. is 12.78 for the year 2008-2009. So the debtor velocity is 365/12.78 which comes out as 28.56 days i.e. Bharti takes on an average 28 days to collect its money back from the debtors, which is again lower than as compared to the industry. Projected Debtor turnover ratio to improve and reach to 13.41 which mean 27 days to convert debtor into cash.
Debtor Turnover Ratio of IDEA is 47.33 for the year 2008-2009. So the debtor velocity is 365/47.33 which comes out as 7.71 days i.e. IDEA takes on an average 8 days to collect its money back from the debtors, which is a good sign for the company and highest amongst the industry. Projection for 2009-10 is 55.10 which means only 6 days are taken to convert debtors into cash.
Debtor Turnover Ratio for Tata Telecom is worse amongst the industry and its position to convert debtors into cash has been deteriorating over the years ie from 6.3 in 2004-05 to 3.12 in 2008-09 which means now they take 117 days to convert debtors into cash. So it is the sign of unattractiveness of the company.
Debtor Turnover Ratio of MTNL is- 5.36 for the year 2008-2009. So the debtor velocity is 365/5.36 which comes out as 68 days i.e. MTNL takes on an average 68 days to collect its money back from the debtors, which is again higher when compared to the industry standards of 57 days (BSNL).
Conclusion Among all the players of telecom industry Idea and Bharti both have good liquidity position because their ability to convert debtors into cash is better from any other player in the industry which also signifies that their risk of loss due to bad debt will becomes low. BSNL is maintaining very low debtor turnover ratio which can be because of liberal credit which they offer to their customers.
2008-09
0.27
0.34 0.28 1.525
Figure 5.4
Debt-to-Equity Ratio of Idea cellular is 1.52 for the year 2008-2009, which means that company using more of debt instruments. This also indicates the companys assets are primarily supplied with debt.
Debt-to-Equity Ratio for MTNL is 0 for the year 2009-2010, which means the company is totally dependent on Equity.
Conclusion It can be concluded that all the major telecom companies are relying more on the equity capital and not using debt instrument as the major source for financing the assets. Public players like MTNL are not using at all and other companies like BSNL are using them in very low quantity because of risky nature of return of telecom sector over the period of time.
2004-05 10.09
2005-06 9.94
2006-07 9.05
2007-08 4.97
2008-09 1.46
3
4
10.16 11.41
19.27
5.95 11.52
20.74
6.77 10.28
29.06
6.48 6.53
27.95
4.785 6.23
28.4
7.52
10.44
14.96
16.92
20.64
Figure 5.5
Return on Capital Employed Ratio of MTNL is 4.785 for the year 2008-2009, which indicate that the company is earning 4.8 percent return on the total capital employed that consists of fixed assets , investments and net working capital. Projected return on capital is even worse ie. 3.76 for 2009-10.
Return on Capital Employed Ratio of Tata telecom is 6.23 for the year 2008-2009, which indicate that the company is earning 6.2 percent return on the total capital
employed that consists of fixed assets, investments and net working capital. Projected return on capital is even worse ie. 4.58 For 2009-10.
Return on Capital Employed Ratio of Bharti is 28.4 for the year 2008-2009, which indicate that the company is earning 28.4 percent return on the total capital employed that consists of fixed assets , investments and net working capital. Projected return on capital is even better i.e. 32.76 For 2009-10. Company is having positive trend of return on capital employed.
Return on Capital Employed Ratio of Idea is 20.64 for the year 2008-2009, which indicate that the company is earning 28.4 percent return on the total capital employed that consists of fixed assets , investments and net working capital. Projected return on capital is even better ie. 23.91 for 2009-10.It is the one of the few company in telecom sector with positive trend of return on capital employed.
Conclusion Return on capital employed is one of the key ratios that determine the fate of the company in the future. Through the graphs we can easily see that most of the companies are having negative trend in the past years due to their inability to meet the competition and rapid changes in technological environment. Only few of the private players like Bharti and Idea have improved their return on capital and have positive trend in the returns over the past 5 years. So it is obvious that for the survival of the major public players like BSNL and MTNL rapid changes in strategies need to be adopted and structure and polices adopted by Bharti and IDEA needs to be considered and reviewed by them.
2009-10
1%
7% 28%
1% 1%
3
4
3% 31%
39%
48%
Figure 5.6
Calculated as:
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
Conclusion From the figure 4.6 we can easily state that only expectation of investors of Bharti and Idea is growing i.e. the P/E ratio of Bharti Airtel and Idea is growing with each successive year but expectation from Idea is growing at increasing rate which means idea is one of the emerging leader in the industry and its expectations have been outperformed from the entire industry i.e. According to the projection of 2009-10 P/E of Bharti is 31% whereas Idea is 48%. P/E of BSNL was the highest in 2005-06 when it was the leader of the industry but as the time passes expectation of the investors have been declined and now it is only 8 % and projected to be only 5%.
S. No. 1
2
2008-09
2009-10
3
4
Figure 5.7
Net Profit Ratio of Bharti Airtel Ltd. is 22.58% for the year 2008-2009 which is higher in comparison with the industry ratio, so this goes to show the efficiency of the operation of the company. Companys trend line shows that company is earning greater profits in each successive year which makes company attractive in the industry. If the trend continues than projected ratio for 2009-10 will be 26.86 % .
Net Profit Ratio of IDEA is 20.2 for the year 2008-2009 which is higher in comparison with the industry ratio. According to the previous five year trends this company is one of the fastest growing company and its profits are increasing at increasing rate as compared to Bharti Airtel. So projection for 2009-10 will be 24.83 through regression analysis.
Net Profit Ratio of MTNL is 3.9 for the year 2008-2009, which is lower in comparison with the industry ratio. It shows the inefficiency amongst the public sector undertaking. Profits of the company are decreasing at an increasing rate which shows that highly negative trend for the company and if it continues than projected ratio for 2009-10 will be 1.26.
Net Profit Ratio of TATA Telecom is 13.25 for the year 2008-2009, which is lower in comparison with the industry ratio. Profits of the company is rebounded the year 2008-09 but on the whole company is providing negative trend line of its net profits and if it continues than projected ratio for 2009-10 will be 7.2 . Conclusion: Net profit ratio shows that Bharti Airtel and Idea cellular are having positive trend in past five years. Companys like BSNL and MTNL have to work hard to break out their negative trend. Completely new attitude and professional management have to be adopted by these public sector undertakings to compete with the private players like Bharti & Idea.
S. No. 1
2
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
3
4
17469.6 18709.05 14139.96 10981.84 6843.81 1212.71 213.31 357.64 2487.81 2060.275 323.24 1013.78 559.2 303.08 1086.67 3005.89 4547.2 8107.95 10459.85 11853.15 ---822.15 1605.11 2502.22 3170.496
Interpretation Cash from operations represents the inflow of cash from primary activities of business. From the above figure it is clearly stated that Cash from operations is highest of BSNL 17496.6 cr in 2004-05 but gradually it have been decreased to 6843.81cr which
represents the loss of revenue by the company in its primary activities. On the other hand Companies like Bharti and Idea have increased their cash from operations in each subsequent year and gained majority of revenue of telecom sector. In 2004-05 Bharti Airtel is having 3005.89 cr as cash from operations which have increased to 11853.15 cr in 2008-09 and if this trend continues than it will reach to 14676.96 cr in 2009-10. So, Public sector companies like BSNL and MTNL have to take cost cutting measures as adopted by Bharti and Idea to gain the revenues from its business.
S. No. 1
2
2004-05
2005-06
2006-07
2007-08
2008-09
3
4
Interpretation Cash used in investing activities represents cash outflow in procurement of Long term assets which will yield return in the future. From the above figure it is clearly stated that Cash used in investing activities is highest of BSNL 6478 cr in 2004-05 but gradually it have been decreased which represents the lack of investments in long term assets by the company as compared to other players in the industry. On the other hand Companies like Bharti and Idea have increased their investments in assets in each subsequent year and due to which they have enjoyed better returns in telecom sector. In 2004-05 Bharti Airtel is having 2330.30 cr as cash from operations which have increased to 10894 cr in 200809 and if this trend continues than it will reach to 14702 cr in 2009-10.
S. No. 1
2
3
4
Interpretation Cash used in financing activities represents the outflow of cash for the purpose of procurement of funds for business. From the above figure it is clearly stated that Cash used by the BSNL in financing activities is highest in 2004-05 and it have been increasing in each subsequent years which represent that BSNL is continuously engaged in payment of dividends and interest for the borrowed funds and they are not raising funds from market. On the other hand Companies like Bharti and Idea have decreased their cash used in financing activities in each subsequent year which means that they have raised equity and debt in the subsequent years to fund their assets due to which cash from financing activities is increased in each year , which is good indicator for these companies
Chapter 6
CONCLUSION
Conclusion
From the above finding and analysis various inferences can be drawn out which are as follows : BSNL is having highest current ratio which represents that BSNL is having very good liquidity position and can pay off their short term liability very easily as they are maintaining huge cash reserves. From Earning per Share perspective Bharti Airtel is considered to be most attractive company as the companys earning potential have been increased irrespective of the increase in competition in the Indian telecom market. Market leader of 2004-05 BSNL is having tough time because its market share as well as profit margins has been reduced over the period of time which leads to significant reduction in the earning power of the companies. Among all the players of telecom industry Idea and Bharti both have good debt collection power because their ability to convert debtors into cash is better from any other player in the industry which also signifies that their risk of loss due to bad debt is least. BSNL is maintaining very low debtor turnover ratio which can be because of liberal credit which they offer to their customers but it may prove dangerous to the company. All the major telecom companies are relying more on the equity capital and not using debt instrument as the major source for financing the assets. Public players like MTNL are not using at all and other companies like BSNL are using them in very low quantity because of risky nature of return of telecom sector. Return on capital employed is one of the key ratios that determine the fate of the company in the future. Through the graphs we can easily see that most of the companies are having negative trend in the past years due to their inability to meet the competition and rapid changes in technological environment. Only few of the private players like Bharti and Idea have improved their return on capital and have positive trend in the returns over the past 5 years.
P/E of BSNL was the highest in 2005-06 when it was the leader of the industry but as the time passes expectation of the investors have been declined and now it is only 2 % and projected to be only 1%.
Net profit ratio shows that Bharti Airtel and Idea cellular are having positive trend in past five years. Companys like BSNL and MTNL have to work hard to break out their negative trend.
Cash from operations was highest of BSNL 17496.6 cr in 2004-05 but gradually it had been decreased to 6843.81cr which represents the loss of revenue by the company in its primary activities. On the other hand Companies like Bharti and Idea have increased their cash from operations in each subsequent year and gained majority of revenue of telecom sector.
Cash used in investing activities is highest of BSNL 6478 cr in 2004-05 but gradually it have been decreased which represents the lack of investments in long term assets by the company as compared to other players in the industry. On the other hand Companies like Bharti and Idea have increased their investments in assets in each subsequent year and due to which they have enjoyed better returns in telecom sector.
Cash used in financing activities is highest in 2004-05 and it have been increasing in each subsequent years which represent that BSNL is continuously engaged in payment of dividends and interest for the borrowed funds and they are not raising funds from market. On the other hand Companies like Bharti and Idea have decreased their cash used in financing activities in each subsequent year which means that they have raised equity and debt in the subsequent years to fund their assets due to which cash from financing activities is increased in each year , which is good indicator for these companies
So from the above inferences it can be concluded that BSNL is having very weak financial position as compared to Bharti Airtel and Idea Cellular. Trends of previous 5 years have shown that company has slowly deteriorated his position ie. From the leader to loser.If the same trend continues in the next few years than we can see death of this giant company.
6.2
SUGGESTIONS
From the personal observations and the above analysis various subjective recommendations which can be given to the company as follows: It is the right time to cut down the employees force, by giving them voluntary retirement or by any other method and give chance to new guns.
Use better & high tech methods of advertising, so that more & more subscriber attract towards BSNL.
Should try to decrease expenditure especially in the employees remuneration & benefit area.
Should increase the service quality as well as better customer care service.
Should work towards 3 G phones, means high speed streaming video, gaming, video messaging, and even mobile TV.
There are several global players keen to enter India. Like Telenor, China mobile, Telephonic, SK telecom, NTT DoComo, Orson. Their entry will make the market even more competitive. So, should be ready for new competition.
Provide better customer care service and provide them maximum satisfaction.
Chapter 7
LIMITATIONS
LIMITATIONS
Though the project is completed with proper planning and guidance with full dedication but still various limitations that have to be faced in the process of research are as follows:
Limited Time:- Although the staff at BSNL was highly cooperative and devoted their valuable time but because of time constraint they were not able to devote much time with us.
Lack of experience: There was no prior experience in the field of study , so it became difficult to analyze and interpret the financial statements of the companies.
Difficult to obtain the data of 2004-05 and 2005-06 as companies only maintains data of 3 years in their operating systems and rest at some other place.
Uniformity of Content and Mode of preparation of financial statements was not there among the various companies. So it became difficult to compare among each other.
Chapter 8
BIBLIOGRAPHY
BIBLIOGRAPHY Information has been sourced from namely, books, newspapers, journals, industry portals, government agencies, industry news and developments and through access to database. http://www.BSNL.co.in http://www.Google.com http://www.traigov.in http://www.Airtel.co.in http://www.Vodafone.co.in http://www.Reliance.co.in http://www.Idea.co.in http://www.capitaline.com/ http://www.wikipedia.org/ http://www.oecd.org/ http://www.legalserviceindia.com/ http://www.dot.gov.in/ http://www.economictimes.indiatimes.com/ http://www.ibef.org/ http://www.domain-b.com/ http://www.trai.gov.in/ http://www.perry4law.wordpress.com/ http://www.indianembassy.org/ http://www.financialexpress.com http://www.pib.nic.in/ Annual Reports of BSNL of the years: 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09. Sharma Seema and Lokesh Singla (2009), Telecom equipment Industry: Challenges and Prospects R.P. Rustagi, Financial Management, Edition 2007-08 S.N. Maheshwari, Financial Management, Edition 2006-07 T.S Grewal, Analysis of Financial Statements, Edition 2007-08
Chapter 9
ANNEXURE
ANNEXURE
BSNL CONSOLIDATED PROFIT AND LOSS ACCOUNT
31st March 2005 Particulars (Rs. in Lakh) INCOME Income from Services Other Income EXPENDITURE Employees' Remuneration and Benefits Licence fee and Spectrum fee Administrative, Operating and Other Expenses Financial Expenses Depreciation 3,345,004 264,001 3,609,005 839,302 330,236 805,196 2,929 962,486 2,940,149 (Rs. in Lakh) 3,613,894 403,764 4,017,658 742,063 352,305 1,049,689 108,980 937,669 3,190,706 (Rs. in Lakh) 3,461,621 509,890 3,971,511 730,897 331,169 1,091,628 77,941 914,931 3,146,566 (Rs. in Lakh) 3,235,953 569,387 3,805,340 (Rs. in Lakh) 3,026,857 554,335 3,581,192 1,136,323 264,635 1,137,797 44,325 852,341 3,435,421 31st March 2006 31st March 2007 31st March 2008 31st March 2009
Profit before Prior period items Prior period items (Net) Profit before Extraordinary items Extraordinary items Profit before taxation Current Tax MAT Credit Deferred Tax Fringe Benefit Tax Wealth Tax Profit for the year after taxation Appropriation : Interim Dividends on Equity Share Capital Proposed Dividends: On Equity & Preference
668,856 -40,550 615,418 176,590 792,008 78,816 -175,933 992 -130,196 1,018,329
826,952 -40,550 786,402 58,296 844,698 80,130 --134,002 4,100 501 893,969
824,945 -9,564 815,381 -----815,381 96,229 -19,470 -45,795 3700 130 780,587
441,697 3,458 445,155 -----445,155 136,094 -2,171 6,448 3,700 145 300,939
20,000 97,500
37,500 80,000
50,000 67,500
30,000 120,00
0 0
Share Capital Tax on Dividends Transfer to General Reserve Surplus carried to Balance Sheet Net Profit Earnings Per Share (In Rs.) Basic earnings per equity share 16,288 203,666 680,875 1,018,329 16,479 178,794 581,196 893,969 18,484 156,117 488,486 780,587 25,493 60,188 65,258 300,939 0 0 57,485 57,485
15.65
15.28
14.03
4.44
1.15
Shareholders Funds Capital Reserves And Surplus Loan Funds Unsecured Loans Deferred Tax LiabilityNet APPLICATIONS OF FUNDS Fixed Assets Gross Block Less:-Depreciation Net Block Capital Work-InProgress Decommissioned Assets INVESTMENTS Current Assets, Loan and Advances Inventories Sundry Debtors Cash and Bank Balances Other Current Asset Accrued interest Loans and Advances
Less : Current Liabilities and Provisions
Current Liabilities
1,461,541
1,612,324
1,667,919
1,739,788
2,072,702
Total
792,008
844,698
815,381
445,155
127,163
-117,576 176,590
-152,524
-175,793
-237,808
- Prior Period item other than depreciation Net cash from operating activities
855
-1,276
-153,800 1,413,996
8,565
-167,228 1,098,184
-14,419
-252,227 684,381
B. Cash flow from Investing activities: Inventories Purchased/Sale -572 Purchase of fixed assets Capital Work in Progress 125,689 Proceeds from Sale of fixed assets Interest Received Net cash used in investing activities C. Cash flow from financing activities: Proceeds from long term borrowings Interest Paid Interim Dividend Paid Dividend Paid Dividend Distribution Tax Paid Net cash used in financing activities Net Increase/(Decrease) in Cash and Cash Equivalents Opening Cash and cash equivalents Cash and cash equivalent 2,193,113 Cash and cash equivalents comprise Cash, Cheques and Drafts (in hand) Balances with banks 3,057,948 3,745,296 4,055,158 3,813,430 133,273 70,094 -647,817 78,066 84,750 124,081 -650,083 125,505 107,795 230,602 -326,688 -9,231 50,319 379,785 -372,485 -226,409 36,597 438,952 -743,814 -976,301 -54,539 -882,441 24,723 -815,313 -76,049 -717,309 -132,712 -860,242
-3,679 -3,068 -22,614 -31,800 -61,161 -355,986 -93,696 -108,358 -42,759 -111,174 -174,027 -77,700 -50,000 -80,000 -18,233 -399,960 -300,000 -1,767 -30,000 -67,500 -16,570 -415,837 -120,000 -20,394 -182,295 -41,901
1,037,982 1,155,133
864,835 2,193,113
687,348 3,057,948
309,862 3,745,296
-241,728 4,055,158
179,993
3,094
2,704
2,569
2,415
2,013,120
2,193,113
3,054,854
3,057,948
3,742,592
3,745,296
4,052,589
4,055,158
3,811,015
3,813,430
Sources Of Funds
Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 1,853.37 1,853.37 2.72 0 2,675.38 2.13 4,533.60 3,959.88 1,034.41 4,994.29 9,527.89 1,893.88 1,893.88 12.13 0 5,437.42 2.13 7,345.56 2,863.37 1,932.92 4,796.29 12,141.85 1,895.93 1,895.93 30 0 9,515.21 2.13 11,443.27 266.45 5,044.36 5,310.81 16,754.08 1,897.91 1,897.91 57.63 0 18,283.82 2.13 20,241.49 52.42 6,517.92 6,570.34 26,811.83 1,898.24 1,898.24 116.22 0 25,627.38 2.13 27,643.97 51.73 7,661.92 7,713.65 35,357.62
Application Of Funds
Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions 13,240.63 3,475.64 9,764.99 994.46 931.9 31.58 715.74 174.96 922.28 1,354.85 209.17 2,486.30 0 4,458.80 249.32 4,708.12 17,951.74 4,944.86 13,006.88 2,341.25 719.7 17.74 1,076.17 201.81 1,295.72 1,937.54 105.61 3,338.87 0 6,735.36 537.44 7,272.80 26,509.93 7,204.30 19,305.63 2,375.82 705.82 47.81 1,418.52 239.11 1,705.44 3,160.02 541.35 5,406.81 0 9,809.83 1,232.84 11,042.67 28,115.65 9,085.00 19,030.65 2,751.08 10,952.85 56.86 2,776.46 200.86 3,034.18 5,103.13 302.08 8,439.39 0 12,400.38 1,961.95 14,362.33 37,266.70 12,253.34 25,013.36 2,566.67 11,777.76 62.15 2,550.05 153.44 2,765.64 5,602.83 2,098.16 10,466.63 0 13,832.49 634.4 14,466.89
Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
PARTICULARS
Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses
Operating Profit
8,142.44 0 8,142.44 -1,707.95 11.57 6,446.06 83.67 0 475.86 2,365.51 1,951.25 280.05 0 5,156.34 2,997.67 1,289.72 317 972.72 1,019.36 161.34 -207.98 22.23 -185.75 353.6 1,210.67 5,072.66 0
11,259.12 0 11,259.12 26.94 -13.84 11,272.22 53.56 0 734.2 3,299.73 2,804.85 314.37 0 7,206.71 4,038.57 4,065.51 236.81 3,828.70 1,432.34 127.39 2,268.97 17.64 2,286.61 273.68 2,012.08 7,153.15 0
17,851.61 0 17,851.61 105.62 30.07 17,987.30 52.16 0 1,076.95 5,017.27 4,030.48 444.28 0 10,621.14 7,260.54 7,366.16 282.07 7,084.09 2,353.30 137.8 4,592.99 9.92 4,602.91 566.79 4,033.23 10,568.98 0
25,761.11 0 25,761.11 104.04 9.05 25,874.20 42.9 0 1,297.88 7,339.01 5,892.50 535.46 0 15,107.75 10,662.41 10,766.45 393.43 10,373.02 3,166.58 266.07 6,940.37 -60.67 6,879.70 632.43 6,244.19 15,064.84 0
34,048.32 0 34,048.32 -1,261.75 5.29 32,791.86 17.7 0 1,397.54 8,627.13 9,385.68 1,409.89 0 20,837.94 13,215.67 11,953.92 434.16 11,519.76 3,206.28 178.82 8,134.66 -46.15 8,088.51 321.78 7,743.84 20,820.24 0
PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend
Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents
Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Aplication of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
14,252.25 7,783.62 6,468.63 651.51 397.47 186.6 1,761.15 180.11 2,127.86 10,758.82 2,337.29 15,223.97 0 6,194.15 5,603.60 11,797.75 3,426.22 0 10,943.83 6,742.15 173.71
14,854.15 8,285.40 6,568.75 554.36 418.72 137.82 1,415.10 159.35 1,712.27 10,364.54 1,899.05 13,975.86 0 5,289.44 5,105.72 10,395.16 3,580.70 114.25 11,236.78 7,650.00 178.36
15,291.35 8,887.68 6,403.67 779.29 441.4 221.28 965.2 161.8 1,348.28 11,857.45 1,707.00 14,912.73 0 5,683.31 5,446.15 11,129.46 3,783.27 221.65 11,629.28 4,267.27 184.59
15,842.58 9,522.78 6,319.80 981.7 557.39 160.71 941.8 130.73 1,233.24 10,502.84 3,239.05 14,975.13 0 5,626.00 5,445.82 11,071.82 3,903.31 159.17 11,921.37 3,369.72 189.23
(Rs. in Crore)
5,602.34 0 5,602.34 236 0 5,838.34 0 140.16 1,932.20 77.51 2,027.55 90.46 -96.31 4,171.57 1,430.77 1,666.77 35.81 1,630.96 588.01 0 1,042.95 179.17 1,222.12 267.24 948.43 4,171.57 0 283.5 39.28
1212.71 -785.01
213.31 -277.08
357.64 -259.74
2487.81 -692.32
-463.4 -35.71
-395.24 -459
-287.49 -189.59
-294.83 1500.66
2553.1
2517.4
2058.4
1868.7
2517.4
2058.4
1868.81
3369.36
------------------- in Rs. Cr. ------------------Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) 2,742.53 2,742.53 0 0 1,695.74 0 1,046.79 1,692.75 1,005.28 2,698.03 3,744.82 Mar '05 3,577.49 899.99 2,677.50 64.62 307.03 13.47 109.8 151.89 275.16 899.3 0 1,174.46 0 478.76 0 478.76 695.7 0 3,744.85 0 3.82 2,742.53 2,259.53 0 483 1,574.00 0 1,168.53 1,470.75 1,444.85 2,915.60 4,084.13 Mar '06 3,975.11 1,157.63 2,817.48 95.91 307.03 8.81 90.82 40.12 139.75 1,408.64 88.97 1,637.36 0 762.24 11.39 773.63 863.73 0 4,084.15 213.92 3.03 2,592.86 2,592.86 0 0 -413.71 0 2,179.15 3,539.77 710.74 4,250.51 6,429.66 Mar '07 8,229.61 2,637.18 5,592.43 506.52 13.83 17.91 152.48 122.76 293.15 560.82 1,696.97 2,550.94 0 2,180.21 53.84 2,234.05 316.89 0 6,429.67 1,236.57 8.4 2,635.36 2,635.36 3.76 0 906.91 0 3,546.03 5,454.43 1,060.33 6,514.76 10,060.79 Mar '08 12,791.22 3,123.83 9,667.39 941.13 569.93 27.62 198.59 147.67 373.88 950.88 349.38 1,674.14 0 2,709.98 81.82 2,791.80 -1,117.66 0 10,060.79 2,308.87 13.44
------------------- in Rs. Cr. ------------------Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 1,625.42 0 1,625.42 9.67 0 1,635.09 0.03 0 103.36 172.26 0 755.44 0 1,031.09 594.33 604 255.04 348.96 237.78 84.49 26.69 2.53 24.16 0 26.69 1,031.06 0 0 0
Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents
------------------- in Rs. Cr. ------------------Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
285 285 0 0 5,443.05 0 5,728.05 0 0 0 5,728.05 3,182.68 835.65 2,347.03 513.17 1,200.58 1.97 608.95 22.26 633.18 1,626.10 1,386.87 3,646.15 0 1,713.70 265.17 1,978.87 1,667.28 0 5,728.06 2,280.87 200.98
285 285 0 0 5,776.17 0 6,061.17 0 98.25 98.25 6,159.42 4,099.64 1,091.08 3,008.56 147.81 2,499.34 3.8 737.57 245.66 987.03 1,511.19 11.22 2,509.44 0 1,740.40 265.32 2,005.72 503.72 0 6,159.43 2,947.63 212.67
285 285 0 0 6,074.50 0 6,359.50 0 197.61 197.61 6,557.11 4,582.98 1,428.81 3,154.17 340.44 2,673.58 4.72 955.19 79.31 1,039.22 1,383.20 25 2,447.42 0 1,779.37 279.13 2,058.50 388.92 0 6,557.11 11,624.10 223.14
285 285 0 0 6,262.34 0 6,547.34 0 777.8 777.8 7,325.14 4,352.65 1,363.75 2,988.90 543.77 2,103.77 5.45 1,063.13 79.63 1,148.21 2,991.94 0 4,140.15 0 2,200.17 251.28 2,451.45 1,688.70 0 7,325.14 5,140.02 229.73
285 285 0 0 6,513.05 0 6,798.05 1,288.82 1,039.05 2,327.87 9,125.92 5,890.00 1,792.06 4,097.94 536.38 2,723.67 1.56 1,342.22 109.21 1,452.99 3,209.51 263.16 4,925.66 0 2,869.12 288.61 3,157.73 1,767.93 0 9,125.92 8,449.09 238.53
Chapter 10
MISCELLANEOUS