CHAPTER 1

INTRODUCTION TO THE
INDIAN
TELECOM INDUSTRY

Index , + chapter ways index

Need space on page .No subpoint on chapter 1, properly mention the research design.
HISTORY

The history of telecommunication industry started with the first public demonstration of Morse’s electric
telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham Bell filed his patent application and
the first telephone patent was issued to him on 7th of March. In 1913, telegraph was popular way of
communication. AT&T commits to dispose its telegraph stocks and agreed to provide long distance
connection to independence telephone system. In 1956, the final judgment limited the Bell System to
Common Carrier Communications and Government projects but preserving the long-standing relationships
between the manufacturing, researches and operating arms of the Bell System. In this judgment AT&T
retained bell laboratories and Western Electric Company. This final judgment brought to a close the justice
departments seven –year-old antitrust suit against AT&T and Western Electric which sought separation of
the Bell Systems Manufacturing from its operating and research functions. AT&T was still controlling the
telecommunication industry. In 1982 , AT&T was requested to divestiture its stock ownership in Western
Electric; termination of exclusive relationship between AT&T and Western Electric; divestiture by Western
Electric of its fifty percent interest in Bell Telephone Laboratories, AT&T ‘s telecommunication research
and development facility, is a jointly owned subsidiary in which AT&T and Western Electric each own 50%
of the stock; separation of telephone manufacturing from provision of telephone service and the compulsory
licensing of patents owned by AT&T on a non-discriminatory basis. It was telecommunication act of 1996
that true competition was allowed. The act of 1996 opened the market to all competitors. AT&T being the
first telecommunication company paved the road for the telecommunication industry as well as set the policy
and standards for others to follow.

Beginning of telecommunication in India

 1851 First operational land lines were laid by the government near Calcutta
 1881 Telephone services introduced in India
 1883 Merger with postal system
 1923 Formation of Indian radio Telegraph Company
 1932 Merger of ETC and IRT into Indian Radio and Cable Communication Company
 1947 Nationalization of all foreign telecommunication companies to form the posts, telephone and
telegraph, a monopoly run by the government’s ministry of communications
 1985 Department of telecommunication established , an exclusive provider of domestic and long-
distance services that would be its own regulator
 1986 Conversion of dot into two wholly government – owned companies the VSNL for international
telecommunication and MTNL for services in metropolitan areas
 1997 Telecom regulatory authority created

Telecommunication is important not only because of its role in bringing the benefits of communication to
every corner of India but also in serving the new policy objectives of improving the global competitiveness
of the Indian economy and stimulating and attracting foreign direct investment. Indian Telecom industry is
one of the fastest growing telecom markets in the world. In telecom industry, service providers are the main
drivers; whereas equipment manufacturers are witnessing growth and decline in successive quarters as sales
is dependent on order undertaken by the companies.

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, Reliance, Bharti Teleservices, Vodafone 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.

The wireless subscriber crossed the 261 million subscriber mark at the end of the financial year in
comparison to the subscriber base of 165.11 million at the end of March, 2009. It added 95.9 million
subscribers in the financial year 2008-09 registering an annual growth rate of about 58.12%. The total
subscriber base of wireless services has grown from 33.69 million in March, 05 to 261.07 million in March,
09 which is shown in fig. 1.1

Fig 1.1

CHAPTER 2
 INTRODUCTION TO THE
SAMPLE COMPANIES

2.1 INTRODUCTION

 BHARTI AIRTEL LIMITED

Bharti Airtel Limited, the company's existence was marked in the year 1995. It is a leading Indian
telecommunication service provider through three strategic business units namely Mobile Services,
Broadband & Telephone Services and Enterprise Services. The company has started with providing mobile
service to single circle entity and now it grown to offer services to all 23 telecom circles of India. One of the
largest integrated private telecom service providers with an all India mobile footprint, through a combination
of organic and inorganic growth.

During the year 1997-98 Bharti Airtel Ltd becomes the first private telecom operator to obtain a license to
provide basic telephone services in the state of Madhya Pradesh and in the same period the company forms
Bharti BT VSAT Ltd., focused on providing VAST solutions across India and Bharti BT Internet Ltd. The
company acquired JT Mobiles, cellular services operator in Punjab, Karnataka and Andhra Pradesh and
becomes the largest private telecom operator in India during the period of 1999-2000. Also expands its
South Indian footprint by acquiring Skycell, Chennai.

The company acquired a 30.20% equity interest of Telecom Italia in Bharti Telenet and 18.8% from Bharti
Telecom thereby making Bharti Telenet a 100% subsidiary of Bharti Tele-Ventures. BTVL also holds an
effective 74% equity in Bharti Mobile and 100% equity in Bharti Cellular. Bharti Telenet has entered into
license agreements to provide fixed-line services in the Haryana, Delhi, Tamil Nadu and Karnataka Circles.
Airtel launched IndiaOne, India's first private sector national and international long distance service in the
year of 2001-02. The company incorporated India's first private submarine cable landing station with joint
venture from SingTel in the same year. In 2002-03 the company made a brief corporate restructuring by
merging all the mobile operations into Bharti Cellular Limited and all fixed line, long distance and data
services into Bharat Infotel Limited. Bharti Airtel made a historic strategic partnership with IBM and
Ericsson for outsourcing the company's core IT and network activities and also launched Blackberry wireless
solution India, as a result of an exclusive tie-up with Research in Motion (RIM). BTVL's two subsidiaries
Bharti Cellular Ltd and Bharti Infotel Ltd have been merged with the company in the year of 2004.
Subsequently Bharti Broadband Ltd and Satcom Broadband Equipment Ltd has become the subsidiaries of
the company after the above said merger. During the year 2005 Bharti Airtel Ltd expand its wing to
Rajasthan and North East Circles also by the acquisition of Bharti Hexacom, which owns Licenses to operate
cellular services in the Rajasthan and North East Circles.

Bharti Airtel Ltd noted as 'Indian Mobile Operator of the Year 2005' by Asian Mobile News, became the
top-most Telecom Company and was featured amongst the top three companies across the sectors in the ET
500 published in June 2005 and the company Introduced Stock and Portfolio Tracker on the mobile in
association with the Bombay Stock Exchange, it was the first of its kind. The agreement was emerged with
Ericsson and the company in 2005-06 to provide managed services and expands its GSM/GPRS network
into rural India in 15 circles under managed capacity expansion. During the year 2006-07 Bharti Airtel has
entered into agreement with Microsoft to offer software and services for the Small and Medium business
market in India. The company also has an agreement with Google to offer services on Airtel Mobile. Also an
agreement with Adani Group to connect Mundra Port and special Economic Zone. A Three year contract
with Nokia at an estimated value of US$400 million to expand its managed GSM/GPRS/EDGE networks in
eight Airtel circles and deploy a pan India WAP solution across its networks.

The company was conferred many awards during the year 2006-07, such as Best Indian Carrier Award in the
Telecom Asia Awards 2006, Wireless Service Provider of the year and the competitive Service Provider of
the year award in the Telecom Asia Awards 2006, Most Preferred Cellular Service Provider Award in the
telecom category for the year 2006 at the Awaaz Consumer Awards 2006, MIS Asia II Excellence Award
2006 for Best Knowledge Management, Most Customer Responsive Telecom Company in India by the
Avaya-Economic Times Global Connect Awards and Nasscom IT Innovation Award for the Business Model
Innovation for the year 2006. The company received a letter of offer from Telecommunications Regulatory
Commission of Sri Lanka to provide 2G and 3G mobile services in Sri Lanka on January 2007. This was the
first international operation of the company. Bharti Airtel introduced the Blackberry 8800 business phone in
March 2007. Bharti Airtel and GSM Association launched the Global money transfer pilot project in India.
This initiative enable 25 million of NRI's to remit their money to India through mobile phones.

During the year 2007, the company also incorporated Bharti Airtel (USA) Ltd, Bharti Airtel (UK) Ltd,
Bharti Airtel (Canada) Ltd, Bharti Airtel (Hongkong) Ltd as a wholly owned subsidiary of the company for
providing international calling services and wholesale voice switching and data products in the respective
countries. Bharti Infratel Ltd has been incorporated as a wholly owned subsidiary with an initial investment
of Rs.500000 and also acquired the Submarine Network Cable System from Network i2i by way of purchase
of all the assets or equity for an overall consideration of US$110 million. In August of the same year Wal-
mart formally marked its entry into India by signing two agreements with Bharti Enterprises.

During January 2008, the company has signed a MoU with VeriSign, Inc agreed to form a strategic market
partnership for jointly launch best-in-class security services, to deliver VeriSign's identity protection,
managed security and fraud detection services, and to support the development of the next-generation
Internet infrastructure in the Indian market. The company has achieved the 60 million-customer marks on
February 2008. This landmark has catapulted Bharti Airtel into the club of top mobile operators in the world
in terms of subscriber base. The 60 million-customer base covers mobile as well as fixed line and broadband
customers. Bharti Airtel has overtaken State-run Bharat Sanchar Nigam Ltd as the largest National Long
Distance (NLD) service provider in terms of revenue, amount of Rs 709 crore. The company has joined
hands with five international companies including Internet giant Google, Global Transit, KDDI Corporation,
Pacnet and SingTel have formed the Unity Bandwidth Consortium which will together invest about $300
million to construct the new high-bandwidth, sub-sea cable system linking the US and Japan. As on March
2008, Bharti Airtel and Micro Technologies India have tied up to offer micro lost mobile tracking system to
secure the mobile handsets of Airtel subscribers. As on May 2008, in a bid to gain quicker foothold into the
rural areas, Bharti Airtel has formed a joint venture with IFFCO, which will offer customized mobile
services to a target base of 55 million farmers across the country.

Bharti Airtel Ltd is amongst the fastest growing telecom companies in the world and its moving to attain the
position of most admired brand in India with the three domains as loved by more customers, targeted by top
talent and benchmarked by more business.

 IDEA CELLULAR LIMITED

IDEA Cellular Limited, a part of the Aditya Birla Group and an India's leading Global System for Mobile
communication (GSM) Mobile Services operator was began its journey in the year 1995 as in the name of
Birla Communications Limited for providing GSM-based services in the Gujarat and Maharashtra Circles.
Later the company has licenses to operate in all 22 Service Areas. Presently, operations exist in 11 Service
Areas covering Delhi, Maharashtra, Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh,
Uttaranchal, Haryana, UP-West, Himachal Pradesh, UP-East, Rajasthan and Kerala. With a customer base of
over 24 million, IDEA Cellular's footprint currently covers approximately 60% of India's telecom
population. The company's operational 11 Service Areas are broken up into Established and New Service
Areas. The established service areas are Delhi, Andhra Pradesh, Gujarat and Maharashtra, Haryana, Kerala,
Madhya Pradesh and Uttar Pradesh (West) and the New Service Areas are Uttar Pradesh (East), Rajasthan
and Himachal Pradesh.

Changed its name to Birla AT&T Communications Limited followed by joint venture between Grasim
Industries and AT&T Corporation in the year 1996. After a year, in 1997, commenced its operations in the
Gujarat and Maharashtra. Migrated to revenues share license fee regime under New Telecommunications
Policy ('NTP') Circles in the year 1999. During the year 2000, the company merged with Tata Cellular
Limited, thereby acquired original license for the Andhra Pradesh Circle. IDEA acquired RPG Cellular
Limited and consequently the license for the Madhya Pradesh (including Chattisgarh) Circle in the year
2001, and in the same year changed its name from Birla AT&T Communications Limited to Birla Tata
AT&T Limited. Obtained license for providing GSM-based services in the Delhi Circle. Again in year later,
in 2002, the company altered its name to Idea Cellular Limited and launched 'Idea' brand name and
commenced its commercial operations in Delhi Circle. During the year, the company reached one million
subscriber mark consecutively in the year 2003, reached two million subscriber mark.

During the year 2004, the company acquired Escotel Mobile Communications Limited (subsequently
renamed as Idea Mobile Communications Limited), reached the four million subscriber mark and the first
operator in India to commercially launched EDGE services 2005. Reached the five million subscriber mark
in the year 2005 and IDEA won an Award for the 'Bill Flash' service at GSM Association Awards in
Barcelona, Spain. The Company became a part of the Aditya Birla Group in the year 2006, subsequent to the
TATA Group transferred its entire shareholding in the Company to the Aditya Birla Group. In the same year
2006, IDEA acquired Escorts Telecommunications Limited (subsequently renamed as Idea
Telecommunications Limited). The Company reached the 10 million subscriber mark and also launched
New Circles for obtain more and more customers. IDEA has extended its reach to 500 towns in Andhra
Pradesh in August of the year 2006. Received Letter of Intent from the DoT for a new UAS License for both
Mumbai and Bihar Circles. ABNL, the parent of Aditya Birla Telecom Limited, agreed to transfer its entire
shareholding in Aditya Birla Telecom Limited to the Company for the consideration of Rs. 100 million. In
2007, the company won an award for the 'CARE' service in the 'Best Billing or Customer Care Solution' at
the GSM Association Awards in Barcelona, Spain.

The Initial Public Offering aggregating to Rs. 28,187 million and the company listed in both Bombay Stock
Exchange and the National Stock Exchange during the year 2007. IDEA merged seven of its subsidiaries and
reached the twenty million subscriber mark in the same year 2007. As on February 2008, IDEA Cellular Ltd
tied up with Southern Biotechnologies Ltd to bio-diesel for operating IDEA's gensets at all towers in the
Andhra Pradesh region. The Company with Geodesic, an innovator in communication, collaboration and
entertainment applications on mobile and Internet platforms jointly announced the launch of 'Idea Radio', a
truly differentiated mobile music service for IDEA customers in the same year 2008.

Customer Service and Innovation are the drivers of this Cellular Brand. A brand known for their many firsts,
IDEA is only the 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.

 RELIANCE COMMUNICATIONS LIMITED

Reliance Communications Limited (RCL) is the flagship company of the Anil Dhirubhai Ambani Group
(ADAG), is India's largest private sector information and communications company with over 48 million
subscribers. It was established in the year 2004 as Reliance Infrastructure Developers Private Limited,
Reliance Communications started laying 60,000 route kilometres 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.

The Company's 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. During the year 2004, International
wholesale telecommunications service provider, FLAG Telecom amalgamates with Reliance Gateway, a
wholly owned subsidiary of Reliance Infocomm, the company launched RIM Prepaid with attractive offer,
Reliance Infocomm introduced World Card - a Prepaid International calling card for affordable and
convenient ISD calls from India, the first regional Customer Contact Centre was launched in Chennai. In the
same year the company made partnership with MCI to offer India's First MPLS Global VPN Solution.
Introduced Railway Ticket booking from R World data applications suite of Reliance India Mobile.

In 2005, RCL only the company introduced, first e-recharge facility in CDMA in India, the company has had
joins hands with Air Deccan to offer air ticket booking facility at Reliance WebWorld. Reliance Infocomm
rolls out international roaming facility across several countries to become the first Indian CDMA operator to
offer its customers such a service. The company tied-up with the Bombay Stock Exchange to make available
livestock quotes on its mobile phones during the same year 2005. The status of the company was changed to
Public Limited in July 2005. Name of the company was changed from Reliance Infrastructure Developers
Private Limited to Reliance Communication Ventures Limited in August 2005. RCL, UK launched Reliance
IndiaCall service in England and Wales enabling callers to make high-quality calls to India from any
landline or mobile phone at economical rates. Reliance Infocomm and China Telecom signed agreement for
telecom services to provide direct telecommunication service, including a global hubbing service, to
subscribers in the both two countries.

India's first Talking Message Service (TMS) enabling the mobile users to send voice messages to not only
other mobiles but also fixed wireless phones (FWP) and landlines in Reliance communications network were
launched during the year 2006. In the same year 2006, RCL listed on the Bombay Stock Exchange and
National Stock Exchange, the company ties up with Disney to offer on Reliance Mobile World India's first
3D animation on mobile, launched 'Hello Capital Plan' to enable its subscribers in 19 state capitals to call
each other at the local call rate of 40 paise per minute, T-Com signs contract with FLAG Telecom for
Europe-US bandwidth, Reliance Communications' FALCON Cable System was initiated in the same year.
RCL launched Free Group Term Life Cover for its CDMA subscribers. RCL and Nokia have joined hands to
market the Nokia 1255 mobile handset in India at a price of Rs 1,999 during the period of 2006.

Reliance Infocomm Limited, Ambani Enterprises Private Limited, Reliance Business Management Private
Limited, Formax Commercial Private Limited, Reliance Communications Technologies Limited, Reliance
Software Solutions Private Limited, Reliance Communications Solutions Private Limited and Panther
Consultants Private Limited was amalgamated and the Network division of the Reliance Communications
Infrastructure Limited was demerged with the Company during the year 2006. The name of the Company
was changed from Reliance Communication Ventures Limited to Reliance Communications Limited with
effect from 7th June 2006. The Company joined Lenovo and Intel for 'Internet on the Move' in the year
2007. Also in the same year, RCL ties up with Naukri.com for Search Jobs & Classified Ads from Reliance
Mobile World. The demerger of Passive Infrastructure division Reliance Communications & Reliance was
approved in March of the year 2007.

Sunny Days And Nights For Reliance Mobile Subscribers as Reliance Communications ties up with SUN
TV to offer video streaming of all SUN TV programs online 24x7. In May of the year 2007, the company
bagged West Bengal E-Governance Project. RCL slashed its call rate to US and Canada. It's now just Rs
1.99 per minute and also launched Lifetime Validity Recharge @ Just Rs.499. The tie up was made with
Cisco to launch Business Internet Services for SMEs in Pune in the year. After, in July of the same year
2007, the company and QUALCOMM was made collaboration on CDMA2000 Expansion. The biggest
acquisition deal so far, the company bought US data Communication Company Yipes Holdings' in an all-
cash deal for 4300 million (Rs 1200 crore) in July 2007. RCL came forwarded to sale of equity stake in its
Tower Company-Reliance Telecom Infrastructure Limited in July of the year. For air and hotel bookings, the
company has had joins hands with Yatra.com. The money transfer also available in the RCL, such facility
was started in September of the year 2007. The company made strategic partnership with Vanco.
As on April 2008, RCL launched Exam Guru, the educational portal, which provides information on exam
result, college admissions, exam schedules, admission deadlines, mock tests and also tips for bettering
performance. RCL made ties up with International Cricket Council for rankings in the next eight years.
During the same month and same year, the company has acquired UK based eWave World, which offers
wireless telephony services using WIMAX technology. In May 2008, Reliance Globalcom, a subsidiary of
the company, has acquired London based managed network services provider, Vanco Group, for about $77
million (Rs 324 crore).

2.2PROBLEM OT THE STUDY

“COMPARATIVE FINANCIAL (FUNDAMENTAL) ANALYSIS OF MAJOR

TELECOMMUNICATION COMPANIES IN INDIA”

2.3OBJECTIVE OF THE STUDY

An investor who would like to be rational and scientific in his investment activity has to evaluate a lot of
information about past performance and the expected future performance of the companies, industries and
the economy as a whole before taking the investment decision and hence, the present study attempts to
analyse the profitability position of the sample companies.

Some of the objectives of conduction the study are as follows:

 To take investment decisions cautiously after studying risks involved in the same.
 To gain knowledge of evaluating intrinsic value of a firm.
 To acquire practical exposure of financial analysis of an enterprise.
 To get familiarity of scheming comparative efficiency of different firms.
 To analyse the profitability position of the sample telecom companies.

2.4REVIEW OF LITRATURE

Girija (1998), in its article “Socioeconomic Implications of Telecommunications Liberalization: India in the
International Context” says that Telecommunications restructuring have evolved differently in Asia and
Latin America. While Asian governments have moved cautiously in bringing changes to the sector, Latin
American nations have implemented radical ownership and market transformations. The Indian
telecommunications reform falls in between these two general regional trends. The choice of a high
component of competition, increased private participation, and no privatization of the national carrier set
conditions that will trigger unique socioeconomic effects. This article identifies and highlights the likely
implications of the Indian reform on key economic and social issues, such as the cost of services, cross-
subsidies, network interconnection, private investments, universal services, employment, and the possible
rise of an information-intensive economy. It does so by comparing and contrasting the Indian experience
with dominant reform strategies elsewhere in the developing world.

T.H. Chowdary (1999) discusses how Telecom reform, or demonopolization, in India has been bungled.
Shaped by legislation dating back to the colonial era and post Second World War socialist policies, by the
mid-1980s India realized that its poor telecommunications infrastructure and service needed reform. At the
heart of the problem lay the monopoly by the government’s Department of Telecommunications (DOT) in
equipment, networks and services. The National Telecom Policy 1994 spelt out decent objectives for reform
but tragically its implementation was entrusted to the DOT. This created an untenable situation in which the
DOT became policymaker, licenser, regulator, operator and also arbitrator in disputes between itself and
licensed competitors. He discusses the question: ‘Why did India get it so wrong? and What India should do
now?

Anand (1999), in his article named “India's economic policy reforms” says that India was embarked on
economic reforms in July 1991, in the wake of a balance of payments crisis. In this article, an attempt is
made to review two books and a set of World Bank reports concerning the progress of these reforms. Issues
concerning economic policy, impact of the reforms on poverty, sectoral issues relating to agriculture,
industry and infrastructure are briefly discussed. As reforms enter a more difficult phase, several challenges
remain. Some of this fall under the “economic agenda'' of measures needed to maintain economic growth;
others can be termed the “development agenda'' - of improving human development. Progress with regard to
the former is not sufficient to produce results concerning the latter.

Bhattacharya (2000) constructs a vision of the Indian telecommunication sector for the year 2020. The
paper aims at isolating agents of change based on international experiences and situates India in the
development continuum. The agents of change have been broadly categorized into economic structure,
competition policy and technology.

Das (2000), in her paper described the Liberalisation of the Indian telecommunications services which
started in mid nineties with no change in the existing public monopoly structure, entirely controlled by
Department of Telecommunications (DoT). In order to evaluate any proposed industry structure, it is
essential to analyse the production technology of DoT so as to determine the rationale of liberalisation and
sustainability of competition. Accordingly, the researcher estimates a frontier multi-product cost function for
DoT, where the cost function has been duly modified to account for the production technology of a public
monopoly. The study finds that although DoT displays high allocation inefficiency, it is still a natural
monopoly with very high degree of sub additively of cost of production. This study implies that the choice of
any reform policy should consider the trade-off between the loss of scale and scope economies and cost
saving from the reduction in inefficiency of the incumbent monopoly in the event of competition.
Rao (2000), in her article named “Internet service providers in India”, provides a broad view of the role of
an Internet service provider (ISP) and the factors to be considered before entering the ISP market. Describes
the Internet/ISP scene within India and discusses the configuration of local, regional and national level ISPs,
and the supporting infrastructure. She also identifies the various success factors. The global Internet scenario
is discussed regarding the phases of the Internet in India, i.e. pre and post commercialization. The main
players are described: ERNET, NICNET, STPI, VSNL, MTNL, Satyam Infoway and Bharti-BT. The
financial and legal implications are highlighted in the Indian context. Many companies entered the nascent
ISP business in India due to deregulation. Building local content, foreknowledge of new Internet
technologies, connecting issues, competitiveness, etc. would help in their sustainability. She concludes that
though many companies entered the nascent ISP businesses in India due to deregulation, many of them are
unlikely to survive in the longer term.

Vrmani (2000) 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.

Narinder (2004), in his article “Enhancing Developmental Opportunities by Promoting ICT Use: Vision for
Rural India” talks about the foremost benefits of Information and Communication Technologies (ICTs) in
developing countries that can be helpful in improving governance including public safety and eradication of
illiteracy. The benefits of ICTs have not reached the masses in India due to lack of ICT infrastructure,
particularly in rural areas, where two-third of the population of the country lives. Even in cities and suburban
areas, use of ICTs is not popular due to lack of awareness to its use, computer illiteracy, and absence of
practical applications. India is the largest country in South Asia, with a population of over one billion people
and its telecom sector is presently experiencing fast growth phases. However telephony penetration in
villages is less than two percent of the rural population and about 15 percent of the villages are still without
any telephony service. Universal access to ICTs in rural areas has been planned and is being implemented
through Public Tele Info Centers having voice data and video, as majority of villagers in India cannot afford
a separate home connection. Illiteracy in rural areas is as high as 40 percent and in some tribal belts hardly
about 20 percent people are literate. There are 35 million children in age group of 6–11 years, who are out of
school and one out of four drops out during primary classes. Education and training, therefore, must be given
the top priority if advantages of ICTs are to be harnessed. Indian economy is agriculture based and employs
maximum workforce. Improvement in agriculture productivity can help in reducing rural poverty. Adoption
of ICT in agriculture will play an increasingly important role in crop production and natural resource
management. The other critical factor is technological challenges for universal access to ICTs to bring down
the network access cost.

Nikam, Ganesh, Tamizhchelvan (2004), analyses that changing face of India in bridging the digital device.
He reiterated - “India lives in villages” said the Father of the Nation, Mahatma Gandhi. With 1,000 million
people and 180 million households, India is one of the biggest growing economies in the world. With the
advent of the Information, Communication and Technology (ICT) revolution, India and its villages are
slowly but steadily getting connected to the cities of the nation and the world beyond. Owing to the late
Rajiv Gandhi, India is now a powerful knowledge economy, and though India may have been slow to start, it
certainly has caught up with the West and is ahead in important respects. The Government, the corporate
sector, NGOs and educational institutions have supported rural development by encouraging digital libraries,
e-business, e-learning and e-governance. The aim of this paper is to touch upon and highlight some of the
areas where, by using ICT, the masses have been reached in this way. A follow-up paper will outline
collections of significant cultural material which, once national IT strategies are fully achieved, could form
part of a digitally preserved national heritage collection.

Dey (2004), in her article talks about the discussions between the Federal Communications Commission
(FCC) and communications policy makers and regulators in other countries and how they have gleaned
several clusters of issues where further research would directly benefit them. Recently, there have been two
notable shifts. First, as the acceptance of the competition model over the monopoly model for
telecommunications markets takes deep effect in regulators all over the world, questions regarding process
and procedure for regulation are becoming ever more urgent. This paper discusses current questions
regarding decision making, enforcement, and understanding consumer issues that arise often in the FCC's
discussions with other regulators. Second, technological change is potentially shifting market definitions. In
the FCC's discussion with other regulators over the last two years, the overlap of wireline telecom, wireless
telecom and cable television has become more pronounced.

Singh (2005), in his article “The role of technology in the emergence of the information society in India”
describes the role that information and communication technologies are playing for Indian society to educate
them formally or informally which is ultimately helping India to emerge as an information society. Though
India has a huge population, the illiteracy rate is also huge in this country. The paper has taken an approach
to find the historical situation and present the prevailing scenario as well as the change that are taking place
with the application of ICT to the advantage of the society in different areas including daily life. India is
making all out efforts to be counted among the developed nations of the world. The article also describes the
considerable attention India is taking for application of technology, development of infrastructure and
human resource for meeting national needs. Basically India is building an information society. Technology
has helped society to cut across the traditional boundaries for getting converted into an emerging information
society. The study concludes that The Indian software and services industry has significantly helped to boost
the Indian economy. In IT-enabled services too, India has been clearly perceived to be the dominant hub.
The Indian software sector is being recognized as the single largest contributor to incremental market
capitalization in India but the sector is still small in terms of contribution to GDP, especially when compared
to other large sectors in the economy like agriculture and manufacturing. Similarly, the telecommunication
sector has contributed a lot but still has a considerable way to go. The paper also enforces that comparisons
of India’s telecommunication statistics with those of developed and other emerging economies show that the
country is still far behind its contemporaries.

Mr. Banka (2006) gives an overview of the mergers and acquisitions in thetelecommunication industry.
According to him Governments decision to raise the foreign investment limit to 74% is expected to spur
fresh rounds of mergers and takeovers in India. He foresees a sector that represents humongous opportunity
waiting to be tapped by Indian and foreign conglomerates.

Thomas (2007), in his article describes the contribution made by telecommunications in India by the state
and civil society to public service, this article aims to identify the state’s initial reluctance to recognize
telecommunications provision as a basic need as against the robust tradition of public service aligned to the
postal services and finds hope in the renewal of public service telecommunications via the Right to
Information movement. The article follows the methodology of studying the history of telecommunications
approach that is conversant with the political economy tradition. It uses archival sources, personal
correspondence, and published information as its research material. The findings of the paper suggests that
public service in telecommunication is a relatively ‘‘new’’ concept in the annals of Indian
telecommunications and that a deregulated environment along with the Right to Information movement
holds significant hope for making public service telecommunications a real alternative. The article provides
a reflexive, critical account of public service telecommunications in India and suggests that it can be
strengthened by learning gained from the continual renewal of public service ideals and action by the postal
services and a people-based demand model linked to the Right to Information Movement. All studies done
by the researcher suggests that the right to information movement has contributed to the revitalisation of
participatory democracy in India and to a strengthening of public service telecommunications.

Cygnus Business Consulting & Research Pvt. Ltd. (2008), in its “Quarterly Performance Analysis of
Companies (April-June 2008)” has analysed the Indian telecom industry in the awake of recent global
recession and its overall impact on the Indian economy. The analysis is done in the background of wake of
global recession and rising inflation. Cygnus estimates, the Indian telecom industry is expected to maintain
the growth trajectory in the next quarter as well. With almost 5-6m subscribers are being added every month,
and the country is witnessing wild momentum in the telecom industry.

Maheshwari (July-September 2008), in her report analysed the Indian telecom industry and ascertain that
Indian telecommunications has been zooming up the growth curve at an mounting pace, and India is has
surpassed US to become the second largest wireless network in the world. This growing subscriber base is
basically created by tapping into rural India, which is an emerging market for the industry. The estimate for
the next five to ten years is that the rural market will form 40 % of the subscriber base. The study has
analysed the human resource management process of the industry, and specially the latest trends of
recruitment of this massively growing industry.

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 India’s 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.

2.5HYPOTHESIS STUDY

The study tests whether the selected variables of sample companies vary significantly during the study
period. This specific hypothesis is tested at appropriate time while analyzing and interpreting the results.

The following hypotheses have been taken to put on test:

H1: The Debt-Equity Ratio (DER) position of IDEA, AIRTEL, RELIANCE and TATA does not differ
significantly.

H2: The Long Term Debt-Equity Ratio (LTDER) position of IDEA, AIRTEL, RELIANCE and TATA does
not differ significantly.
H3: The Current Ratio (CR) position of IDEA, AIRTEL, RELIANCE and TATA does not differ
significantly.

H4: The Fixed Asset Ratio (FAR) position of IDEA, AIRTEL, RELIANCE and TATA does not differ
significantly.

H5: The Earning Per Share (EPS) position of IDEA, AIRTEL, RELIANCE and TATA does not differ
significantly.

2.6RESEARCH DESIGN
2.6.1 Universe of the Study

The present study adopts an analytical and descriptive research design. The data of the sample
companies (for a period of three years from 2007 to 2009) has been collected from the annual reports and
the balance sheet published by the companies and the websites of the companies.

A finite sample size of four companies listed on the National Stock Exchange (NSE) has been selected
for the purpose of the study. They are IDEA CELLULAR, BHARTI AIRTEL, TATA
COMMUNICATIONS LIMITED and RELIANCE COMMUNICATIONS LIMITED.

The variables used in the analysis of the data are Debt-Equity Ratio (DER), Long Term Debt-Equity
Ratio, Current Ratio, Fixed Assets and Earning Per Share (EPS). While interpreting the results, the
statistical tool of one-way Analysis of Variance (ANOVA) has been used.

2.6.2 Sample of the Study

 Sampling Technique: The study is done with special reference to private sector telecommunication
companies. The reason being that the data or the financial statements are readily available for them.
Apart from this, private sector companies have shown best performance in the previous year so it is
interesting to know the best performing company out the selected sample companies. Thus, the
technique of ‘Convenience Sampling’ is being adopted for the study. The election of sample
companies is made on the basis of market capitalization.
 Sample Size: Four Private Sector companies are chosen as sample size for the study on account of
having the highest market capitalization.

2.6.3 Data Collection

Financial statements are the raw data collected from various websites such as www.capitaline.com,
www.kotaksecurities.com and other company websites.

2.6.4 Time Period of the Study

 The study has been conducted during Feb 2010 to Mar 2010.

2.6.5 Tools used for Analysis

 Ratio Analysis: Ratios have been calculated for the past three years for the purpose of analysis.
Ratios being designed are named as: Debt-Equity Ratio (DER), Long Term Debt-Equity Ratio,
Current Ratio, Fixed Asset Ratio and Earning Per Share (EPS).
 Analysis of Variance (ANOVA): The statistical tool that is used for testing hypothesis is one-way
Analysis of Variance (ANOVA).

2.6.6 Financial Analysis

The section of study embodies the calculation and analysis of selected variables taken into reflection for
the study purpose. The ratios are being calculated by the aid of raw data available on the concerned
website. The raw data encompasses Yearly Results and Balance Sheet of the sample companies. After
calculation of ratios, analysis of individual ratio is being done. The statistical tool used for analysis is
One-Way Analysis of Variance (ANOVA).

Analysis is performed by using software known as Microsoft Excel.

The ratios being calculated for the purpose of analysis of financial performance are:

 Debt-Equity Ratio (DER).

 Long Term Debt-Equity Ratio.
 Current Ratio.
 Fixed Asset Ratio.
 Earnings Per Share (EPS).

The analysis and interpretation of the study is carried out by following the chronological order of the
parameters mentioned above.

2.6.7 Results and Discussions

 CHAPTER 3

3.1 Debt-Equity Ratio

This ratio is only another form of proprietary ratio and establishes relationship between the outside long-
term liabilities and owners funds. It shows the proportion of long term external equities and internal
equities. Debt-Equity Ratio (DER) compares the Creditor’s funds with owner’s funds. It indicates how
much money is being placed by the creditors as that of equity holders. It represents the proportion of
borrowed funds in the total capital of the company. This ratio is calculated by using the following
formula and expressed in terms of times.
 Total Debt

Net Worth

Debt-Equity Ratio
Company IDEA AIRTEL TATA RELIANCE
2007 2.14 0.54 0.02 0.41
2008 1.88 0.38 0.08 0.77
2009 0.95 0.3 0.23 0.67
Average 1.656667 0.406667 0.11 0.6166667

Table

Fig

The data in Table reveals that IDEA has achieved the highest Debt-Equity Ratio every year for the data
taken for the period of 2007 to 2009 and is followed by RELIANCE between 2008-09. TATA alone has
registered the lowest ratio. Even the three year average Debt-Equity Ratio of IDEA is significantly
higher (1.656667) than that of RELIANCE (0.6166667), AIRTEL (0.406667) and TATA (0.11). Thus, it
is inferred that IDEA has the least proportion of debt fund in its total capital and hence is the most
efficient telecommunication company among all other sample companies. IDEA has the highest portion
of its self owned funds in the capital structure followed by RELIANCE, AIRTEL and TATA.

The DER position of sample companies are compared and tested using the following hypothesis. The
details are shown in Table

HYPOTHESIS TESTING
H1 : DER position of IDEA, AIRTEL, TATA and RELIANCE does not differ significantly.

Ha : DER position of IDEA, AIRTEL, TATA and RELIANCE differ significantly.

Anova: Single
Factor
SUMMARY
RELIANC
Groups IDEA AIRTEL TATA E
Count 3 3 3 3
Sum 4.97 1.22 0.33 1.85
1.65666 0.40666
Average 7 7 0.11 0.616667
0.39143 0.01493
Variance 3 3 0.0117 0.034533

ANOVA
Source of Variation SS df MS F-Ratio F crit
4.06882 1.35627
Between Groups 5 3 5 11.9865223 4.066181
Within Groups 0.9052 8 0.11315
4.97402
Total 5 11

Inference : Since the calculated value of F is 11.9865223 which is greater than the table value of

4.066181 ( CV > TV at 5% significance level ), the null hypothesis is rejected and the alternative

hypothesis is accepted. Hence, it is concluded that the DER position of IDEA, AIRTEL, TATA and
RELIANCE differ significantly.

3.2 Long Term Debt-Equity Ratio

A high long term debt to equity ratio suggests that a company has financed its growth mostly via debt.
This can lead to a tricky situation and volatile earnings. Since this company will now have to bear
additional interest burden of debt servicing. Debt is a form of 'external' or 'outside' financing for
companies ( distinct from concept of equity ownership). If after debt financing, company earnings are
greater than debt cost (interest) then share holders stand to gain. (Interest is cost of borrowing money).
However if debt cost outweighs returns generated from investment (of borrowed capital) then company
may head for bankruptcy in long run and shareholders’ interests will be adversely affected.
 Long Term Debt-Equity Ratio

Company IDEA AIRTEL TATA RELIANCE

2007 1.55 0.5 0 0.39

2008 1.63 0.35 0.03 0.57

2009 0.79 0.28 0.17 0.41

Average 1.323333 0.376667 0.066667 0.45666667

Table

Fig

The data in Table reveals that IDEA has achieved the highest Long Term Debt-Equity Ratio every year
for the data taken for the period of 2007 to 2009 and is followed by RELIANCE between 2008-09.
TATA alone has registered the lowest ratio. Even the three year average Long Term Debt-Equity Ratio
of IDEA is significantly higher (1.323333) than that of RELIANCE (0.45666667), AIRTEL (0.376667)
and TATA (0.066667). Thus, it is inferred that IDEA has the least proportion of debt fund in its total
capital and hence is the most efficient telecommunication company among all other sample companies.
IDEA has the highest portion of its self owned funds in the capital structure followed by RELIANCE,
AIRTEL and TATA.

The Long Term Debt-Equity Ratio position of sample companies are compared and tested using the
following hypothesis. The details are shown in Table

HYPOTHESIS TESTING

H2 : Long Term Debt-Equity Ratio position of IDEA, AIRTEL, TATA and RELIANCE does not differ
significantly.
Ha : Long Term Debt-Equity Ratio position of IDEA, AIRTEL, TATA and RELIANCE differ
significantly.

Anova: Single Factor

SUMMARY
RELIANC
Groups IDEA AIRTEL TATA E
Count 3 3 3 3
Sum 3.97 1.13 0.2 1.37
1.32333 0.37666 0.06666
Average 3 7 7 0.456667
0.21493 0.01263 0.00823
Variance 3 3 3 0.009733

ANOVA
Source of
Variation SS df MS F F crit
Between 2.61082 0.87027
Groups 5 3 5 14.177708 4.066181
0.49106 0.06138
Within Groups 7 8 3

3.10189
Total 2 11

Inference : Since the calculated value of F is 14.177708 which is greater than the table value of

4.066181 ( CV > TV at 5% significance level ), the null hypothesis is rejected and the alternative

hypothesis is accepted. Hence, it is concluded that the Long Term Debt-Equity Ratio position of IDEA,
AIRTEL, TATA and RELIANCE differ significantly.

Current Ratio

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities
(debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio,
the more capable the company is of paying its obligations. A ratio under 1 suggests that the
company would be unable to pay off its obligations if they came due at that point. While this shows the
company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there
are many ways to access financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its
product into cash. Companies that have trouble getting paid on their receivables or have long inventory
turnover can run into liquidity problems because they are unable to alleviate their obligations.
Because business operations differ in each industry, it is always more useful to compare companies
within the same industry.
This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and
prepaid as assets that can be liquidated. The components of current ratio (current assets and current
liabilities) can be used to derive working capital (difference between current assets and current
liabilities). Working capital is frequently used to derive the working capital ratio, which is working
capital as a ratio of sales.

The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its
debts over the next 12 months. It compares a firm's current assets to its current liabilities. It is expressed
as follows:

Current Ratio = Current Assets

Current Liabilities

Current Ratios

Company IDEA AIRTEL TATA RELIANCE

2007 0.84 0.46 1.14 1.94

2008 0.66 0.49 1.28 1.25

2009 0.76 0.61 1.4 1.08

Average 0.753333 0.52 1.273333 1.42333333

Table

Fig
 The data in Table reveals that RELIANCE has achieved the highest Current Ratio every year for the data
taken for the period of 2007 to 2009 and is followed by TATA, IDEA and AIRTEL.AIRTEL alone has
registered the lowest ratio. Even the three year average Current Ratio of RELIANCE is significantly
higher (1.423333) than that of TATA (1.273333), IDEA (0.753333) and AIRTEL (0.52). Hence we can
say that RELIANCE has enough resources to pay its debts over the next 12 months as compared with the
other sample companies.

HYPOTHESIS TESTING

H3 : Current Ratio position of IDEA, AIRTEL, TATA and RELIANCE does not differ significantly.

Ha : Current Ratio position of IDEA, AIRTEL, TATA and RELIANCE differ significantly

Anova: Single Factor

SUMMARY
AIRTE
Groups IDEA L TATA RELIANCE
Count 3 3 3 3
Sum 2.26 1.56 3.82 4.27
0.75333 1.27333
Average 3 0.52 3 1.423333
0.00813 0.01693
Variance 3 0.0063 3 0.207433

ANOVA
Source of
Variation SS df MS F F crit
1.63482 0.54494 9.12800111
Between Groups 5 3 2 7 4.066181
Within Groups 0.4776 8 0.0597

2.11242
Total 5 11

Inference : Since the calculated value of F is 9.128001117 which is greater than the table value of

4.066181 ( CV > TV at 5% significance level ), the null hypothesis is rejected and the alternative

hypothesis is accepted. Hence, it is concluded that the Current Ratio position of IDEA, AIRTEL, TATA
and RELIANCE differ significantly.

Fixed Asset Ratio

Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed assets (on the
balance sheet). It indicates how well the business is using its fixed assets to generate sales.

Fixed Assets Turnover Ratio = ______Sales__________

 Average net fixed assets

Generally speaking, the higher the ratio, the better, because a high ratio indicates the business has less
money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the
business is over-invested in plant, equipment, or other fixed assets.

However, financial analysts claim that such a ratio is inconclusive: companies do not generally cite or
reference these figures. This new trend of informality in business has called for the accounting curriculum
across the nation to start to refrain from teaching the fixed asset turnover ratio.

Measure of the productivity of a firm, it indicates the amount of sales generated by each dollar spent on
fixed assets, and the amount of fixed assets required to generate a specific level of revenue. Changes in the
this ratio over time reflect whether or not the firm is becoming more efficient in the use of its fixed assets

The Fixed Asset Ratio of the four sample conpanies are shown in Table

Fixed Asset Ratio

IDEA AIRTEL TATA RELIANCE

2007 0.63 0.8 0.86 0.98

2008 0.58 0.94 0.73 0.7

2009 0.67 1.04 0.73 0.51

Average 0.626667 0.926667 0.773333 0.73

Table

Fig

The data in Table reveals that AIRTEL has achieved the highest Average Fixed Asset Ratio for the data
taken for the period of 2007 to 2009 and is followed by TATA, RELIANCE and IDEA. The three year
average Current Ratio of AIRTEL is significantly higher (0.926667) than that of TATA (0.773333),
RELIANCE (0.73) and IDEA (0.626667). The Fig shows that AIRTEL has shown increase in the Fixed
Asset Ratio year by year as compared to any other sample company. Moreover RELIANCE has year by
year decrease in its Fixed Asset Ratio. It means that AIRTEL has less money tied up in fixed assets and
RELIANCE has over-invested in plant, equipment, or other fixed assets. However the changes in this
ratio for IDEA and TATA shows that they are not efficient to use their fixed assets.

HYPOTHESIS TESTING

H4 : Fixed Asset Ratio position of IDEA, AIRTEL, TATA and RELIANCE does not differ significantly.

Ha : Fixed Asset Ratio position of IDEA, AIRTEL, TATA and RELIANCE differ significantly

Anova: Single Factor

SUMMARY
RELIANC
Groups IDEA AIRTEL TATA E
Count 3 3 3 3
Sum 1.88 2.78 2.32 2.19
0.62666 0.92666 0.77333
Average 7 7 3 0.73
0.00203 0.01453 0.00563
Variance 3 3 3 0.0559

ANOVA
Source of
Variation SS df MS F F crit
0.13969 0.04656
Between Groups 2 3 4 2.384834 4.066181
0.01952
Within Groups 0.1562 8 5

0.29589
Total 2 11

Inference : Since the calculated value of F is 2.384834 which is less than the table value of 4.066181

( CV < TV at 5% significance level ), the null hypothesis is accepted and the alternative hypothesis is

rejected. Hence, it is concluded that the Fixed Asset Ratio position of IDEA, AIRTEL, TATA and
RELIANCE does not differ significantly.

EPS

Earnings Per Share is generally considered to be the single most important variable in determining a
share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio. The
EPS can be calculated as follows:

Earnings Per Share (Basic formula) = _________Profit________

 Weighted Average Shares

Earnings Per Share (Net Income formula) = ____ Net Income_______

Weighted Average Shares

An important aspect of EPS that's often ignored is the capital that is required to generate the earnings
(net income) in the calculation. Two companies could generate the same EPS number, but one could do
so with less equity (investment) - that company would be more efficient at using its capital to generate
income and, all other things being equal, would be a "better" company. Investors also need to be aware
of earnings manipulation that will affect the quality of the earnings number. It is important not to rely on
any one financial measure, but to use it in conjunction with statement analysis and other measures. The
EPS of sample companies from year 2007 to 2009 are shown in Table.

EPS

IDEA AIRTEL TATA RELIANCE

2007 1.94 21.27 15.68 9.36

2008 3.96 32.9 9.92 12.4

2009 3.23 40.45 17.34 23.13

Average 3.04333333 31.54 14.3133333 14.9633333

Table

Fig

The data in Table reveals that AIRTEL has achieved the highest Average EPS for the data taken for the
period of 2007 to 2009 and is followed by RELIANCE,TATA and IDEA. The three year average EPS of
AIRTEL is significantly higher (31.54) than that of RELIANCE (14.963333), TATA (14.3133333) and
IDEA (3.04333333). However both AIRTEL and RELIANCE has shown constant growth in EPS
respectively between years 2007 to 2009 which is shown in Fig. The EPS of IDEA is the lowest in all
years as well as its average is the lowest as compared with other sample companies. The higher the ratio
means the better is the share price of the company and the shareholders can earn more from their shares.
Hence the AIRTEL is more efficient than other sample companies.

HYPOTHESIS TESTING

H5 : EPS position of IDEA, AIRTEL, TATA and RELIANCE does not differ significantly.

Ha : EPS position of IDEA, AIRTEL, TATA and RELIANCE differ significantly.

Anova: Single Factor

SUMMARY
AIRTE
Groups IDEA L TATA RELIANCE
Count 3 3 3 3
Sum 9.13 94.62 42.94 44.89
3.04333 14.3133
Average 3 31.54 3 14.96333
1.04623 15.1649
Variance 3 93.3553 3 52.33123

ANOVA
Source of
Variation SS df MS F F crit
1239.84 413.281 10.2109278
Between Groups 4 3 4 5 4.066181
323.795 40.4744
Within Groups 4 8 3
Total 1563.64 11

Inference : Since the calculated value of F is 10.21092785 which is greater than the table value of

4.066181 ( CV > TV at 5% significance level ), the null hypothesis is rejected and the alternative

hypothesis is accepted. Hence, it is concluded that the EPS position of IDEA, AIRTEL, TATA and
RELIANCE differ significantly.

MAJOR FINDINGS