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FINAL

SUBMITTED TO:
SUBMITTED BY:
GROUP No.: B2
GROUP NAME: STRATEGIST

PGDM BATCH: 2013-2015


COURSE: BPSM (BUSINESS
POLICY AND STRATEGIC
MANAGEMENT)
DATE OF SUBMISSION:
14-08-2014

Table of Contents
1

Topic of the Study...........................................................................................................................2

Introduction.....................................................................................................................................2
2.1

AIRTEL LOOP Acquisition.....................................................................................................2

Strategic Issues................................................................................................................................2
How Airtel benefits from the Acquisition?.........................................................................................2
3.1

Regulatory Hurdles..................................................................................................................3

SWOT Analysis of Airtel.................................................................................................................3

Strategic Models and Approaches...................................................................................................4


5.1

PORTER'S GENERIC COMPETITIVE STRATEGIES:........................................................4

5.2

STRATEGIC DIAMOND........................................................................................................4

Financial Analysis...........................................................................................................................6

Forecasts..........................................................................................................................................7

Recommendations...........................................................................................................................8
8.1

Organizational Structure and Culture.......................................................................................8

8.2

Recommendation for change in Organizational structure and culture.....................................8

8.2.1

Clear and realistic shared vision.......................................................................................8

8.2.2

Changing policies and practices.......................................................................................9

8.2.3

Creating a new Organization Chart..................................................................................9

8.2.4

Establishing a strong communication system...................................................................9

8.2.5

Defining and implementing the processes and tools........................................................9

8.2.6

Understanding the differences in culture..........................................................................9

8.2.7

Knowing the people........................................................................................................10

8.2.8

Engaging people.............................................................................................................10

8.3

QSPM Analysis......................................................................................................................10

8.3.1

Key internal factors:.......................................................................................................10

8.3.2

External factor analysis...................................................................................................11

DUPONT Analysis........................................................................................................................13
9.1

ANALYSING COMPETITIVE ADVANTAGES..................................................................13

9.2

Du Pont Analysis....................................................................................................................13

Bibliography................................................................................................................... 15

1 Topic of the Study


India is the worlds second-largest telecommunications market. The mobile phone industry in India is
likely to contribute US$ 400 billion to the countrys gross domestic product (GDP) and has the
potential to generate about 4.1 million additional jobs by 2020, as per Ms Anne Bouverot, Director
General, and Group Special Mobile Association (GSMA). Bharti Airtel Limited, commonly known as
Airtel, is an Indian multinational telecommunications Services Company headquartered in New
Delhi.
It operates in 20 countries across South Asia, Africa, and the Channel Islands. Airtel has a GSM
network in all countries in which it operates, providing 2G, 3G and 4G services depending upon the
country of operation. Bharti Airtel had nearly 287 million customers across its operations at the end
of Dec 2013. (Wikipedia, n.d.) Loop Mobile, formerly known as BPL Mobile, was an Indian mobile
network operator. On 18 February 2014, Bharti Airtel announced that it had agreed to acquire Loop
Mobile for 700 crore (US$120 million). (Wikipedia, n.d.)

2 Introduction
2.1 AIRTEL LOOP Acquisition
Bharti Airtel, Indias largest mobile operator by subscriber base, on 18 th February 2014 entered into a
strategic agreement with Loop Mobile, formerly known as BPL Mobile, to acquire Loops
subscribers, as well as some of its assets, for about Rs.700 crore. The deal is subject to regulatory
approvals. With this acquisition, Bharti becomes the top operator with seven million subscribers
followed by Vodafone with 6.8 million subscribers. Under the agreement, Loop Mobiles three
million subscribers in Mumbai will join Airtels over four million subscribers, creating an unmatched
mobile network in Mumbai. (Money Control, 2014)

3 Strategic Issues with the Acquisition


How Airtel benefits from the Acquisition?
Airtel acquired 900MHz spectrum in the recently concluded auction which was held on 13 th February
2014 in Mumbai. This acquisition will help it utilize Loops existing network (which is on 900MHz
band), reducing rollout capital expenditure. This would involve acquisition of both the assets (tower,
equipment's, fiber optic network etc.) and customers of Loop (The Economic Times, 2014). Bharti
currently has a 21% revenue market share v/s Vodafone at 36% in Mumbai. Acquisition of Loop will
also help it narrow the market share gap and give it access to Loops post-paid subscribers. (DSL
India, 2014)
The agreement will ensure continuity of quality services to Loop Mobile's subscribers, while offering
them the added benefits of Airtel's innovative product portfolio, and access to superior services,
innovative products like 3G, 4G, Airtel Money, VAS and domestic/international roaming facilities.
Loop Mobile subscribers will become part of Airtel's global network that serves over 289 million
customers in 20 countries. (Communications Today, 2014)

The proposed transaction will bring together Loop Mobiles 2G/EDGE enabled network supported by
2,500 plus cell sites, and Airtels 2G and 3G network supported by over 4000 cell sites in Mumbai.
(Money Control, 2014)

3.1 Regulatory Hurdles


The Telecom Regulatory Authority of India (TRAI) has raised questions over the sale of Loop Mobile
India Ltd to rival Bharti Airtel Ltd, citing possible violations of rules on licensing and Mobile
Number Portability (MNP), saying that under MNP rules, subscribers must be allowed to choose
which operator to port to and cannot be ported out involuntarily. Also, with this deal, the
government stands to lose a substantial amount as porting fee, said the regulator. (Ghosh, Live Mint,
2014)
Telecom Regulatory Authority of India (TRAI) also refers to the porting fee paid to the MNP service
provider. As per MNP rules, fee of Rs.19 is charged for every porting subscriber. Loop is going to
transfer 2.9 million customers, so the total revenue is about Rs.5.5 cr. And the MNSP must pay 1
percent revenue share to the government. (Telecom Tiger, 2014)
The deal will not provide any spectrum to Bharti, as Loop's 20-year license for the highly efficient
900 MHz band expires in November this year. (The Economic Times, 2014)
According to Telecom Regulatory Authority of India (TRAI) the proposed acquisition does not
appear to be in line with the existing regulatory and licensing framework and uncertainty still looms
over the fate of 2.9 million subscribers of Loop mobile in Mumbai telecom circle as the Bharti Airtel
Loop deal awaits clearance from the Department of Telecommunications (DoT) (13 th August 2014).
(Telecom Tiger, 2014)

4 SWOT Analysis of Airtel

STRENGHTH
WEAKNESS
Superior overall network quality and reliability Late adoption of 3G and advanced wireless
High brand equity
technologies
Competitive Advantage over other Players
Debt and finances
High network coverage by Loop Mobile
OPPORTUNITIES:
Gaining more market share
To tap the untapped market segment

THREATS:
Price competition from BSNL and MTNL
Entry of new entrants
Problem in implementing Mobile Number
Portability
Increase the cost of building and upgrading
the telecom infrastructure

5 Strategic Models and Approaches


5.1 PORTER'S GENERIC COMPETITIVE STRATEGIES:
Porter's generic strategies is a model which describes how a company pursues competitive advantage
across its chosen market scope. So here we have applied this model in this Bharti Airtel case and
Loop mobile acquisition to know what different strategies can be applied. Different strategies
described below.
Cost Leadership Strategy: A firm gains cost leadership in an industry when its cost of production is
lower than that of its competitors. Airtel has gained cost leadership by managing its processes and
resources efficiently and effectively. Airtel seeks to create value through diversification by moving
across businesses that share both operational and corporate relatedness. With this approach, it expects
to achieve high resource sharing and consequently, significant cost reduction. Airtel has maintained
its cost leadership by reducing its operational costs and its unique business model- which outsources
all major functions except, sales, marketing and finance. (ukessays, 2012) By bringing down its
operational costs, Airtel is able to offer its products and services at lower prices. Economies of scale
and efficient working capital management helped Airtel to boost its profit margin. (Gaur, 2008)
Differentiation Strategy: The differentiation strategy adopted by the firms needs to possess
sufficient skills and abilities to differentiate the product from that of the competitors based on some
attributes that allow the consumers to perceive the product is different from others. Differentiation is
attempted by Airtel with the help of value added services. It provides numerous value added services
such as mobile apps, hello tunes, m-commerce, wireless internet etc. Bharti-Airtel gained a
differential advantage on the account of existing infrastructural capability. Airtel provides service
even in the remote areas, emphasizes on barriers break when people speak and new initiatives like
google search on Airtel live, downloads etc. (ukessays, 2012)
Focus Strategy: A firm pursuing a focus strategy tends to serve a specific segment instead of
catering to the entire market. This segment may be a special group of customers, a specific
geographic area, or a particular product or service line. By acquiring Loop Mobile, Airtel wants to
focus on one geographical area Mumbai, where it can gain more market share than Vodafone. So
Airtel is focusing on the customers of the Mumbai to increase its customer base. As previously
mentioned Bharti Airtel added around 3 million new subscribers to its existing base of 269 million
subscriber through the acquisition of Loop Mobile.

5.2 STRATEGIC DIAMOND

A Strategy Diamond is a crisp way to analyse, visualize, summarize, and share your strategy
for the product or the business. The strategy diamond provides the experts a logical, concise,
coherent way to study, analyse, integrate, summarise, and communicate product, business,
and corporate level strategies. The model covers strategy formulation, which helps to answer
questions about what the strategy is and what it will be in the future. (JD, 2010)
So this strategic diamond can be applied to Bharti Airtel and acquisition of loop mobile worth
Rs 700 Crore. From this Airtel mobile can get a bigger picture on its strategy.
Five major elements of the strategy: There are mainly 5 key parts of the strategy namely
Arenas, vehicles, differentiation, staging, economic logic.

Arenas Where will we be active and with


how much emphasis?

Arenas encompass choices made about where


to compete: the external environment such as
product or service markets, geographic markets
or channels. Arenas also identify value chain
activities or value creation stages that are
insourced or outsourced.
The core product or service by Bharti Airtel:
Bharti Group, has a diverse business portfolio
and has created global brands in the
telecommunication sector. Bharti Airtel, is
Asias leading integrated telecom services
provider with operations in India and Sri
Lanka. Some of the products by Airtel is its
modem, Sim card and broadband etc. But main business of Airtel is in service sector to the
telecom consumers. Out of that some are 3G service, 4G service, Airtel money, Smart Drive
etc. (wikipedia, n.d.)
Which geographic areas it serves?
Airtel is the one of the largest mobile operator in the world in terms of subscriber base and
has a commercial presence in 20 countries. Airtel operates and controls in all telecom circles
of India. It has a vast network. Presently its network is covering approximately 86.7% of the
country's population as of September 2012.Airtel is the largest operator in rural India with 88
million subscribers as of April 2013. (wikipedia, n.d.) (Airtel, 2014)

Vehicles How will we get there?

Vehicles identify the degree to which the strategy relies on internal development efforts
relative to partnering with or acquisition of external parties. So considering this stage, how
Bharti Airtel tries to get new customers through internal means or even though acquisition.
So after doing the strategic agreement with the loop mobile, Airtel would be the Mumbais
largest mobile network, with combined user base of around 7 million connections in the
region 4 million with Airtel and 3 million with Loop Mobile. This strategic action will also
offer customers the widest exclusive retail reach with 220 outlets that will enable best-in-class
customer service. (Tarun, 2014)

Differentiator How will we win?

Differentiators are those factors that are believed to allow the firm to "win" in its targeted
arenas, particularly external arenas. Differentiators can include image, price, reliability, and
other key inputs.
So here the core competencies must include its the presence all over India. It has the presence
every place of India and mainly its customer service has placed itself in the top position in
this highly competitive communication market. To differentiate itself in India's highly
competitive communications environment by ensuring customer relations delight through
personalized customer service, Bharti Airtel has a managed services agreement with Nortel
India to host contact centre services for subscribers to Bharti's Airtel GSM mobile, broadband
and fixed-line services. Another major differentiator is Airtel Money. It had tied up with
two African company TIGO, GENTEL for the money transfer from mobile to mobile.
5

Staging and Pacing What will be our speed and sequence of moves?

Staging and pacing refer to the sequence and speed of strategic moves. This element helps
identify decision points since strategic moves don't have a single possible pathway. This
powerful facet of strategizing helps them to think about timing and next steps, instead of
creating a strategy that is a static, monolithic plan.
Since just recently Bharti Airtel has acquired Loop mobile, till now there is no certain moves
taken by the company to go further. But it is clear that it is going to provide 3G service to all
the loop mobile subscribers. This acquisition helped Airtel to emerge stronger in Mumbai
with over 7 million subscribers.

Economic Logic --How are the returns obtained?

The economic logic element reflects how all the pieces tie together in a way that satisfies key
stakeholders. Economic logic for profit-oriented firms can take the form of scale economies,
scope economies, premium pricing or some combination of these. For non-profit
organisations, economic logic reflects how well the organization is achieving its mission and
vision and serving its focal stakeholders.
In case of Bharti Airtel, it has acquired Loop mobile with certain goals i.e. to take over the 7
million subscribers into its network. So it is going to put all the above mentioned point into
the place and will try to retain its position as no 1 in India. Since it has taken 7 million
customers into its network, it is going to take profit from overall revenue. Since cost reduction
is very difficult in telecom industry, so it would be better to acquire more number of
customers. But the time will say how it is going to give service so that all the previous
customers will retain and new customers will be added in that Mumbai region. (Tarun, 2014)

6 Financial Analysis

Revenue: Rs. 809.22 billion (2013-14).


Operating Income: Rs. 248.62 billion (2013-14)
Profit: Rs. 22.67 billion (2013-14).
Share price on 11 July 2014: Rs. 335.50 (www.wikipedia.com, n.d.)

Now lets analyze the Key Financial Figures of Bharti Airtel:


Key Financial Figures (Rs. in Crs.)
Year
Mar-09
Total Income
34,544.72
Total Expenditure
21,028.53
Operating Profit
13,516.19
Interest
1,652.30
Adjusted Net Profit
7,531.38

Mar-10
35,951.80
22,026.60
13,925.20
1,396.20
9,295.44

Mar-11
38,338.90
24,677.40
13,661.50
324.1
7,620.22

Mar-12
42,228.50
27,960.10
14,268.40
-568
5,689.43

Mar-13
46,814.00
31,880.20
14,933.80
2,148.38
5,042.45

Analysis: From the above given Financial figures we can analyze that total income is constantly
increasing from 2009 to 2013. But linearly the total expenditure of the company is also increasing.
We can see that Operating Profit is increasing but the Adjusted Net Profit of the company is
decreasing. The reason behind the decrease in Adjusted Net Profit can be the huge amount of Interest
that the company is paying due to its debt.
6

As we can also conclude from the 2013 figures that the interest is large about 2148.38 crores which
indicates that company has undergone some more debt may be for the expansion and acquisition of
Loop mobile that happened in 18 February 2014. (http://www.capitaline.com/, n.d.)
Key Financial Ratios:
Key Financial Ratio's
Debt-Equity Ratio
Current Ratio
ROCE (%)
Price Earning (P/E)

Mar-09
0.3
0.61
33.17
15.47

Mar-10
0.2
0.7
26.27
12.65

Mar-11
0.21
0.49
18.03
17.73

Mar-12
0.29
0.54
13.26
22.56

Mar-13
0.29
0.52
11.66
22.02

Analysis: Looking at some important Financial Ratios, we can analyze that Debt-Equity ratio has
been decreased first and then increased in 2013 to 0.29. This represent that the amount of debt or
liabilities as compare to the equity of the company is more or increased. The same is represented by
the Current ratio that as compare to the current assets of the company the liabilities are higher thats
why the current ratio has also decreased from 0.61 to 0.52. Return on capital employed(ROCE) has
been decreased may be due to large debt but if we look at the Price Earnings ratio which is increases
from 15.47 to 22.02 indicates that the share price of the Bharti Airtel is high as compare to the
earning its providing, the demand or confidence of market in Bharti Airtel company is high.

7 Forecasts
As seen above in the Financial Analysis of Bharti Airtel, major parameters which is Total Income and
Operating Profit is increasing constantly. Now lets forecast those parameters for future 3 years on
assumptions based on past trends. (moneycontrol, 2014)
Key Financial Figures (Rs. in Crs.)
Year
Mar-11 Mar-12
38,338. 42,228.
Total Income
90
50
% change
6.64%
10.15%
Total
24,677. 27,960.
Expenditure
40
10
% change
12.03% 13.30%
Operating
13,661. 14,268.
Profit
50
40

Mar-13
46,814.
00
10.86%
31,880.
20
14.02%
14,933.
80

Forecasted Figures
Crs.)
Mar-14 Mar-15
52,431. 58,723.
68
48
12.00% 12.00%
36,343. 41,431.
43
51
14.00% 14.00%
16,088. 17,291.
25
97

(Rs. in
Mar-16
65,770.3
0
12.00%
47,231.9
2
14.00%
18,538.3
8

As per the past trend, total income of Bharti Airtel is constantly increasing and after the acquisition of
Loop mobile in 2014 it will again increase by some more amount. So the growth rate of income that
we have assumed is 12% as well as the expenditure will also increase so assumption for the
expenditure is 14%.

Operating Profit
24,000.00
22,000.00
20,000.00
18,000.00
16,000.00
14,000.00
12,000.00
10,000.00
2011

2012

2013

2014

2015

2016

According to Forecasted figures of 3 years, we can conclude that in coming years Operating profit of
the Bharti Airtel is going to increase by the expansion as well as the acquisition of Loop mobile.

8 Recommendations
8.1 Organizational Structure and Culture
Organization culture and structure of Bharti Airtel and Loop mobiles
Bharti Airtels Organizational structure was functional earlier and in order to drive the next phase of
companys growth, there have been some major changes in the structural hierarchy of the company.
Bharti Airtels organizational structure, effective starting 1 st August 2011, was aimed at driving
greater business and functional synergies, providing a common interface to customers, and creating a
de-layered and more agile organization. (Vikram_Dahiya, 2012)
The structure became a decentralized one which includes international division system &
geographical division structure, with an aim to decentralize the decision making and increase
accountability across all level of management. The new structure separates the B2B & B2C segment.
(http://www.airtel.in/about-bharti/media-centre/bharti-airtel-news/corporate/bharti-enterprisesannounces-new-apex-level-strategic-organization-structure, n.d.)
Loop Mobiles, on the other hand, has centralized organizational structure. It has also been reported
by the existing employees that the culture includes a very friendly environment for the employees to
work in.

8.2 Recommendation for change in Organizational structure and culture


Bharti Airtel and Loop mobiles organizational structure and culture should be integrated in order to
have commonalities between the two and the employees would get to experience and work in a new
and more improved environment. Some of the recommendations are made as follows:
8.2.1

Clear and realistic shared vision


The details of Bharti Airtels mission and objectives should be used to create a strong,
realistic and well-articulated vision statement. This is what would drive integration by giving
the organization a strategic direction. (Mishra, 2012)
8

Customers will benefit in future from the joint capabilities of each entity as it will help
identify the best features of both the companies and ensure that these remain intact.
Evolving a clear vision and business strategy of the acquisition during the process of
negotiation and having it ready for communication across the two companies would help
retain the employees of Loop mobiles and Bharti Airtel. (Dugar, 2009)

8.2.2

Changing policies and practices


Involving the HR early in the cycle of negotiations to map the hierarchical structure of both
the companies, and wherever necessary, evolving a corporate organizational structure that
suits the Loop mobiles company that has been acquired.

8.2.3

Creating a new Organization Chart


Taking up a detailed audit of the competencies of the employees of Loop mobiles to map their
roles and responsibilities as aligned with the new chart of Bharti Airtel.

8.2.4

Establishing a strong communication system


Communication has been found to be the biggest factor that has the power to make or break
the post-acquisition integration. To proactively stall the arising fears and insecurity amongst
the employees of Loop mobile, there has to be a single point of contact for the employees of
the company to talk to and seek clarifications / answers to their queries. (Dugar, 2009)
People should have easy access to the Senior Management team to get their views to help
clarify matters that arise. There should be proper communication to provide clarity of the
plans and if needed, using an external agency that can be seen as a neutral agency, for this
purpose could also be considered.

8.2.5

8.2.6

Defining and implementing the processes and tools


Sufficient attention should be given to identify the best practices in operational and service
processes and tools in each organization and to ensure that they become the standard
procedure of both the organizations. (Mishra, 2012)
Bharti Airtel has changed its corporate organizational structure to a decentralized one for a
better chain of command unlike Loop mobiles which more or less used to follow a centralized
organizational structure. (Vikram_Dahiya, 2012)
Acquisition has given an opportunity to view the processes of Bharti Airtel and Loop mobiles
with a fresh eye and pick and implement more efficient systems and processes which would
best suit both the companies.
Setting transformation timelines, training programs and workshops to bring the acquired
organization up to speed on the changes. A data strategy is also important for data migration
and creating a common database to provide the necessary reports for the acquired entity.
Understanding the differences in culture
The integration will only be successful if the companies try to understand the differences. The
differences commonly are in the corporate culture and value systems, levels of staff
qualifications and competencies, leadership styles.
According to the employees of the Loop mobile, this company has an excellent work culture.
It also helps in providing expertise based trainings and internal movements are given as per
the skill sets at regular intervals. (timesjob, 2014)
In Bharti Airtel, the working culture is different as it is a well-established and larger
organisation as compared to Loop Mobile. (timesjobs, 2014)

In order to make this acquisition a success, Bharti Airtel has to ensure the work life balance of
the employees of Loop Mobile and a transparent communication between the management
and employees.

8.2.7

Knowing the people


It is important to identify the key stakeholders/leaders/influencers/employees within the new
entity quickly and also listen and address their fears and concerns. Announcing an integrated
core team, drawn from multiple functions of both entities would be responsible for creating,
monitoring and tracking the integration plan with tasks and timelines till all post-acquisition
actions are completed.
Most of Loop Mobile's 750 employees, including some 400 under contract, fear they would
lose their job after this acquisition. So management of Bharti Airtel has to convey that how
many employees of Loop Mobile will be retained after the acquisition. Addition to this, Bharti
Airtel need to take care of the interests of the stakeholders and influencers of Loop Mobile.
(Gupta, 2014)

8.2.8

Engaging people
The strategy towards growth has to be honest, transparent and candid to win the trust and
credibility of the employees. Quick wins in the integration process need to be celebrated and a
sense of positive urgency needs to be created.
A regular two way feedback mechanism needs to be set up so that there is sufficient input
from the organization to measure how well the integration strategy is working. Connecting
leaders and employees with counterparts or supervisors within both organizations, organizing
networking events and set up an online social-networking portal or collaboration workspace.

8.3 QSPM Analysis


Quantitative Strategic Planning Matrix (QSPM) is a high-level strategic management approach for
evaluating possible strategies. Quantitative Strategic Planning Matrix or a QSPM provides an
analytical method for comparing feasible alternative strategies. To decide the alternative strategy,
here we are considering 2 factors.
Key Internal factors ( Strength & Weakness )
Key external factors ( Opportunity & Threats )
8.3.1

Key Internal Factors

1. Biggest mobile service provider in worlds second largest telecom market:


With about 870 million wireless subscriptions, India ranks second after China in the wireless market.
Airtel has become the first operator in the country to have more than 200 million subscribers (as per
January 2014). The company is leading market with 28.1% share at the end of January 2014. (NDTV,
2014)
2. High brand equity
Airtel is among Indias most visible brands omnipresent in most parts of the nation through
television, print and various other forms of advertising. Celebrity endorsements and innovative
advertising that understand the pulse of market are some of the assets of the Airtel brand. (Sharma,
2009)
3. Well-established nationwide infrastructure
10

Airtel has been in the market for 18+ years and thus has towers and backhaul all over the country.
This is a major advantage. Deployment of new technologies or increasing capacity at times requires
software and minimal hardware upgrade. Having infrastructure already on the ground makes that
process much faster and smoother. Secondly, it is easier to capture new customers if a telco already
has a network in place.

4. Superior overall network quality and reliability


Bharti Airtel runs one of the better mobile networks in India. It has a strong telecom tower presence
in every rural and urban areas. They have nationwide penetration. It offers a higher quality telecom
service experience as compared to most other Telcos.
5. High Tele-density
Telephone density or Tele-density is the number of telephone connections for every hundred
individuals living within an area. It varies widely across the nations and also between urban and rural
areas within a country. In India the Tele density is 72.90. The urban Tele-density is 146.15 and rural
Tele-density is 40.81. So out of this Bharti Airtel has more Tele density.
6. Outsourcing of core system:
Bharti Airtel outsources all its core system to be the top player in Indian market. Because by
outsourcing it can get best services from best player in world. It has chosen IBM to build and manage
IT system.
7. Debt and finances:
The most reliable network Bharti Airtel is set to tap the overseas bond markets again with $400
million issue later this month to repay high cost loans. At the end of year 2013-14, Airtel is burdened
by $10.4 billion in net debt. Depreciating rupee is also an issue since it results in foreign exchange
losses and increases the financing cost. (Bharti Airtel to sell Africa towers to kill debt, deal could rake
in $3 billion, 2014)
8. Customer affordability:
As it has a vast network so sometimes Bharti Airtel cant afford the customers. The kind of services
being delivered by AIRTEL does not up to the mark. Sometimes it had happened that the month had
passed that the network signal problem was not improved & the problem of failure of network
continued.
8.3.2

External Factor Analysis

1. Economics environment
Economic factors mainly include growth rate of the industry, per capita income, Inflation rate, GDP
rate etc... These are the factors that have a major impact on the operation and various decisions that
are to be taken to run the company. India is a developing country and favorable economic conditions
play a major role in success of any company. Though Airtel is market leader favorable economic
condition is a major external factor for success of the company.
2. Political and legal environment
Political and legal environments determine how to and what degree government policies and
regulations affect the economy and the telecom industry. Stable political and legal environment are
one of the factors necessary for the success of the telecom companies and the industry both.
11

3. Technical Environment
Technical environment mainly consists of the technological aspects such as R&D, automation, and
the rate at which technology changes. These can be an important aspects as far as telecom industry is
concerned. Furthermore technological shifts can affect cost, quality and lead to innovation.
4. Threat of new entrants
The threat of new entrants have significant impact on the strategic decisions that are to be taken by
the firm. Though there are high entry barriers like high initial setup cost, licensing requirements,
difficulty in attaining customers, but a continuous threat of new entrant coming to industry is always
there.
5. Intensity of rivalry among firms
In the case of telecom sector there are only few major pan India operators, but rivalry among them is
very high. Each operator is trying to grab the maximum market share and attracting customers of
other firms. Also there is very little product differentiation between different operators which creates
a high rivalry among the firms operating in the industry.
6. Increasing Substitutes (Skype, G Talk, Facebook video chat etc.)
Increasing use of new concepts like Skype, Facebook video chat, Google hangout and services like
Whats-app have taken a hit on all the firms operating in the industry and have forced the companies
to change their strategies to overcome these issues. (Management Paradise, 2012)
In the following table we have considered two strategies whether they should acquire competitors in
Indian markets or they should expand globally.

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By analysing QSPM, we recommend that that Airtel should try and expand in international
markets like Africa and other emerging markets because growth opportunities are very high in
the countries where telecom industry is still in the nascent phase and Airtel could try to
capture major share in these emerging markets. Acquiring companies in Indian telecom
industry may not be that attractive option as the opportunities will be very limited.
Increasing use of new concepts like Skype, Facebook video chat, Google hangout and
services like WhatsApp are taking a hit on telecom companies. Hence the company can try to
come up with a product to counter such substitutes and integrate this with the existing tele
services.

9 DUPONT Analysis
9.1 Analyzing Competitive Advantages
To understand the performance of the company we need to perform a good internal analysis, need to
be able to analyze the financial performance of the company, identifying how its strategies contribute
(or not) to profitability.
For analyzing this we are going to perform a Du Pont analysis on Bharti Airtel, Idea cellular and
Reliance communication.

9.2 Du Pont Analysis


Return on Invested Capital (ROIC) is defined as net profit over invested capital and it focuses on the
true operating performance of the company.
ROIC = Net profits / invested capital
= (Net profits / Revenue) (Revenue / Invested capital)
= (Return on sales) (Capital turnover)
(Figures used for calculations are of 2013)

ROS
Bharti Airtel: 13.22%
Idea cellular: 6.46%
Reliance comm.:
5.53%
ROIC
Bharti Airtel: 9.89%
Idea cellular:
10.83%
Reliance comm.:
Capital Turnover
Bharti Airtel: 74.80%
Idea cellular:
167.54%
Reliance comm.:

COGS/Sales
Bharti Airtel: 50.98%
Idea cellular:
67.20%
Reliance comm.:

SG&A/Sales
Bharti Airtel: 18.05%
Idea cellular: 5.71%
Reliance comm.:
13.86%
Working
capital/Sales
Bharti Airtel: 25.26%
Idea cellular:
14.67%
PPE/Sales
Bharti Airtel: 82.04%
Idea cellular:
97.18%
Reliance comm.:

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ROS: Return on Sales


COGS: Cost of Goods Sold
SG&A: Sales, General, and Administrative Expenses
PPE: Property, Plant, and Equipment
We have again divided Return on sales into Cost of goods sold over Sales and Sales general and
administrative expenses over Sales.
Capital turnover is divided into Working capital over sales and Property, plant and equipment over
Sales for the better analysis of companys profitability and operational efficiency.
From the graph given above we can conclude some points related to the operating efficiency of the
Bharti Airtel is given below:

Return on sales of Bharti Airtel is more than twice than Return on sales of Idea cellular and
Reliance communication. This is a good signal for the Bharti Airtel.
COGS/Sales ratio of the Bharti Airtel is also less than Idea cellular and Reliance
communication which again is the good sign. It says than on less amount of goods sold,
Bharti Airtel is generating more sales.
SG&A/Sales ratio of Bharti Airtel is 18.05% which is more than Idea cellular and Reliance
communication and a red sign. Here Bharti Airtel should try to minimise this ratio by
minimising Sales, general and administrative expenses adapting proper strategies.
Working capital/Sales ratio of Bharti Airtel is less than Reliance communication that is good,
but more than Idea cellular. Bharti Airtel should try to minimise this ratio that means it should
use methods to generate more Sales with less Working capital.
PPE/Sales ratio of Bharti Airtel is less than all other competitor considered (green flag) but
still it should try to minimise the investment of Property, plant and equipment and generate
more Sales.
Bharti Airtel should try to reduce their sales general and administrative expense as well as
property plan and equipment investment for the future.
Sources of Financial Data: (Bloomberg Businessweek, 2014) (Bloomberg Businessweek,
2014) (Bloomber Businessweek, 2014)

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