MBAEx 15

Financial Reporting & Analysis

Project Report

Financial Statements Analysis of Reliance Jio

Infocomm Ltd and comparison with Bharti Airtel Ltd

Group:
MBAEx 12/15 Anubhav Aggarwal
MBAEx 20/15 AVK Sandeep
MBAEx 22/15 Bhawani Shankar Mishra
MBAEx.74/15 Vishal Singh Jadoun
 Contents
1. A brief company background of Reliance Jio Infocomm Ltd
2. Industry background
3. Accounting principles
4. Standalone Financial statements & Analysis
a. Reliance Jio balance sheet analysis
b. Reliance Jio income statement analysis
c. Reliance Jio cash flow statement analysis
5. Horizontal & Vertical analysis of Reliance Jio
6. Ratio analysis of Reliance Jio
7. Comparative ratio analysis
8. Conclusion
9. Reference

1. A brief company background:

Reliance Jio Infocomm Ltd is a company providing wireless telecom products and services. The
Company offers voice, data, and messaging services, as well as distributes smartphones and hotspot
devices. Its areas of research, development and new service deployment include blockchain, artificial
intelligence, open source platforms, IOT, data analytics, and next-gen cloud services. It is a subsidiary of
Reliance industries and was founded by Mukesh Ambani in the year 2010.

2. Industry background:
Currently, India is the world’s second-largest telecommunications market with a subscriber base of 1.16
billion and has registered strong growth in the last decade. The Indian mobile economy is growing rapidly
and will contribute substantially to India’s Gross Domestic Product (GDP) according to a report prepared
by GSM Association (GSMA) in collaboration with Boston Consulting Group (BCG).
The liberal and reformist policies of the Government of India have been instrumental along with strong
consumer demand in the rapid growth in the Indian telecom sector. The Government has enabled easy
market access to telecom equipment and a fair and proactive regulatory framework, that has ensured
availability of telecom services to consumer at affordable prices.

Market size:
India ranks as the world’s second largest market in terms of total internet users. The total number of
internet subscribers increased to 757.61 million in January 2021. The total wireless or mobile
telephone subscriber base increased to 1,163.41 million in January 2021, from 1,153.77 million in
December 2020.India is also the world’s second-largest telecommunications market. The total
subscriber base in the country stood at 1,183.49 million, as of January 2021.
Gross revenue of the telecom sector stood at Rs. 68,228 crore (US$ 9.35 billion) in the third quarter
of FY21.Over the next five years, rise in mobile-phone penetration and decline in data costs will add
500 million new internet users in India, creating opportunities for new businesses1.

3. Accounting principles:
The Financial Statements of the Company have been prepared to comply with the Indian Accounting
standards, including the Rules notified under the relevant provisions of the Companies Act, 2013. The
Company has applied Indian Accounting Standard (Ind AS) 116 leases, to its leases using prospective
approach, effective annual reporting period beginning 1st April 2019 and applied the standard to its leases
from this date.

Depreciation on Property, Plant and Equipment and right of use assets, is provided using straight-line
method except in case of wireless telecommunication equipment and components which are depreciated
based on the expected pattern of consumption of the expected future economic benefits over its useful
life. Amortisation of intangible assets such as software is provided using straight-line method.
Depreciation is provided based on useful life of the assets as prescribed in Schedule II to the Companies
Act, 2013.

4. Standalone Financial statements & Analysis

Abridged classified Balance sheets

Reliance Jio Infocomm
Amount in crores Bharti Airtel Ltd
Ltd
Year 2018 2019 2020 2018 2019 2020
ASSETS
Non-Current Assets
Property, Plant & Equipment 95,769 74,633 1,02,864 47,691 57,010 54,829
Capital work in progress 61,025 30,965 21,176 2,739 5,366 1,233
Right of use assets 74,918 - 34,503
Goodwill 59,760 59,367 60,563 - 74 74
Other Intangible assets - 76,728 72,274
Intangible assets under
8,962 3,643 82 2,804 270 26
development
Investments in subsidies,
- - - 48,122 35,904 30,047
associates and joint ventures
Financial assets 1,016 1,108 1,108 6 6 5
Income tax assets(net) 1,960 1,006 1,341
Deferred tax assets(net) 4,037 3,427 1,546 1,424 4,980 22,701
Other non current assets 3,610 9,111 25,920 2,714 6,029 4,558
Total Non-current assets 2,34,182 1,82,256 2,13,262 1,89,107 2,03,393 2,41,592
Current assets
Inventories - - - 6 1 3
Financial assets 1,970 1,991 11,537 7,652 8,102 41,208
Other current assets 17,579 11,533 16,906 8,172 11,412 17,571
Total current assets 19,549 13,524 28,443 15,830 19,515 58,781
Total assets 2,53,731 1,95,780 2,41,705 2,04,937 2,22,908 3,00,373
EQUITY & LIABILITIES
Equity
Equity share capital 45,000 45,000 45,000 1,999 1,999 2,728
Other equity 57,933 (4,600) 1,25,956 1,00,862 96,307 98,701
Total equity 1,02,933 40,400 1,70,956 1,02,861 98,306 1,01,429
Liabilities
Non-current liabilities
Financial liabilities 43,728 75,611 13,490 56,416 62,011 1,04,322
Deferred payment liabilities 20,209 18,839 18,839 1,837 1,697 1,219
Provisions 364 183 193 192
Total Non-current liabilities 64,301 94,450 32,329 58,436 63,900 1,05,732
Current liabilities
Financial liabilities 82,131 55,380 32,899 37,922 55,477 45,958
Deferred payment liabilities 870 1,370 - 3,024 2,680 3,525
Current tax liabilities(net) - - - 126 225 227
Other current liabilities 3,406 4,075 5,462 245 2,211 2,743
Provisions 90 105 59 2,323 109 40,759
Total current liabilities 86,497 60,930 38,420 43,640 60,701 93,211
Total liabilities 1,50,798 1,55,380 70,749 1,02,076 1,24,602 1,98,944
Total equity and liabilities 2,53,731 1,95,780 2,41,705 2,04,937 2,22,908 3,00,373

Multistep Income statement

Reliance Jio
Amount in crores Infocomm Ltd Bharti Airtel Ltd
Consolidated Income statement

Year 2018 2019 2020 2018 2019 2020

INCOME
Revenue from operations 20,154 40,663 54,316 53,663 49,606 54,317
Other income 4 6 87 236 252 313
Total income 20,158 40,669 54,403 53,899 49,858 54,630
EXPENSES
Network operating expenses 4,921 11,338 16,930 13,951 16,195 13,642
Access charges 4,287 6,032 5,795 7,894 8,174 9,077
License fees/Spectrum fees 1,767 4,159 5,720 5,563 4,953 5,240
Employee benefits expense 963 1,658 1,463 1,721 1,471 1,520
Selling and distribution expense 797 1,150 1,277 3,052 2,597 1,818
Other expense 688 1,230 1,564 3,617 3,741 2,761
Profit from operating activities before
depreciation, amortisation and 6,735 15,102 21,654 18,100 12,727 20,572
exceptional items
Depreciation and Amortisation expense 3,577 6,398 7,396 13,049 15,120 20,392
Finance costs (Net) 2,049 4,148 6,617 5,911 7,848 11,463
Finance income (842) (2,381) (1,929)
Non-operating expense 60 189 126
Profit before exceptional items & tax 1,109 4,556 7,641 (77) (8,049) (9,479)
Exceptional items (Net of tax) - - 146 604 (2,805) 41,542
 Profit before tax 1,109 4,556 7,495 (681) (5,244) (51,021)
Tax expenses
Current tax 234 982 - (220) 2 -
Deferred tax 152 610 1,933 (540) (3,376) (14,933)
Profit of the year 723 2,964 5,562 79 (1,869) (36,088)
OTHER COMPREHENSIVE INCOME
(1) Items that will not be reclassified to
8 6 (8) 9 15 (11)
profit or loss
(2) Income tax relating to items that will be (3) (2) 2 (3) (5) 4
reclassified to profit or loss
Total other comprehensive income for 5 4 (6) 6 10 (7)
the year (Net of tax)
Total comprehensive income for the
728 2,968 5,556 85 (1,860) (36,095)
year

Cashflow statement
Reliance Jio Infocomm
Bharti Airtel Ltd
Amount in crores Ltd
Cash flow statement
Year 2018 2019 2020 2018 2019 2020
Cash and Cash Equivalents at
21 691 17 82 417 171
Beginning of the year
Net Cash from Operating
3,570 6,658 16,582 15,954 10,812 4,026
Activities
Net Cash Used in Investing
(35,949) (44,176) (68,370) (17,211) (20,456) (22,272)
Activities
Net Cash Used in Financing
33,049 36,844 58,837 1,637 9,398 21,114
Activities
Net Inc/(Dec) in Cash and Cash
670 (674) 7,049 380 (246) 2,869
Equivalent
Cash and Cash Equivalents at
691 17 7,066 463 171 3,040
End of the year

5. Horizontal & Vertical Analysis of Reliance Jio

Balance sheet of Reliance Jio Vs Bharati Airtel

Horizontal Analysis Vertical Analysis
Reliance Jio Bharti Airtel Reliance Jio Bharti Airtel
Balance Sheet 2019 2020 2019 2020 2018 2019 2020 2018 2019 2020
Non-Current Assets
Property, Plant & -22% 7% 20% 15% 38% 38% 43% 23% 26% 18%
Equipment
Capital work in -49% -65% 96% -55% 24% 16% 9% 1% 2% 0%
progress
Other Assets -1% 15% 2% 34% 31% 39% 37% 68% 63% 62%
 Total Non-current -22% -9% 8% 28% 92% 93% 88% 92% 91% 80%
assets
Current assets -31% 45% 23% 271% 8% 7% 12% 8% 9% 20%
Total Assets -23% -5% 9% 47% 100% 100% 100% 100% 100% 100%
Equity & Liabilities
Equity share capital 0% 0% 0% 36% 18% 23% 19% 1% 1% 1%
Other equity -108% 117% -5% -2% 23% -2% 52% 49% 43% 33%
Total equity -61% 66% -4% -1% 41% 21% 71% 50% 44% 34%
Non-Current
Liabilities
Financial liabilities 73% -69% 10% 85% 17% 39% 6% 28% 28% 35%
Other liabilities -8% -8% -6% -30% 8% 10% 8% 1% 1% 0%
Total Non-current 47% -50% 9% 81% 25% 48% 13% 29% 29% 35%
liabilities
Current Liabilities
Financial liabilities -33% -60% 46% 21% 32% 28% 14% 19% 25% 15%
Other liabilities -30% -56% 39% 114% 34% 31% 16% 21% 27% 31%
Total Current -30% -56% 39% 114% 34% 31% 16% 21% 27% 31%
liabilities
Total Equity and -23% -5% 9% 47% 100% 100% 100% 100% 100% 100%
Liabilities

Income statement of Reliance Jio Vs Bharati Airtel

Horizontal Analysis Vertical Analysis
Reliance Jio Bharti Airtel Reliance Jio Bharti Airtel
Income 2019 2020 2019 2020 2018 2019 2020 2018 2019 2020
Statement
Income 102% 170% -7% 1% 100% 100% 100% 100% 100% 100%
Expenses 90% 144% 4% -5% 67% 63% 60% 66% 74% 62%
EBIDTA 124% 222% -30% 14% 33% 37% 40% 34% 26% 38%
Profit Before Tax 311% 576% 670% 7390% 6% 11% 14% -1% -11% -93%
Tax 312% 401% 344% 1864% 2% 4% 4% -1% -7% -27%
Profit of the year 310% 669% -2460% -45666% 4% 7% 10% 0% -4% -66%

• Gross Profit ratio is almost equal (~40% in 2020 and 34% in 2018) for both of the companies every
year (Except Bharti Airtel in 2019 due to higher operating expense)
• PAT has increased for Reliance Jio (10%) while reduced for Bharti Airtel (-66%) because of exception
item of Airtel
• Current assets proportion increased for Airtel (20%) while reduced for Jio (12%) in 2020
• Non-Current as well as current liabilities reduced for Jio in 2020 as compared to 2019 while increased
for Bharti Airtel
• Equity share increased for Jio in 2020 as compared to 2019 while decreased for Bharti Airtel
6. Ratio analysis of Reliance Jio Infocomm Ltd

Reliance Jio
Infocomm Ltd
Ratio 2018 2019 2020 Analysis
Profitability ratios
Operating Profit Margin 33% 37% 40%
Jio has high operating profit margin 40% that is
industries best margin. However, with taxes and
EBIT Margin 16% 21% 26% interest charges and other expenses, net profit
margin has reduced to 10%
Net Profit Margin 4% 7% 10%
Return ratios
Company ROTA of 7% (because of huge
investment in Infrastructure)which is lower than
Return on Total Assets 1% 4% 7%
industry average, which shows efficiency of
company to squeeze profit from its assets.

ROE decreased for last financial year because of

Return on Equity 1% 7% 3% Equity increased by almost four times from
Foreign Investment

ROI 14% 35% 29% ROI of Jio is around industrial Average.

Return on Net worth decreased because of new

Return on Net Worth 1% 7% 3%
capital influx.

Liquidity ratios
The current ratio and quick ratio is lower than 1
and it shows efficiency of a company's operating
Current Ratio 0.23 0.22 0.74
cycle or its ability to turn its product into cash
obligations. Good sign is that it has improved.

However, very low cash ratio over long time

raises concerns over company’s ability to pay
Operating cash flow ratio 0.04 0.11 0.43
short term, But it has improved significantly last
year, which is a positive sign for a company.

Efficiency ratios
Overall Efficiency 0.14 0.35 0.29
Fixed Assets Turnover Jio has overall efficiency of 0.29 and fixed asset
0.13 0.39 0.44 turnover as 0.44, which shows efficiency with
Ratio which a company is using its assets to generate
Working Capital Efficiency revenue.
-0.30 -0.86 -5.44
Turnover
Solvency ratios
Debt-Equity Ratio 0.42 1.87 0.08 The company’s debt has reduced significantly
from new investment, which is a positive sign for
Debt Ratio 0.30 0.65 0.07 stability of the company. This ratio indicates the
degree of financial leveraging

Interest coverage ration remains almost the same

Interest Coverage Ratio 1.54 2.10 2.13
as previous year.
 Comparative analysis of financial statements

Balance Sheet Income Statement

Jio Airtel Jio Airtel
3,00,000 60,000
40,000
2,00,000
20,000
1,00,000 -
(20,000) 2018 2019 2020 2018 2019 2020
-
2018 2019 2020 2018 2019 2020 (40,000)

Total Non-current assets Total current assets (60,000)

Total Non-current liabilities Total current liabilities Revenue from operations Net Income

Jio has paid off its current liabilities, Jio’s investments have grown significantly from
whereas Airtel has taken up more 2018 to 2020 along with the net cash from
debts. operations. It has also generated significant
returns from its investments.

Cash Flow Statement

Jio Airtel
1,00,000 Jio’s net income has increased along with its
50,000 revenues, which shows growing profits. For
Airtel, net income has plunged down even
-
2018 2019 2020 2018 2019 2020
though revenues remain fairly constant,
(50,000) suggesting that the company is suffering heavy
(1,00,000)
losses.

Net Cash from Operating Activities

Net Cash Used in Investing Activities
Net Cash Used in Financing Activities

7. Comparative Ratio analysis of Reliance Jio with Bharti Airtel

Reliance Jio
Infocomm Ltd Bharti Airtel Ltd
Ratio 2018 2019 2020 2018 2019 2020
Profitability ratios
Operating Profit Margin 33% 37% 40% 34% 26% 38%
EBIT Margin 16% 21% 26% 9% -5% 0%
Net Profit Margin 4% 7% 10% 0% -4% -66%
 Return ratios
Return on Total Assets 1% 4% 7% 2% -3% -5%
Return on Equity 1% 7% 3% 0% -2% -36%
Return on Capital Employed or ROI 14% 35% 29% 34% 31% 26%
Return on Net Worth 1% 7% 3% 0% -2% -36%
Liquidity ratios
Current Ratio 0.23 0.22 0.74 0.36 0.32 0.63
Operating cash flow ratio 0.04 0.11 0.43 0.37 0.18 0.04
Efficiency ratios
Overall Efficiency 0.14 0.35 0.29 0.34 0.31 0.26
Fixed Assets Turnover Ratio 0.13 0.39 0.44 1.06 0.80 0.97
Working Capital Efficiency Turnover -0.30 -0.86 -5.44 -1.93 -1.20 -1.58
Debtors Turnover
Creditors Turnover
Solvency ratios
Debt-Equity Ratio 0.42 1.87 0.08 0.55 0.63 1.03
Debt Ratio 0.30 0.65 0.07 0.35 0.39 0.51
Interest Coverage Ratio 1.54 2.10 2.13 0.88 0.33 -3.45

Profitability Ratios
o Increasing operating profit margin of Jio indicates that business processes are getting more
efficient.
o Jio has achieved a steadily increasing net profit margin due to its higher profits and increasing
consumer base (with negligible marginal cost of adding new customers), whereas Airtel’s NPM
decreased drastically, showing the loss of market share.

Return Ratios
o Jio has seen a healthy increase in returns on total assets, signifying that the initial investments in
network infrastructure, spectrum licenses and customer acquisition are paying off, whereas
Airtel’s ROTA has gone down, meaning the revenue generation from investments have
decreased, but assets have not been sold off, thereby blocking cash.

Liquidity ratios
o Both companies' current ratio has increased but still remains lower than 1, suggesting that their
ability to pay-off short-term liabilities has improved, but both companies are still operating with
negative working capital.
o Increase in operating cash flow ratio is due to the increasing CFO and debt pay-offs. The initial
investments are starting to generate revenues for Jio. It’s decreasing in Airtel due to decreasing
profit and increasing current liabilities, plus huge provisions of ₹40,479 Cr in 2020.

Efficiency ratios
o For Jio, working capital turnover ratio increased in absolute value, meaning that sales are
growing with simultaneous increase in current assets and decrease in current liabilities (negative
sign- CA<CL). For Airtel, sales are declining.

Solvency ratios
o Jio’s huge decrease in debt to equity ratio can be attributed to the fact that it’s paying of its
debts, while other equities, whereas Airtel has almost doubled its debts from FY 2018 to 2020.
 o Interest Coverage Ratio of Jio has increased from a healthy 1.54 to a respectable 2.14,
suggesting that Jio can easily pay-off its interests. In case of airtel, ICR has dropped down to -
3.45, meaning that Airtel has to take up more loans just to cover its interest payments.

8. Conclusion
The financial indicators of the Reliance Jio infocomm Ltd are satisfactory. Various profitability ratios
confirm the efficiency of operations. However, Bharati Airtel Ltd suffered losses in 2019 and 2020
due to reduced consumer base and competition from Reliance Jio infocomm Ltd. Jio’s investments in
Property, plant and equipment have started paying off. There is a considerable decline in the capital
work in progress. Jio issued preferred stock in FY2019 and FY2020, while paying off their debts.
However, Airtel’s debt has increased during this time period. Jio investments are increasing in the
FY2019 and FY 2020 while maintaining positive and higher net cash as compared to Airtel.

In the shadow of aforesaid facts and analysis, we say that Reliance Jio infocomm Ltd has a better
strategic position in comparison with its competitor in many financial aspects.

9. References
1. https://www.ibef.org/industry/telecommunications.aspx
2. https://www.ril.com/getattachment/5afeebf6-f47f-4a9b-903b-a18785fb470c/Annual-Report-for-
the-year-2019-20.aspx
3. https://www.ril.com/getattachment/8b601820-7011-48a1-9706-2b9750f2deeb/Annual-Report-
for-the-year-2018-19.aspx
4. https://www.airtel.in/airtel-annual-report-2019-20/
5. https://www.airtel.in/airtel-annual-report-2018-19/download-center.php