Group Assignment

Financial Accounting

Bharti Airtel Limited

 CONTENTS

TOPIC PAGE NUMBER

Company Background 3
Company Management 3
Shareholders 4
Auditors 6
Fixed Assets 7
Revenue & Income 7
Inventories 8
Long Term Borrowings 9
Others 9
CSR 10
Ratio Analysis 10
Company background:
 Bharti Airtel Limited, also known as Airtel is an Indian global telecommunications
services company based in New Delhi, Delhi NCT, India. It operates in 18 countries
across South Asia and Africa, and also in the Channel Islands.

 Airtel provides GSM, 3G, 4G LTE, 4G+ mobile services, fixed line broadband and voice

services depending upon the country of operation. 

  Bharti Airtel added over 9 lakh subscribers in February this year as per data by the
Telecom Regulatory Authority of India (TRAI), making it the second-largest
telecommunication operator in India with a market share of 28.35 percent and the second
largest mobile network operator in the world with over 439.84 million subscribers.  Out
of this, 309 million subscribers were from India. 
 The major competitors of airtel are Jio, Vodafone-Idea, BSNL, TATA communications,
etc.
 Airtel is credited with pioneering the business strategy of outsourcing all of its business
operations except marketing, sales and finance and building the 'minutes factory' model
of low cost and high volumes. The strategy has since been adopted by several operators.

Company Management:
 The board of directors of the company has an optimum mix of executive and non-
executive directors, which consists of two executive and nine non-executive directors.
Mr. Sunil Bharti Mittal, Chairman and Mr. Gopal Vittal, MD & CEO (India and South
Asia) are the two executive directors on the board and is 50% of the total board strength.

 The following are the members of the board:

Mr. Sunil Bharti Mittal (Chairman)

Mr. Gopal Vittal (MD and CEO -India and South Asia)
Mr. Shishir Priyadarshi (Independent Director)
Ms. Chua Sock Koong i (Non-Executive Director)
Mr. Manish Kejriwal (Independent Director)
Mr. Craig Edward Ehrlich (Independent Director)
Mr. Dinesh Kumar Mittal (Independent Director)
Mr. Tao Yih Arthur Lang (Non-Executive Director)
 Mr. Rakesh Bharti Mittal(Non-Executive Director)
Mr. V. K. Viswanathan (Independent Director)
Ms. Kimsuka Narasimhan (Independent Director)

 There has been no expansion in the board size of the company.

 The gender diversity in the board of directors in the company is in the ration 9:2 (Male
:Female).
 Independent Directors hold directorship in other companies as well such as Kedaara
Capital, Bajaj Finance and UCLA Foundation.
 The average age of Board of Directors in the company is 59.5 years.
 Sunil Bharti Mittal has the highest compensation of Rs. 30,13,27,308. As the MD and
CEO of India & South Asia and Exec. Director of Bharti Airtel, the total compensation of
Mr Vittal at Bharti Airtel is ₨ 19,49,58,014.
 A consolidated net loss of Rs 32,183.2 crore for the financial year ended March 31, 2020,
on account of provisions for statutory dues and higher finance costs. Consolidated total
income increased by 8.36 per cent to Rs 87,539 crore in FY20 as compared to Rs
80,780.2 crore in FY19, Sunil Mittal-led telecom company said in a filing to the Bombay
Stock Exchange.

 The board meeting was held 7 times in the year on following dates:

DATES PURPOSE
06-05-2019 Audited Results
01-08-2019 Quarterly Results
29-10-2019 Quarterly Results
14-11-2019 Quarterly Results
04-12-2019 To consider raising of funds
14-01-2020 Others
04-02-2020 Quarterly Results

Shareholders:

Capital Structure - Bharti Airtel Ltd.

Authorized
Period Instrument Capital Issued Capital -PAIDUP-

Capital (Rs.
From To   (Rs. cr) (Rs. cr) Shares (nos) Face Value Cr)

Equity
2019 2020 Share 14778.0 2727.8 5455557355 5.0 2727.8
 Equity
2018 2019 Share 14753.0 1998.7 3997400107 5.0 1998.7

 During the year ended March 31, 2020, 970,668 equity shares of H 5 each were issued to
the shareholders of TTML as per the terms of the scheme of arrangement.
 During the year ended March 31, 2019, 5 equity shares of H 5 each were issued to the
shareholders of Telenor as per the terms of the scheme of amalgamation. The company,
however, did not specify the number of shares it mulls to buy back.
 Bharti Airtel Limited (‘the Company’ or ‘the Parent’) is domiciled and incorporated in
India as a public limited company with its shares listed on the National Stock Exchange
and the BSE
 The highest price at which the shares traded was Rs 447 whereas the lowest price at
which the shares traded was Rs 424. The Book value of the shares is Rs 185.27 per share.
 For the year ending March 2020 Bharti Airtel has declared an equity dividend of 40.00%
amounting to Rs 2 per share
 The Twenty Fourth (24th) Annual General Meeting (AGM) of the members of Bharti
Airtel Limited (the Company), was held on Wednesday, August 14, 2019 at 3.30 P.M.
(IST) at Air Force Auditorium, Subroto Park, New Delhi - 110 010 to transact the
following businesses:
1. To receive, consider and adopt the standalone and consolidated financial statements
of the Company for the financial year ended March 31, 2019 and the reports of the
Board of Directors and of the Auditors thereon
2. Re-appointment of Ms. Chua Sock Koong as a Director liable to retire by rotation
3. Re-appointment of Mr. Vegulaparanan Kasi Viswanathan as an Independent Director
4. Re-appointment of Mr. Dinesh Kumar Mittal as an Independent Director
5. Appointment of Ms. Kimsuka Narasimhan as an Independent Director
6. Waiver of recovery of excess managerial remuneration paid to Mr. Sunil Bharti
Mittal, Chairman for the financial year ended March 31, 2019
7. Waiver of recovery of excess managerial remuneration paid to Mr. Gopal Vittal,
Managing Director & CEO (India and South Asia) for the financial year ended
March 31, 2019
8. Payment of remuneration to Mr. Sunil Bharti Mittal, Chairman for the period April
01, 2019 to September 30, 2021 or for such shorter period as may be prescribed
under applicable laws
9. Payment of remuneration to Mr. Gopal Vittal, Managing Director & CEO (India and
South Asia) for the period April 01, 2019 to March 31, 2022
10. Ratification of remuneration to be paid to Sanjay Gupta & Associates, Cost
Accountants, Cost Auditors of the Company for the FY 2018-19 and FY 2019-20
Auditors:

 The auditor is Deloitte Haskins & Sells LLP, Chartered Accountants.

 The statutory auditor was changed to Deloitte in the year 2018 in order to comply with
the provisions of the Companies Act, 2013 which state the auditors must be changed
every five years.

 Recommendation to Potential Investors:

1. Revenue from operations:-- There is an inherent risk around accuracy of revenue
recorded in respect of Mobile Services, Airtel Business, Digital TV Services and
Tower Infrastructure Service segments because of the complexity of the IT systems
and other support systems, significance of volumes of data processed by the systems
and the impact of changing pricing models (tariff structures, incentive arrangements
and discounts, etc.)
Evaluate the design and tested the operating effectiveness of the general IT controls
and application specific controls within the IT system, including testing of system
generated reports used in audit of revenues by involving our IT specialist. Also tested
the controls within the billing systems, prepaid charging systems, capturing and
recording of revenue, authorization and input of changes to the IT systems and over
reconciliations performed between the active customers base with billing system.
Performed substantive procedures, which included testing the accuracy of customer
invoices and tracing receipts to customer invoices, comparing the number of
links/connections as per the active customer base to the billing system, testing
reconciliations between billing system and the general ledger

2. Determination of additional provision for License fees and Spectrum Usage

Charges along with interest, penalty and interest on penalty pursuant to
Supreme Court judgement on Adjusted Gross Revenue-- tested the
appropriateness of the additional provision for Licenses fees and SUC by (1) Reading
the License Agreements, the Court Judgement, demand orders and the
guidelines/clarifications provided by DoT and comparing them to the assumptions
used in the management’s estimate in determining the provisions for years for which
demands from DoT has been received and (2) Testing that the assumptions and
methodology used in computing the provisions for the years for which demands are
not received is consistent with the methodology adopted

Fixed Assets:
 Total Investment in fixed assets is ₹334991 lakhs. Total assets stand at ₹3607790 lakhs.
Therefore, 9% of total assets is represented by fixed assets.
  Total investment in intangible assets is ₹1417833 as on 31 March 2020. Tangible assets
amounted to ₹1014353 as on 31 March 2020.

 Investment in fixed assets is significantly increased over the years from ₹157813 in 2019
to ₹334991 in 2020. There has been a difference in revenue over the years. Profits in this
year is reduced by 17%. Operating cash flows also follow the same trend. Therefore, it
can be concluded that such reduction in the investment in fixed assets have subsequently
led to decline in profits.
 Depreciation commences when the asset is ready for use. Straight line method is used to
compute the depreciation for all types of assets like PPE, Vehicles and Building.
Freehold Land is not depreciated as it has an unlimited life.
 Depreciation and amortization expense for the Financial Year 2019-20 amounted to
₹276896. The Depreciation expense is 31% of the total revenue for the same year
whereas it was 26% for the Financial Year 2018-19.
 Amortization is computed using the straight-line method over the expected useful life of
intangible assets. Other intangible assets are initially recognised at cost. These assets
having finite useful life are carried at cost less accumulated amortisation and any
impairment losses. Impairment loss in respect of goodwill is not reversed. Other
impairment losses are reversed in the statement of profit and loss and the carrying value
is increased to its revised recoverable amount

Revenues & Income:

 The main sources of revenue and other income is through broadband, mobile phones,
fixed line telephone, satellite television, payment bank, digital television, internet
television and IPTV.
 The proportion of revenue generated from multiple business segments and geographical
regions are as given below:

Mobile Tower
Service Airtel Infrastructur Homes Digital TV
  s Business e Services Services Services Others Total
2018-
  2018-19 2018-19 2018-19 2018-19 2018-19 2018-19 19
Geographical
Markets              
India 394707 82967 31291 22235 40935 867 573002
South Asia 4199 - - - - - 4199
Africa 210333 - - - - - 210333
Others - 20268 - - - - 20268
  609239 103235 31291 22235 40935 867 807802
 Mobile Tower
Service Airtel infrastructur Homes Digital TV
  s Business e Services services Services Others Total
2019-
  2019-20 2019-20 2019-20 2019-20 2019-20 2019-20 20
Geographical
Markets              
India 442956 85448 28625 22287 29201 - 608517
South Asia 4366 - - - - - 4366
Africa 236975 - - - - - 236975
Others - 25532 - - - - 25532
  684297 110980 28625 22287 29201 0 875390

Revenue is recognized when the control of the promised products or services is transferred to the
customer considering that the Group has received or expects to receive those products or
services, net of any taxes / duties, discounts and process waivers in exchange. The interest
income is measured using EIR method and the dividend income is recognized when the
Company’s right to receive the payment is established. Also, the costs to obtain or fulfil a
contract with a customer are deferred and are recognized over the average expected customer
life. The Company has also entered certain multiple element revenue arrangements which
involve the delivery or performance of multiple products, services or rights to use assets.

Inventories:
 Bharti Airtel's advertising inventory includes space on text messages, multi-media
messages, IVR and recharge coupons in mobile services. The default channel, pre-
loading screen and messages from Airtel DTH and broadband also form part of the
inventory.

 The total investment in inventories amounts to ₹20278 lakhs as on 31 March 2020. It has
decreased from last year to the extent of 7%.

 Inventories are stated at the lower of cost (determined using the first-in-first-out method)
and net realizable value. The costs comprise its purchase price and any directly
attributable cost of bringing to its present location and condition. Net realisable value is
the estimated selling price in the ordinary course of business, less the estimated costs of
completion and the estimated variable costs necessary to make the sale
Long Term Borrowings:
 Bharti Airtel long-term borrowings for the year ended 2020 is ₹1154470. The same has
increased by 32% as compared to last year.

 The Group has determined the functional currency of the group entities by identifying the
primary economic environment in which the entity operates - based on under-lying facts /
circumstances. However, in respect of certain intermediary foreign operations of the
Group, the determination of functional currency is not very obvious due to mixed
indicators and the extent of autonomy enjoyed by the foreign operation. In such cases
management uses its judgement to determine the functional currency that most faithfully
represents the economic effects of the underlying transactions, events and conditions.

 Interest coverage ratio is 3.90 for the year ended 31 March 2020. Bharti Airtel stands at a
very good position to service its interest obligations. The interest coverage ratio has
increased from 0.23 to 3.90 as compared to the year ended 31 March 2019.

Others:
 The group’s effective tax rate for the current quarter was 21 per cent.
 The contingent liabilities that the firm has are sales tax, service tax, income tax, GST,
customs, duty, entry note, stamp duty, municipal taxes, entertainment demands,
access/port charges, etc. which accounts to a total of ₹13967 and ₹ 165587 as of March
31, 2020 and March 31, 2019 respectively.
 In addition to the above, the Group’s share of joint ventures and associates contingent
liabilities is ₹49,849 and ₹28,089 as of March 31, 2020 and March 31, 2019
respectively.
 Airtel has discontinued charges for activating international roaming services for both
Postpaid and Prepaid users. Consequently, users will experience uninterrupted services
while travelling internationally
 Income the company got during the year from its investments is 2842
 The company had net gains on net investment hedge which is comparatively lesser than
the previous year.
 Bharti Airtel on Monday posted a consolidated net loss of Rs 32,183.2 crore for the
financial year ended March 31, 2020, on account of provisions for statutory dues and
higher finance costs.
CSR
 Bharti Airtel is required to comply with section 135 of the Companies Act 2013
regarding the CSR spending.
 The Bharti Foundation was set up in the year 2000 as the philanthropic arm of Bharti
Enterprises. It implements and supports programs in primary, secondary, and higher
education as well as sanitation.
 The flagship Satya Bharti School Program, launched in 2006, provides free quality
education to underprivileged children in rural India across six states, with a focus on the
girl child. Since 2013, the Foundation has also been working in partnership with the
government to improve the quality of schooling experience for students in government
schools through the Satya Bharti Quality Support Program. Launched in 2014, Satya
Bharti Abhiyan, the sanitation initiative has been improving sanitation conditions in the
districts of Ludhiana and Amritsar, in the State of Punjab, by providing toilets and
fostering behavioural change in communities.
 In its endeavor to ensure sustainable development, Airtel contributed ₹ 2.15 Mn to Bharti
Foundation, ₹ 300 Mn to Satya Bharti Foundation for establishing Satya Bharti Institute
of Technology and ₹ 16.39 Mn for various other philanthropic initiatives and community
development projects.

Ratio Analysis:
 Current ratio has been increased from 0.35 to 0.58 as compared to the previous financial
year. Bharti Airtel has a current ratio of 0.58 as on 31 March 2020 as compared to 0.35
during the preceding financial year showing the signs of improvement in terms of its
liquidity. However, Bharti Airtel would like to improve its current ratio further so as to
sufficiently able to service its short-term financial obligations.
 The quick ratio, also known as the acid-test ratio is a type of liquidity ratio, which
measures the ability of a company to use its near cash or quick assets to extinguish or
retire its current liabilities immediately. Quick ratio also has increased from 0.35 to 0.58
in the Financial Year 2020, similar to Current ratio. Though it improved from previous
year, it would further like to increase its liquidity. The current ratio as well as the liquid
ration remains similar for Bharti Airtel for the mentioned 2 years because the amount of
inventories is very less in both the years.
 The cash ratio is a liquidity ratio that measures a company's ability to pay off short-term
liabilities with highly liquid assets. The cash ratio of the company has increased from
0.07 as on 31 March 2019 to 0.11 as on 31 March 2020.
  The debt-to-equity ratio is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets. Closely related to
leveraging, the ratio is also known as risk, gearing or leverage. The debt equity ratio of
the company has decreased from the previous year from 1.34 to 1.06.
 Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are
provided via debt. The debt ratio of the company has decreased from the previous year
from 0.57 to 0.51.
 Times interest earned or interest coverage ratio is a measure of a company's ability to
honor its debt payments. The interest coverage ratio of the company has been increased
to a great extent from 0.23 in 2019 to 3.90 in 2020.
 Debtor's Turnover Ratio is an accounting measure used to measure how effective a
company is in extending credit as well as collecting debts. The debtor turnover ratio of
the company has increased from 18.78 in 2019 to 19.01 in 2020.
 Current Assets Turnover Ratio indicates that the current assets are turned over in the form
of sales more number of times. A high current assets turnover ratio indicates the
capability of the organization to achieve maximum sales with the minimum investment
in current assets. The current assets turnover ratio of the company is decreasing from 2.46
in 2019 to 1.14 in 2020. The reason for the same is that addition of current assets has not
created a huge impact in the nest sales of the company. The signifies that the company
has not been effective to generate profits based on its investments on the assets.
 Net profit ratio is a measure of profitability. It is calculated by finding the net profit as a
percentage of the revenue. The net profit ratio of the company in negative in the year
2020 as the company has incurred loss in that Financial Year.
 The return on assets shows the percentage of how profitable a company's assets are in
generating revenue. The return on assets has also been negative for the year 2020,
similarly as Net profit ratio, as the firm has incurred losses for the Financial Year.
 The return on equity is a measure of the profitability of a business in relation to the
equity. The return on equity has also decreased for the company. This shows as a
negative sign regarding Airtel’s growth and reflects inability to generate profits on its
equity.

Please find the calculations and working notes in excel file attached below.

Balance Sheet.xlsx