Bharti Enterprise Analysis

1. Current Ratio= Total current assets/ Total current liabilitiesAirtel Idea

2006 2007 2008 0.4143 0.4204 0.7382 2.12 1.14 0.6

Increase in current ratio from 2007 to 2008 is due to-short term investment (trading investment 20 lakhs and 4.8 crores) bharti airtel.xlsxBharti Enterprises

2. Quick Ratio or Acid Test Ratio= (Total current assets- InventoryPrepaid expenses)/ Total current liabilitiesAirtel Idea2006 2007 2008 0.2664 0.2723 0.5601 0.3425 0.95 0.285

Increase in quick ratio from 2007 to 2008 is due to short term investment bharti airtel.xlsxBharti Enterprises

3. Super Quick Ratio= (Total current assets- Inventory- Prepaid expensesBills receivable)/ Total current liabilties2006 2007 2008 0.0847 0.1036 0.3781 0.2252 0.8808 0.2092

Airtel Idea

Same as current ratio & super quick ratio bharti airtel.xlsxBharti Enterprises

4. Cash flow from operations Ratio= Cash flow from operations/ Current liabilties2006 2007 2008 0.6196 0.6694 0.3700 1.0627 0.7459 0.9531

Airtel Idea

Decrease in ratio from 2007 to 2008 is due to Increase in short term investment on account of negative cash flow from operations Unbilled receivables have increased. bharti airtel.xlsxBharti Enterprises

5. Debt Equity Ratio= Total liabilties/ Shareholders equity2006 2007 2008 1.3463 1.1842 1.1382 1.2979 1.3828 1.8456

Airtel Idea

Reason for decrease in ratio from 2006 to 2007 is due to Increase in retained earnings bharti airtel.xlsxBharti Enterprises

6. Debt to total Capital Ratio=Long term debt/ Permanent Capital2006 2007 2008 0.2920 0.2499 0.2767 0.5063 0.4785 0.5648

Airtel Idea

bharti airtel.xlsx

Bharti Enterprises

7. Debt to total Assets Ratio= Total debt/ Total Assets2006 2007 2008 0.5712 0.5389 0.5226 0.5648 0.5803 0.6455

Airtel Idea

bharti airtel.xlsx

Bharti Enterprises

8. Proprietory Ratio= 100 x Proprietors fund/ Total Assets(In %)

Airtel Idea

2006 42.43 43.51

2007 45.50 41.96

2008 45.92 34.94

Bharti Enterprises

Increase in proprietory ratio from 2006 to 2007 is due to the increase in retained earning by more than 200% in 2007 while Total assets increased by just 38% bharti airtel.xlsx

9. Interest Coverage Ratio= EBIT/ Interest2006 9.29 1.94 2007 16.19 2.86 2008 18.86 3.45

Airtel Idea

Increase in coverage ratio from 2006 to 2007 is due to increase in EBIT by 81% while interest expense was almost constant From 2007 to 2008 is due to increase in EBIT by 55% and interest expense increased by 33% bharti airtel.xlsx Bharti Enterprises

10. Gross Profit margin= Gross profit/ Sales

Airtel Ideabharti airtel.xlsx

2006 2007 2008 0.4022 0.4204 0.4331 0.5021 0.4817 0.4799

Bharti Enterprises

11. Operating Profit Ratio= EBIT/ Net Sales2006 2007 2008 0.2365 0.2661 0.2829 0.2308 0.2112 0.2254

Airtel Idea

Increase in operating profit ratio is due to-Year on Year increase in EBIT was more than Net Sales bharti airtel.xlsx

Bharti Enterprises

12. Pre-tax Profit Ratio= EBT/ Net Sales2006 2007 2008 0.2110 0.2497 0.2679 0.1120 0.1375 0.1602

Airtel Idea

Increase in pre-tax profit ratio is due toYear on Year increase in EBT was more than Net Sales bharti airtel.xlsxBharti Enterprises

13. Net Profit Ratio= Net Profit (PAT)/ Net Sales2006 2007 2008 0.1941 0.2298 0.2479 0.0622 0.1144 0.1550

Airtel Idea

bharti airtel.xlsx

Bharti Enterprises

14. Returns on Assets (ROA)= 100 x (Net Profit after Tax+ Interest)/ Average total Assets2006 2007 2008 11.74% 15.31% 15.03% 5.55% 7.47% 10.47%

Airtel Idea

Increase in ROA in 2007 is on account of increase in Net profit by 91% whereas assets increased by 36% bharti airtel.xlsxBharti Enterprises

15. Return on Capital Employed= EBIT/ Average total Capital employed2006 2007 2008 0.1271 0.1665 0.1647 0.0709 0.0836 0.1075

Airtel Idea

Increase in 2007 ROCE is due to increase in EBIT by approximately 90% whereas Total capital employed increased by approximately 50% only bharti airtel.xlsxBharti Enterprises

16. Equity Multiplier= Total Assets/ Total Shareholders Equity2006 2007 2008 2.3567 2.1976 2.1776 2.2979 2.3831 2.8589

Airtel Idea

Decrease in Equity multiplier in 2007 is due to increase in total assets by 36% and increase in shareholders equity by 46%.Bharti Enterprises

17. Return on Equity= PAT/ Total Shareholders Equity2006 2007 2008 0.2448 0.3140 0.3087 0.0442 0.1084 0.2108

Airtel Idea

Increase in ROE in 2007 is due to 91% increase in PAT while shareholders equity has increased by 46% bharti airtel.xlsxBharti Enterprises

18. Asset Turnover Ratio= COGS/ Average Total Assets2006 2007 2008 0.3198 0.3603 0.3241 0.1546 0.2070 0.2481

Airtel Idea

COGS has increased in 2007 at a greater rate as compared to Total assets. bharti airtel.xlsx

Bharti Enterprises

19. Fixed Assets Turnover Ratio = COGS/ Average Fixed Assets

Airtel Ideabharti airtel.xlsx

2006 2007 2008 0.3756 0.4242 0.4269 0.2064 0.2667 0.2492

Bharti Enterprises

20. Capital Turnover Ratio= COGS/ Average Capital Employed

Airtel Ideabharti airtel.xlsx

2006 2007 2008 0.3212 0.3625 0.3301 0.1546 0.2070 0.2492

Bharti Enterprises

20. Inventory Turnover Ratio= COGS/ Average Inventory

2006

2007

2008

Airtel Ideabharti airtel.xlsx

150.00 165.96 149.15 90.67 170.94 154.30

Bharti Enterprises

Du Pont AnalysisThe return on investment (ROI) ratio is used to evaluate how effectively assets are used. It measures the combined effects of profit margins and asset turnover. ROI = NET INCOME = NET INCOME * SALES . TOTAL ASSETS SALES TOTAL ASSETS(PROFIT MARGIN) (ASSET TURNOVER)

The return on equity (ROE) ratio is a measure of the rate of return to stockholders. Decomposing the ROE into various factors influencing company performance is often called the Du Pont systemROE = NET INCOME = NET INCOME * SALES * TOTAL ASSETS EQUITY SALES TOTAL ASSETS EQUITY(Profit margin) (Asset Turnover) (Equity Multiplier)

Bharti Enterprises

Bharti AirtelROI ROE Profit Margin Asset Turnover Equity Multiplier

2005-06 2006-072007-08

0.0258 0.04320.0599

0.0608 0.08940.1304

0.1941 0.22980.2479

0.1331 0.18840.2415

2.3567 2.06482.1776

Idea CellularROI 2005-06 2006-07 0.0273 0.0532 ROE 0.0437 0.0980 Profit Margin 0.062 0.104 Asset Turnover 0.440 0.512 Equity Multiplier 1.601 1.850

2007-08

0.0085

0.0208

0.155

0.550

2.450

Bharti Enterprises

Bharti Airtel3

Idea Cellular2.5

2.5

2

2 Equity Multiplier

Asset Turnover 1.5 1.5 ROE

Profit Margin

1

1

0.5

0.5

0 2006 2007 2008

0 2006 2007 2008

Bharti Enterprises

Cost of Equity Pitabas MohantyKe = rf + b*(rm rf) Risk free interest, rf = 5.35 % rm - rf = 9.7 % beta, b = 0.84 Ke = 13.45 %Bharti Enterprises

Cost of Equity SensexKe = rf + b*(rm rf) Risk free interest, rf = 5.35 % rm - rf = 29.33% - 5.35% beta, b = 0.84 Ke = 25.49 %Bharti Enterprises

Cost of Debt, KdKd = I (1-t) = 6.79 * ( 1 - 0.11) = 6.04 %

Bharti Enterprises

Cost of CapitalKc = Ke*We + Kd*Wd + Kp*Wp + Kr*Wr = Ke* (We + Wr) + Kd*Wd( since, Wp = 0; Ke = Kr)

= 25.49 * 0.651 + 6.04 * 0.349 = 18.70 %

Bharti Enterprises

LeverageFixed operational costs: Selling, general and administrative costs

Variable operational costs: Cost of services Cost of equipment sales

Bharti Enterprises

Degree of Operating Leverage (DOL)2006 Sales (A) Variable cost (B) Contribution (A-B) 116,215,453 69,463,840 46,751,613 2007 185,195,992 107,332,254 77,863,738 2008 270,249,348 153,211,986 117,037,362

Fixed Costs (C)EBIT (A-B-C)

19,145,88427,605,729

28,564,08649,299,652 1.58

40,581,85676,455,506 1.53

DOL 1.69 =Contribution/EBIT

Bharti Enterprises

Degree of Financial Leverage (DFL)Amount in Rupees EBIT Interest 2006 27,605,729 2,958,039 2007 49,299,652 3,044,252 2008 76,455,506 4,053,699

EBIT-Interest

24,647,690

46,255,4001.06

72,401,8071.06

DFL=EBIT/(EBIT 1.12 -Interest)

Bharti Enterprises

Degree of Complete Leverage (DCL) DCL=DOL * DFL

2006 DCL 1.89

2007 1.67

2008 1.62

Bharti Enterprises

Projections: 2009-2013Assumptions: Considering the nature of the industry, sales growth had been tapered off for the projections There are two cash outlays during the years 2008 and 2011

Bharti Enterprises