Fundamental Analysis -Airtel

8/3/2019 Fundamental Analysis -Airtel

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INTRODUCTION

Fundamental analysis is the examination of the underlying forces that affect the well

being of the company, industry groups and companies. As with most analysis the goal is

to develop a forecast of future price movement and profit from it. At the company level,

fundamental analysis may involve examination of financial data, management , business

concept and competition. At the industry level their might be an examination of supply

and demand forces of the products. For the national economy fundamental analysis might

focus on economic data to asses the present and future growth of the economy.

Fundamental analysis is a method of evaluating a security by attempting to

measure its intrinsic value by examining related economy, financial and other qualitativeand quantitative factors. Fundamental analysis attempt to study every thing that can effect

the securities value including macro economic factors and individual specific factors.

Three phase of the fundamental analysis

A. Understanding of the Macro Economic environment and developments

(Economy analysis)

B. Analyzing the prospectus of the industry to which the firm belongs(Industry

analysis)

C. Assessing the projected performance of the company( Companyanalysis)


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ECONOMY ANALYSIS

The purpose of analyze economic condition of the country in fundamental analysis to

asses the general economic situation both within the country and inter nationally.

The economy is like the tide and the various industry groups and individual

companies are like boats. When economy expands most industry groups and companies

benefits and grows. When the economy decline, most sectors and companies usually

suffer. The stock market does not operate in a vacuum it is an integral part of the whole

economy of a country, more so in a free economy that of United States and to some

extent in mixed economy like ours.

To gain an insight into the complexities of stock market. One needs to develop a

sound economic understanding and be able to interpret the impact of important economic

indicators on stock markets.

The following are some important factors which should be taken into account while

doing fundamental analysis:

Economic Growth

Per capita income

Industrial Production

Inflation

Interest Rates

Foreign Exchange Reserves

Budgetary Deficit

Domestic Savings and Investment

Tax Rates

Infrastructure

Political Situation


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INDIAN ECONOMY ANALYSIS

India GDP Growth Rate

India Gross Domestic Product (GDP) expanded 6.10% over the last 4 quarters.

The India Gross Domestic Product is worth 1217 billion dollars or 1.96% of the

world economy, according to the World Bank.

India's diverse economy encompasses traditional village farming, modern

agriculture, handicrafts, a wide range of modern industries, and a multitude of

services. Services are the major source of economic growth, accounting for more

than half of India's output with less than one third of its labor force.

India GDP Growth Rate chart

Year Mar Jun Sep Dec Average GDP

2010 8.6 8.8 8.7

2009 5.80 6.10 8.6 6.5 6.75

2008 8.60 7.80 7.70 5.80 7.48

2007 9.70 9.20 9.00 9.30 9.30


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.

INTERPETATION:-

As we can see that Indias GDP growth is increasing as compared to the last two years

which shows good prospects for investors in future and the investor can get benefits by

investing in Indian company.


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INDUSTRY ANALYSIS

Thepurpose of industry analysis is to review prevailing conditions within specific

industry and its segments. The company's industry obviously influences the outlook for

the company. Even the best stocks can post mediocre returns if they are in an industry

that is struggling.

It is often said that a weak stock in a strong industry is preferable to a strong stock in

a weak industry.

To assess the industry group potential, an investor would want to consider the overall

growth rate, market size, and its importance to economy. While the individual companyis still important, its industry group is likely to exert as much as, or more, influence on

the stock price. When stock move the usually move as groups; there are very few lone

guns out there. An understanding of the industry sector involved, including the maturity

of the sector and any cyclical effects that the overall economies have on it, is also

necessary.

The followings are some important factors which should be considered in

fundamental Analysis

Growth: A growing industry gives room for profitability.

Profitability: Average profitability of the industry should be attractive.

Demand-Supply: the wider demand supply gap, the better is the industrys

fortune in the future

Entry barrier

Competition and Market share:

Technology trends

Government Policy

Capacity Utilization

Bargaining power of buyers


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INDIAN TELECOMMUNICATION INDUSTRY

Indian Telecommunication industry, with about 464.82 million mobile phone

connections (June 2009) , is the third largest telecommunication network in the world

and the second largest in terms of number of wireless connections. For the past decade or

so, telecommunication activities have gained momentum in India. Efforts have been

made from both governmental and non-governmental platforms to enhance the

infrastructure. The idea is to help modern telecommunication technologies to serve all

segments of Indias culturally diverse society, and to transform it into a country of

technologically aware people.

Telecom Industry in India is regulated by 'Telecom Regulatory Authority of India'

(TRAI). It has earned good reputation for transparency and competence.

Two types of players exist in ' Telecom Industry India ' community

State owned companies like - BSNL and MTNL. Private companies like - Reliance Infocomm and Tata

Teleservices, Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea

Cellular, BPL Mobile, Spice Communications etc.

Telecom industry in India has a big market potentiality and is a fast growing sector.

Government of India is eager to reconstitute this telecom industry by enacting effective

policies for more investments from foreign companies, which results in a very

competitive and deregulated market in the world.


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POLICIES OF TELECOM INDUSTRY IN INDIA

Government of India implemented the unified access licensing regime, which

enables basic and cellular mobile service to use any modern technology. In

1997, Telecom Regulatory Authority of India (TRAI) was formed to

facilitate the growth of the telecom sector in India.

MAJOR SERVICES AND MARKET POTENTIALITYOF TELECOM INDUSTRY IN INDIA

Telecommunication sector in India is primarily subdivided into two segments, which are

Fixed Service Provider (FSPs) and

Cellular Services

Telecom industry in India constitutes some essential telecom services like

Telephone

Radio

Television

Internet

Telecom industry in India is specifically emphasizing on latest technologies like

GSM( Global System for Mobile Communications)

CDMA(Code Division Multiple Access)

Fixed Line and WLL (Wireless Local Loop)


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GROWTH OF TELECOM INDUSTRY IN INDIA

Indian telecom industry continued to registersignificant growth in 2008-09.

Indian telecom network,with about 414 million connections in February 2009,is

the third largest in the world, while it is creditedwith the second largest wireless

network in the world.

At the current pace, the target of 500 million connections by 2010 is well within

reach .The Government of India has reiterated its commitment to reach out to the

remote and uncovered areas and to augment the broadband facilities in rural areas.


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Economic Survey 2009-10Growth

Growth of telephones over the years(in million)

March07

March08

March09

Feb.10

Fixed lines 40.23 40.77 39.41 37.73

CDMA 32.67 44.62 68.38 92.14

GSM 69.19 120.47 192.70 283.98

Wireless(CDMA & GSM) 101.86 165.09 261.08 376.12

Gross Total 142.09 205.86 300.49 413.85

Source : Department of Telecommunicationspoint to point

050

100150200250300350400450

31/3/200

7

31/3/200

8

31/3/200

9

31/3/201

0

Fixed line

CDMA

GSM

Wireless(CDMA

&GSMA

Gross Total

INTERPRETATION:-

Graph shows that India telecom industry is growing in CDMA, GSMA and

wireless (CDMA & GSMA) sectors. It shows overall upward trend of growth rate

in these sectors. It will beneficial for investors to invest in telecom industry

because it is growing industry.


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Future prospects are good in this industry.

COMPANY ANALYSIS

The purpose of company analysis to analyze the financial and non-financial aspects of a

company to determine whether to buy, sells, or holds onto the shares of a particular

company

After determining the economic and industry conditions, the company itself is analyzed

to determine its financial health. This is usually done by studying the company's financial

statements. From these statements a number of useful ratios can be calculated. The ratios

fall under five main categories: profitability, price, liquidity, leverage, and efficiency.When performing ratio analysis on a company, the ratios should be compared to other

companies within the same or similar industry to get a feel for what is considered

"normal." These are quantitative factors of company analysis; there are also some

qualitative factors which should be considered also.

Following are some more important aspects about company

Shareholding pattern

Growth

Technology

Expansion Plan

Profitability

Capital History

Marketing Capabilities

Most important its financial statement

So fundamental analysts use different tools and ratios to compare all sorts of

companies no matter what business they are in or what they do.


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FINANCIAL RATIOS

A financial ratio is an expression of the relationship between two selected items from the

income statement or the balance sheet. Ratio analysis helps you to evaluate the weak and

strong points in your financial and managerial performance. Financial ratio analysis is

calculation and comparison of ratio which are derived from the information in a

companys financial statements. The level and historical trends of these ratios can be used

to make inferences about a companys financial condition its operations and

attractiveness as an investment.

1.Balance sheet ratio analysis

Current ratio

Quick ratio

2.Income statement ratio analysis

Gross margin ratio

Net profit margin ratio

3.Management/efficiency ratios

Inventory turnover ratios

Account receivable ratio

4.Overall profitability analysis

Return on assets ratio

Return on investment ratio

5. Market test or valuation ratios

Earning per share


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COMPANY ANALYSIS OF BHARTI AIRTEL

With this, Bharti is now the world's third-largest, single-country mobile operator

and sixth-largest integrated telecom operator.

It also offers fixed line services and broadband services.

It offers its telecom services under the Airtel brand and is headed by Sunil Bharti

Mittal.

The company also provides telephone services and Internet access over DSL in 14

circles.

It also acts as a carrier for national and international long distance communication

services.

The company has a submarine cable landing station at Chennai, which connects

the submarine cable connectingChennai and Singapore.

The businesses at Bharti Airtel have always been structured into three individual

strategic business units (SBU's)

The mobile business provides mobile & fixed wireless services using GSM

technology across 23 telecom circles.

The Airtel Telemedia Services business offers broadband & telephone services

in 95 cities and has recently launched a Direct-to-Home (DTH) service, Airtel

digital TV. The company provides end-to-end data. Enterprise services to the corporate customers through its nationwide fiber optic

backbone, last mile connectivity in fixed-line and mobile circles, VSATs, ISP and

international bandwidth access through the gateways and landing station.

Globally, Bharti Airtel is the 3rd largest in-country mobile operator by subscriber

base, behind China Mobile and China Unicom
http://en.wikipedia.org/wiki/Sunil_Bharti_Mittalhttp://en.wikipedia.org/wiki/Sunil_Bharti_Mittalhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Singaporehttp://en.wikipedia.org/wiki/Sunil_Bharti_Mittalhttp://en.wikipedia.org/wiki/Sunil_Bharti_Mittalhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Singapore


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MARKET SHARE OF DIFFERENT TELECOMINDUSTRIES IN INDIA

In India, the company has a 24.6% share of the wireless services market, followed by

17.7% for Reliance Communications and 17.4% for Vodafone Essar.

24.6

17.7

17.4

40.3

Bharti Airtel

RelianceCommunicationa

Vodafone Essar

Others

Slice 5


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COMPANY ANALYSIS OF BHARTI AIRTEL BY

USING DIFFERENT RATIOS

1. BALANCE SHEET RATIO ANALYSIS

YEAR

RATIOS

March 06 March 07 March 08 March 09 March 10

LIQUIDITYRATIOSCurrent Ratio 0.44 0.47 0.57 0.69 0.72

Quick Ratio 0.45 0.47 0.55 0.65 0.72

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

CURRENT

RATIOS


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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Quick ratios

INTERPRETATION:-

Bharti airtels both current and quick ratios are moving upward means shows increasing

trends. These shows company has good liquidity position and Company is able to pay

day to obligations of company.

2. INCOME STATEMENT RATIO ANALYSIS

YEAR

RATIOS


IncomestatementRatios

Gross profitRatio

23.14 27.47 29.08 29.3327.97

Net profit Ratio 17.80 22.46 23.99 22.58 26.40


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0

5

10

15

20

25

30

35

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Gross Profit

Ratio

0

5

10

15

20

25

30

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Net profit

ratio

INTERPRETATION:-

High income ratio shows company is at good profitability condition. As we see that net

profit ratio in 2009 decline. But this is minor decline. This is due to high inflation rate

and global meltdown. But company did not affected very much.

3. MANAGEMENT/EFFICIENCY RATIOS

YEAR

RATIOS


Management/efficiency


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Ratios

Inventory Ratio 634.52 373.35 453.06 547.83 1307.05

Accountreceivable ratio

12.57 14.31 12.28 12.7815.30

0

200

400

600

800

1000

1200

1400

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Inventory

turnover ratio

02468

1012141618

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Account

receivable artio

INTERPRETATION:-

High inventory turnover ratio and high debtor turnover ration shows the managements

efficiency in using inventory and collecting debts respectively. Bharti airtels both ratios

are high in 2009 as compare to previous years. Company is efficient in using inventory

properly and company able to collecting cash from debtors on time. In this way it shows

good prospectus for investors to invest in this company in future.

4. OVERALL PROFITABILITY ANALYSIS


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YEAR

RATIOS


Overallprofitabilityanalysis

Return on assetRatio

634.52 373.35 453.06 547.831307.05

Return oninvestment ratio

0.72 0.75 1.03 1.000.81

0

200

400

600

800

1000

1200

1400

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Return on

assets ratio

0

0.2

0.4

0.6

0.8

1

1.2

Mra-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Return on

investment

ratio

INTERPRETATION:-


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High return on asset ratio shows that companys overall profitability is goods. Bharti

airtels this ratios is high in 2009 as compare to previous years. So its overall profitability

is good whether its return on inventment ratio has reduced by .03 point. It may be due to

inflation and global meltdown reason.

5. MARKET TEST OR VALUATION RATIOS

YEAR

RATIOS


Market test orvaluation ratio

Earning pershare ratio

10.62 21.27 32.90 40.79 42.82

05

1015202530354045

Mar-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Earning per

share ratio

INTERPRETATION:-

High earning per share is considered good from investors point of view. Bharti airtels

this ratio is increasing year by year. It shows that investors has good prospectus in Bharti

airtel if they will purchase is share.


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CALCULATION OF INTRINSIC VALUE FOR MARCH FY2010

o EXPECTED EPS = 26.52

o EXPECTED PE RATIO= 14.28

o INTRINSIC VALUE FOR MARCH 2010= 26.52*14.28=378.70

Market Price 299.70

Intrinsic value is greater than market price therefore investor are suggested to buy

bharti airtels share at current level on 299.70.


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CONCLUSION

On the basis of this assignments data we can say

that there will be benefit to investors to invest

their money in telecom industry because telecom

industry is growing industry. And Indian

government is also providing various facilities in

the development of telecom industry. In India

BHARTI AIRTEL is growing company. On the basis

of its various ratios like Current ratio, Quick ratio,

Net profit margin ratio, Inventory turnover ratios,

Account receivable ratio, Return on assets ratio,

Return on investment ratio, Earning per share we

can say that company has good profitability

condition, good liquidity position, good market

condition because earning per share is increasing

every year and on the basis of intrinsic value we

can say that investor can take benefit in future by

purchasing bharti airtels share.


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REFRENCES:

WEBSITES:

en.wikipedia.org/wiki/Fundamental_analysiswww.investopedia.com stocks.about.com/od/evaluatingstocks/a/Fundanatools1.htmwww.finpipe.com/equity/fundanl.htmwww.airtel.in/www.bharti.com/www.moneycontrol.com/financials/bhartiairtel/ratios/BA08

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