MAC Project (1)

8/3/2019 MAC Project (1)

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ANALYSIS ON TELECOM

SECTOR

Presented by

11DCP069- Anurag Rana11DCP088- Piyush Bhandari

11dcp098- Sudhanshu Sharma

11dcp099- Swati Bhargava


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Operating Leverage

It is a multiplication of percentagechanges in sales into even larger changes

in profitability measures.


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Relevance of OperatingLeverage Positive Operating Leverage:

When fixed cost has a greater portion in the total coststructure of the firm / company, a small percentageincrease in sales increases a greater percentage in net

operating income. This concept is known as positiveoperating leverage.

Negative Operating Leverage:A negative operating leverage is a situation where fixedcost has a greater portion in the total cost structure ofthe company and there is a decrease in sales. Such asituation has a negative effect on the revenue of the firmresulting in a greater percentage decrease in net

operating income.


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Operating Leverage

Operating leverage measures a firm's fixed versusvariable costs.

The greater proportion of fixed costs, the greater

the operating leverage.


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Analysis of Operating Leverage

Bharti Airtel maintaining consistently lowoperating leverage throughout the years,meaning less dependent on individual sales

Aircel reporting negative operating leveragefor the last 2 years

Vodafone reporting high operating leverage

towards and increasing trend


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Sales

0

5000

10000

15000

20000

25000

30000

35000

40000

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Bharti Airtel

Idea Cellular

Aircel

Vodafone

Mar-11 Mar-10 Mar-09 Mar-08 Mar-07

Bharti Airtel 38015.8 35609.54 34048.32 25761.11 17851.61

Idea Cellular 15332.8 11850.24 9857.08 6719.99 4366.4

Aircel 13308.71 13554.6 15086.66 14792.05 12756.3

Vodafone 3611.77 3218.04 3749.43 3283.3 4041.83


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Analysis

Although Bharti Airtel is the biggest player inthe business it still reports highest boost insales (28.57% annually)

Sales of Reliance communication havedropped despite of it being the second biggestplayer

Sales of Idea Cellular reporting constantgrowth in sales

Tata Comm. Reporting constant sales, minimalgrowth


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The Break Even Point

The break-even point (BEP) is the point atwhich cost or expenses and revenue areequal: there is no net loss or gain, and one has

"broken even". A profit or a loss has not been made,

although opportunity costs have been paid,and capital has received the risk-adjusted,expected return.


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BEP Percentage

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Bharti Airtel

Idea Cellular

Aircel

Vodafone


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Analysis

Bharti Airtel has reducing BEP as apercentage of sales

Aircel has a a highly increasing trend of BEP

(22% increase in 4 years)

Idea cellular sharpest decline in BEP (15% in4 years)

Vodafone has a relatively stagnant BEP overthe years


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Margin of Safety (MOS)

Margin of safety represents the strength of thebusiness. It enables a business to know whatis the exact amount it has gained or lost and

whether they are over or below the break evenpoint.

margin of safety% = (current output -breakeven output)/current output x 100

High BEP -> less Margin of Safety


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Margin of Safety

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Bharti Airtel Idea Cellular Aircel Vodafone

MOS Percentage

Mar-11


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Analysis of MOS of companies

Bharti Airtel has the highest MOS making itsbusiness very strong

Aircel has the lowest MOS making its business

fragile and the high BEP will make costcoverage difficult in tough times

Idea Cellular and Vodafone have relatively

high MOS and relatively same BEP, butconsidering the trend, Idea Cellular has moredecreasing trend over the years


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Thank you

MAC Project (1)

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