risk return anaysis of telecom companies

7/27/2019 risk return anaysis of telecom companies

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A STUDY ON RISK RETURN ANALYSIS OF SELECTED TELECOM

COMPANIES AT HEDGE EQUITIES PVT. LTD., ERNAKULAM

SUMMER PLACEMENT REPORT

Submitted to

MAHATMA GANDHI UNIVERSITY, KOTTAYAM

In partial fulfillment of the requirement for the award of the

MASTERS DEGREE IN BUSINESS ADMINISTRATION

(2011-2013)

BY

AKASH V

Registration No: 36095

RAJAGIRI SCHOOL OF SOCIAL SCIENCES

RAJAGIRI P.O

KOCHI-683104


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DECLARATION

I, Akash V, Student of Rajagiri College of Social Sciences, Kochi, hereby

declare that this project report titled A study on risk return analysis of selected

telecom companies at Hedge Equities Pvt. Ltd., Ernakulamis an original work

carried out by me for the partial fulfilment of the requirement for the award of

Masters of Business Administration degree of Mahatma Gandhi University,

Kottayam.

I also declare that this project is original and has not been previously submitted

for the award of any degree, diploma or any other similar title of Mahatma

Gandhi University or any other University or Institute.

Date:Place: Akash


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ACKNOWLEDGEMENT

I wish to express my sincere gratitude to the management and staff of the

RAJAGIRI COLLEGE OF SOCIAL SCIENCES for providing me a wonderful

opportunity to gain practical knowledge by including this project as a part of

MBA curriculum.

I wish to thank Dr. Minimol.M.Cfor helping me by correcting and assisting in

completing the project successfully.

Also reserved on priority are my special wishes and gratefulness to management

and staff of Hedge Equities Ltd, Ernakulamfor permitting and assisting me in

the project. I would like to thank Mr. Benil Dani Alexander of Hedge Equities

Ltd, Ernakulam, without his guidance this project would not have been possible.


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SECTION I


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PROFILE OF ORGANI SATION


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Executive Summary

Imagine being a part of an industry that has grown over twenty times in just ten years. The

Telecom Industry of India has grown from under 37 million subscribers in the year 2001 to

over 846 million subscribers in the year 2011.

This portentous growth of the Indian Telecom sector in the past ten years has opened up

numerous opportunities, with only traces of these being felt by rural India. The total telecom

density of the country is about 71%, but only 33% of the rural India, which occupies over

70% of the countrys population, has realized the access and benefits of the industry.

The beginning of the Indian Telecom Industry can be marked with the introduction of the

Posts and Telegraphs Department in the year 1851. Real liberalization of the Telecom

Industry started in the year 1981, when the then Prime Minister of India Indira Gandhi, joined

hands with authorities in France to merge with the state owned telecom company, in an effort

to set up five million lines per year in the country. The first mobile telephone service started

on a non-commercial basis in Delhi in the year 1985 however, the idea of mobile

communication did not take-off until the first National Telecom Policy (NTP), which was

released in the year 1994. A New National Telecom Policy was implemented in the year 2011

and licenses for a new fourth generation (4G) spectrum are expected to be rolled by out by

the year 2013. A detailed telecom timeline is illustrated in the report.

The industry has been profitable and the revenue has never been better. The total revenue of

the Telecom Services Sector went up from US$ 31,597 million ( 157,985 crore) in 2009-10

to US$ 34,344 million ( 171,719 crore) in 2010-11, indicating a growth of 8.69%. The

revenue contribution from the public sector telecom companies in the year 2010-11 was

20.37% and 79.66% from private sector companies. The sector is expected to witness up to

US$ 55.95 billion in investments and the market will cross the US$ 100 billion revenue mark

in the next 5 years.

The Supply Chain of the Telecom Industry in India is fairly linear, with telecom operators

defining the quality, type of services and price. The flow of orders in the Supply Chain is

bottom/top - coming from the customers and going through the operators, whereas, the flow

of services is top/bottom - coming through operators and going to the customers. Apart from

the telecom operators, the other key players in the industry are tower providers, equipment


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distributors, telecom operators, and retailers. A comprehensive Supply Chain analysis of the

Industry has been detailed in this report.

The wireline segment of the industry has a high level of concentration, with BSNL

accounting for over 72% of revenue. On the other hand, the industry concentration in the

wireless segment is medium, with the top four companies in the segment sharing 68% of the

revenue.

India is a diverse nation; while some parts of the country are competing with the world, other

parts are struggling to make ends meet. A reflection of this diversity can be seen in the

telecom segmentation of the nation. States such as Punjab and Tamil Nadu are leveraging

with a tele-density of over 80% whereas; states such as Chhattisgarh Jharkhand and some

parts of North East India are perverted with a tele-density of less than 8%. This report

provides a state-wise breakdown of the Geographical Segmentation of Telecom Industry of

India.

The report provides an analysis of the competition and the market share of the telecom

operators. In a nutshell, the competition in the industry is moderate and the trend is

increasing. The wireless segment has a healthy mix of competition, with players such as

Bharti (Airtel), Reliance, Vodafone and Idea occupying almost an equal share of the pie and

BNSL continuing to dominate the wireline market. Rural competition mirrors the overall

segment, with Bharti leading the rural wireless segment and BSNL dominating the wireline

market.

The telecom sector is going through the growth stage of its life cycle, with penetration in the

rural areas being one of the major areas of opportunity for the next five years. Until March

2006, the rural tele-density of the Indian telecom sector was just 1.86% which has increased

to 33.79% in March 2011. In the next five years, all the major telecom operators will be

focusing on leveraging the opportunities that lie thereabouts.

Barriers to Entry in the telecom industry are high and steady and the level of tax burden is

medium and stable. There is also a considerable amount of assistance provided to the industry

and the trend has been increasing. The industry is highly regulated and the recent spectrum

scam has only lead to an increased scrutiny. The Cost Structure analysis identifies high profit

margins and major costs such as depreciation and network operations expense incurred by theoperators. This further justifies the high Capital Intensity of the telecom industry. The report


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provides us an analysis on such factors which gives us an insight into the conditions of the

telecom industry of India.

The real question to ask is; has the Telecom Industry of India realised its complete potential?

If it has not, then what is to unfold will not only change the great nation but also the world we

live in.


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1.1 INDUSTRY PROFILE

A financial market is a market in which people and entities can trade financial securities,

commodities, and otherfungible items of value at low transaction costs and at prices that

reflect supply and demand. Securities include stocks and bonds, and commodities include

precious metals or agricultural goods.

There are both general markets (where many commodities are traded) and specialized

markets (where only one commodity is traded). Financial markets facilitate:

The raising ofcapital (in the capital markets)

The transfer ofrisk(in the derivatives markets)

Price discovery

Global transactions with integration of financial markets

The transfer ofliquidity (in the money markets)

International trade (in the currency markets

Capital market

Capital market consists of primary market and secondary market . In primary market newly

issued stocks are exchanged and in secondary market buying and selling of already existing

bonds and stocks takes place.So ,the capital market can be divided into bond market and

stock market.Bond market provides financing by bond issuance and bond trading.Stock

market provides financing by shares or stock issuance and by share trading.As a

whole,capital market facilitates raising of capital.

Money market

Money market facilitates short term debt financing and capital. The money market is a

subsection of the fixed income market. Money market securities are essentially IOUs issued

by governments, financial institutions and large corporations. These instruments are very

liquid and considered extraordinarily safe. Because they are extremely conservative, money

market securities offer significantly lower returns than most other securities.

One of the main differences between the money market and the stock market is that most

money market securities trade in very high denominations. This limits access for the
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individual investor. Furthermore, the money market is a dealer market, which means that

firms buy and sell securities in their own accounts, at their own risk. Compare this to the

stock market where a broker receives commission to acts as an agent, while the investor takes

the risk of holding the stock. Another characteristic of a dealer market is the lack of a central

trading floor orexchange. Deals are transacted over the phone or through electronic systems.

Derivatives market

Derivatives market provides instruments which help in controlling financial risk. The

derivative itself is merely a contract between two or more parties. Its value is determined by

fluctuations in the underlying asset. The most common underlying assets include stocks,

bonds, commodities, currencies, interest rates and market indexes. Most derivatives are

characterized by high leverage.

The first leap towards an organized derivatives market came in 1848, when the Chicago

Board of trade, the largest derivative exchange in the world, was established.

Derivatives markets broadly can be classified into two categories, those that are traded on the

exchange and the those traded one to one or 'over the counter'. They are hence known as:

Exchange Traded Derivatives

OTC Derivatives (Over The Counter)

OTC Equity Derivatives

The term "Derivative" indicates that it has no independent value, i.e. its value is entirely

"derived" from the value of the underlying asset.

The underlying asset can be securities, commodities, bullion, currency, live stock or anything

else. In other words, Derivative means a forward, future, option or any other hybrid contract

of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of

a specified real or financial asset or to an index of securities.
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Foreign exchange market

Foreign exchange market facilitates the foreign exchange trading. The foreign exchange

market (forex, FX, or currency market) is a form ofexchange for the global decentralized

trading of international currencies. Financial centers around the world function as anchors of

trading between a wide range of different types of buyers and sellers around the clock, with

the exception of weekends

In a typical foreign exchange transaction, a party purchases a quantity of one currency by

paying a quantity of another currency. The modern foreign exchange market began forming

during the 1970s after three decades of government restrictions on foreign exchange

transactions (the Bretton Woods system of monetary management established the rules forcommercial and financial relations among the world's major industrial states after World War

II), when countries gradually switched to floating exchange rates from the previous exchange

rate regime, which remained fixed as per the Bretton Woods system.

Insurance market

Insurance market helps in relocation of various risk. Insurance is a form ofrisk

managementprimarily used to hedge against the riskof a contingent, uncertain loss.

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another,

in exchange for payment. An insurer is a company selling the insurance; the insured, or

policyholder, is the person or entity buying the insurance policy. The amount to be charged

for a certain amount of insurance coverage is called the premium. Risk management, the

practice ofappraising and controlling risk, has evolved as a discrete field of study and

practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss

in the form of payment to the insurer in exchange for the insurer's promise to compensate

(indemnify) the insured in the case of a financial (personal) loss. The insured receives

a contract, called the insurance policy, which details the conditions and circumstances under

which the insured will be financially compensated.
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Commodity market

Commodity market organizes trading of commodities. Commodity markets are markets

where raw or primary products are exchanged. These raw commodities are traded on

regulated commodities exchanges, in which they are bought and sold in

standardized contracts.

The trading of commodities consists of direct physical trading and derivatives trading.

Exchange traded commodities have seen an upturn in the volume of trading since the start of

the decade. This was largely a result of the growing attraction of commodities as an asset

class and a proliferation of investment options which has made it easier to access this market.

Commodity trading

Spot trading is any transaction where delivery either takes place immediately, or with a

minimum lag between the trade and delivery due to technical constraints. Spot trading

normally involves visual inspection of the commodity or a sample of the commodity, and is

carried out in markets such as wholesale markets. Commodity markets, on the other hand,

require the existence of agreed standards so that trades can be made without visual

inspection.

Forward market

A forward contract is an agreement between two parties to exchange at some fixed future

date a given quantity of a commodity for a price defined today. The fixed price today is

known as theforward price. Early on these forward contracts were used as a way of getting

products from producer to the consumer. These typically were only for food and agricultural

products.

Futures contracts

Futures contract has the same general features as a forward contract but is standardized and

transacted through a futures exchange. Although more complex today, early forward

contracts for example, were used for rice in seventeenth century Japan. Modern forward, or

futures agreements, began in Chicago in the 1840s, with the appearance of the railroads.

Chicago, being centrally located, emerged as the hub between Midwestern farmers and

producers and the east coast consumer population centers.
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Hedging

Hedging, a common practice of farming cooperatives, insures against a poor harvest by

purchasing futures contracts in the same commodity. If the cooperative has significantly less

of its product to sell due to weather or insects, it makes up for that loss with a profit on themarkets, since the overall supply of the crop is short everywhere that suffered the same

conditions.

Delivery and condition guarantees

In addition, delivery day, method of settlement and delivery point must all be specified.

Typically, trading must end two (or more) business days prior to the delivery day, so that the

routing of the shipment can be finalized via ship or rail, and payment can be settled when the

contract arrives at any delivery point.

Stock exchange market

A stock exchange is a form ofexchange which provides services forstock

brokers and traders to trade stocks, bonds, and othersecurities. Stock exchanges also provide

facilities for issue and redemption of securities and other financial instruments, and capital

events including the payment of income and dividends. Securities traded on a stock exchange

include shares issued by companies, unit trusts, derivatives, pooled investment products

and bonds.

History of stock market

It has been suggested by Braudal about the History of Stock Market that during the 11th

century in Cairo, the Jewish and Muslim merchants already had the notion of trade

association and had setup all the methods of credit as well as payments. This claim though

destroys the calls that the History of Stock Market originates with Italy. If we fall back upon

the 12th century France it can be seen that the courtier change was worried about handling

and regulating the debts on the banks behalf of the agricultural professions. As these men

use to deal with debts they can also be called as originators of brokerage business in the

History of Stock Market. During the end of 13th century traders of Bruges commodity

accumulated inside the house of a native named Van der Beurse. During the early 14 th

century they came to be known as the Brugse Beurse. These people institutionalized their

gatherings, which were known to be an informal meeting until then. This concept did spread
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at a rapid pace around the European nations and neighbouring countries. In the countries like

Amsterdam and Ghent its branches known as Beurzen opened.

During the middle of 13th century the bankers of Venice started trading in government

securities. At this very time the government of Venice outlawed airing bruits which were

intentionally used to lessen the price of governmental funds. The bankers from Florence,

Verona, Genova during the 14th century also started trading with government securities. It

were the Dutchs in the History of Stock Market who inaugurated the concept of joint stock

exchanges which led the people to buy shares and become share holders and invest money in

various businesses and get their part of profit and loss. The Dutch East India Company in the

year 1602 brought out first shares on the Stock Exchange of Amsterdam and it was also the

first Stock Exchange to bring out bonds and shares in the history of Stock Market. The Stock

Exchange of Amsterdam is also known to be the first stock exchange in the History of Stock

Market to inaugurate continuous trade during the early part of 17th century. There are Stock

Markets in virtually every part of the world at this moment. Some of the important stock

markets are located in United States, United Kingdom, India, China etc.

Major stock exchanges in various countries over the world are as follows:

o American Stock Exchange

o Australian Stock Exchange

o Colombo Stock Exchange

o Chicago Stock Exchange

o Dhaka Stock Exchange

o Hong Kong Stock Exchange

o

Jakarta Stock Exchangeo Jamaica Stock Exchange

o Kuwait Stock Exchange

o London Stock Exchange

o Nigerian Stock Exchange

o New York Stock Exchange

o Philippines Stock Exchange

o Singapore Stock Exchange

o

The National Stock Exchange ofIndia

o Toronto Stock Exchange


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1.1.1 Indian Stock ExchangesAn Umbrella Growth

Stock Exchange means anybody of individuals whether incorporated or not, consolidated for

the purpose of assisting, regulating and controlling the business of buying, selling and dealing

in securities. It is a market where stocks, shares and other securities are bought and sold and

also to provide avenue for disposal of securities when the owners feel like. It is an essential

component of the economy and indispensable for the proper functioning of corporate

enterprises.

In general, the financial market is divided into two parts, Money Market and Capital Market.

Securities market is an important, organised capital market where transaction of capital is

facilitated by means of direct financing using securities as a commodity. Securities market

can be divided into primary market and secondary market.

The working of stock exchanges in India started in 1875. BSE is the oldest stock market in

India. The history of Indian stock trading starts with 318 persons taking membership in

Native Share and Stock Brokers Association, which we now know by the name Bombay

Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the

Government of India. National Stock Exchange comes second to BSE in terms of popularity.

BSE and NSE represent themselves as synonyms of Indian Stock Market. The history of

Indian Stock Market is almost the same as the history of BSE.

The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled

based on the performance of the stocks of 30 financially sound benchmark companies. In

1990 the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000

figures in 1992.

The up-boat mood of the market was suddenly lost with Harshad Mehta scam. It came to

public knowledge that Mr. Mehta, also known as the big bull of Indian stock market diverted

huge funds from banks through fraudulent means. He played with 270 million shares of about

90 companies. Millions of small scale investors became victims to the fraud as the Sensex fell

flat shedding 570 points.


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To prevent such fraud the Government formed The Securities and Exchange Board of India,

through an act in 1992. SEBI is the statutory body that controls and regulates the functioning

of stock exchanges, brokers, sub-brokers, portfolio managers, investment advisors etc. SEBI

oblige several rigid measures to protect the interest of investors. Now with the inception of

online trading and daily settlements the chances for a fraud is nil, says top officials of SEBI.

Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was

crossed in June and the 8000 mark in September 8 in 2005. Many Foreign Institutional

Investors (FII) are investing in Indian stock markets on a very large scale. The liberal

economic policies pursued by successive Governments attracted Foreign Institutional

Investors to a large scale. Experts now believe that the Sensex can soar past 20000 marks

very soon.

The unpredictable behaviour of the market gave it a tag a volatile market. The factors that

affected the market in the past were good monsoon, Bharatiya Janatha Partys rise to power

etc. The result of a cricket match between India and Pakistan also affected the movements in

Indian stock markets. The National Democratic Alliance led by BJP, during 2004 public

elections unsuccessfully tried to ride on the market sentiments to power. NDA was voted out

of power and the Sensex recorded the biggest fall in a day amidst fears that the Congress-

Communist coalition would stall economic reforms. Later Prime Minister Man Mohan

Singhs assurance of reforms with a human face cast off the fears and market reacted sharply

to touch the mark of 8500.

India, after United States hosts the largest number of listed companies. Global investors now

ardently seek India as their preferred location for investment. Once viewed with scepticism,

stock market now appeals to middle class Indians also. Many Indian working in foreign

countries now divert their savings to stocks. This recent phenomenon is the result of opening

up of online trading and diminished interest rates from banks. The stock brokers based in

India are opening offices in different countries mainly to cater the needs of Non Resident

Indians. The time factor also works for the NRIs. They can buy or sell stocks online after

returning from their work places.

The bullish run of the stock market can be associated with a steady growth of around 6% in

GDP, the growth of Indian companies to MNCs, large potential of growth in the fields of

telecommunication, mass media, education, tourism and IT sectors backed by economicreforms ensure that Indian stock market continues its bull run.


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Primary Market

The primary market is that part of the capital market that deals with the issue of new

securities. Companies, governments or public sector institutions can obtain funding through

the sale of a new stock or bond issue. This is typically done through a syndicate of securities

dealers. The process of selling new issue to investors is called underwriting. In the case of a

new stock issue, this sale is an Initial Public offering (IPO). Dealers earn a commission that is

built into the price of the security offering, though it can be found in the prospectus. Primary

market creates long term instruments through which corporate entities borrow from capital

market.

Features of primary market:

This is the market for new long term equity capital. This primary market is the market

where the securities are sold for the first time. Therefore it is also called the new issue

market (NIM)

In a primary issue, the securities are issued by the company directly to investors.

The company receives the money and issue new security certificates to investors.

Primary issue are used by companies for the purpose of setting up new business or for

expanding or modernising the existing business.

The primary market performs the crucial function of facilitating capital formation in

the economy.

The new issue market does not include certain other sources of new long term

external finance, such as loan from financial institutions. Borrowers in the new issue

market may be raising capital for converting private capital into public capital; this is

known as gong public.

The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are:

Initial public offering

Right issue ( for existing companies)

Preferential Issue

Secondary Market


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The secondary market is an ongoing market, which is equipped and organised with a place,

facilities and other resources required for trading securities after their initial offering. It refers

to a specific place where securities transaction among many and unspecified persons is

carried out through intermediation of the securities firms, i.e. a licensed broker, the

exchanges, a specified traditional organisation in accordance with the rules and regulations

established by the exchanges.

With regard to the history of stock exchanges, they say it was under a tree when it was started

back in the year 1875. Bombay Stock Exchange (BSE) was the major exchanges in India till

1994. National Stock Exchange (NSE) started operations in 1994. NSE was floated by major

banks and financial institutions. It same as a result of Harshad Mehta scam of 1992. Contrary

to popular belief the scam was more of a banking scam than a stock market scam.

The old methods of trading in BSE were people assembling on what was called a ring in the

BSE building. They had a unique language to communicate apart from all the shouting.

Investors were not allowed access and the system was opaque and misused by brokers. The

shares were in physical form and prone to duplication and fraud.

NSE was the first stock exchange to introduce screen based trading. BSE was forced to

follow suit. The present day trading platform is transparent and gives investors prices on a

real time basis. With the introduction of depository and mandatory dematerialisation of

shares chances of fraud reduced further. The trading screen gives top 3 buy and sell quotes on

every scrip. A typical trading day starts at 10 and ends at 3:30 during week days. BSE has 30

stocks which makes the Sensex. NSE has 50 stocks in its index called Nifty. FIIs, banks,

financial institutions and mutual funds are biggest players in the market. Then there are the

retail investors and speculators. The last ones are the ones who follow the market from

morning till evening. Market can be very addictive like blogging through stakes are higher in

the former.

1.1.2 Origin of Indian Stock Market

The origin of stock market in India goes back to the eighteenth century when long term

negotiable securities were first issued. However for all practical purposes, the real beginning


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occurred in the middle of nineteenth century after the enactment of the Companies Act in

1850, which introduced the features of limited liability and generated investor interest in

corporate securities.

An important early event in the development of stock markets in India was the formation of

the Native Share and Stock Brokers Association at Bombay in 1875, the precursor of the

present day Bombay Stock Exchange. This was followed by the formation of

associations/exchanges in Ahmedabad (1894), Calcutta (1908) and Madras (1937). In

addition, a large number of ephemeral exchanges merged mainly in buoyant periods to recede

into oblivion during depressing times subsequently.

Stock exchanges are intricacy inter-woven in the fabric of a nations economic life. Without a

stock exchange, the saving of the community the sinews of economic progress and

productive efficiency would remain underutilised. The task of mobilisation and allocation of

savings could be attempted in the old days by a much less specialised institution than the

stock exchanges. But as business and industry expanded and the economy assumed more

complex nature, the need for permanent finance arose. Entrepreneurs needed money for

long term whereas investors demanded liquiditythe facility to convert their investment into

cash at any given time. The answer was a ready market for investments and this was how the

stock exchanges came into being.

Stock exchange means any body of individuals, whether incorporated or not, constituted for

the purpose of regulating or controlling the business of buying, selling or dealing in

securities. These securities include:

a. Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like

nature in or of any incorporated company or other body corporate;

b.

Government securities; and

c. Rights or interest in securities

The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two

primary exchanges in India. In addition there are 22 Regional Stock Exchanges. However the

BSE and NSE have established themselves as the two leading exchanges and account for

about 80 percent of the equity volume traded in India. The NSE and BSE are equal in size in

terms of daily traded volume. The average daily turnover at the exchanges has increased form

Rs. 851 crore in 1997-98 and further to Rs. 2273 crore in 1990-2000 (April August 1999).


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NSE has around 1500 shares listed with a total market capitalization of around Rs. 9, 21,500

crore.

The BSE has over 6000 stock listed and has a market capitalization of around Rs. 9, 68,000

crore. Most key stocks are traded on both the stock exchanges and hence the investor could

buy them on either exchange. Both exchanges have a different settlement cycle, which allows

investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex

comprising 30 stocks. NSE has the S&P NSE 50 index (Nifty) which consists of fifty stocks.

The BSE Sensex is the older and more widely followed index.

Both these indices are calculated on the basis of market capitalization and contain the heavily

traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the

exchanges have switched over from the open outcry trading system to a fully automated

computerised mode of trading known as BOLT (BSE Online Trading) and NEAT ( National

Exchange Automated Trading) system.

It facilitates more efficient processing, automatic order matching, faster execution of trades

and transparency; the scrips traded on BSE have been classified into A, B1, B2, C, F

and Z groups. The A share represents those, which are in the carried forward system

(Badla). The F group represents the debt market (fixed income securities) segment. The Zgroup scrips are the blacklisted companies. The C group covers the odd lot securities in A,

B1 & B2 groups and rights renunciations. The key regulator governing Stock Exchanges,

Brokers, Depository participants, Mutual Funds, FIIs and other participants in Indian

secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.

1.1.3 Brief History of Stock Exchanges

The worlds foremost marketplace, New York Stock Exchange (NYSE), started its trading

under a tree ( now known as 68 Wall Street) over 200 years ago. Similarly, Indias premier

stock exchange Bombay stock Exchange (BSE) can also trace back its origin to as far as 125

years when it started as a voluntary non-profit making association.

News on the stock market appears in different media every day. We hear about it every time

it reaches a new high or new low, and we also hear about it daily in statem ents like The BSE

sensitive Index rose 5% today. Obviously, stocks and stock markets are important. Stocks of

public limited companies are bought and sold at a stock exchange. But what really are stockexchanges? Known also as the stock market or bourse, a stock exchange is an organised


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market place for securities (like stock, bonds, options) featured by the centralization of

supply and demand for the transaction of orders by member brokers, for institutional and

individual investors.

The exchange makes buying and selling easy. For example, we do not have to really go to an

exchange, say, BSE we can contact a broker, who does business with the BSE, and he or

she will buy or sell his stock on our behalf.

Trading Pattern of the Indian Stock Market

Trading in Indian Stock Exchange is limited is limited to listed securities of public limited

companies. They are basically developed into two categories namely, specified securities

(forward list) and non specified securities (cash list). Equity shares of dividend paying,growth oriented companies with a paid up capital of at least Rs. 50 million and market

capitalization of at least Rs. 100 million and having more than 20,000 shares are normally put

in the specified group and balance in non-specified group.

Two types of transactions can be carried out on the Indian Stock Exchanges

Spot delivery Transaction

For delivery and payment within the time or on the date stipulated when entering into the

contract which shall not be more than 14 days following the date of the contract.

Forward Transaction

Delivery and payment can be extended further by a period of 14 days each so that the overall

period does not exceed 90 days from the contract. The latter is permitted only in the case of

specified shares.

Stock Exchanges in India

National Stock Exchange (NSE)

National Stock Exchange (NSE) of India commenced its operation in the Indian Capital

Market on 3rd November 1994 in Mumbai. The recommendations of Pherwani committee led

to the beginning of NSE.


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Players in NSE

Trading members

Participants

The recognised members of NSE are called trading members who trade on behalf of

themselves and their clients. Participants include trading member and large players like bank

who take direct settlement responsibility.

Promoters of NSE

IDBI, ICICI, LIC, GIC, SBI, Canara Bank, Corporation Bank, Indian Bank, Orient Bank ofCommerce, Union Bank of India, Punjab National Bank, Infrastructure leasing and financial

services and SBI.

Trading system of NSE

The software used in the NSE trading system is known as National Exchange for Advanced

Trading. The trade takes place through computers. The trading members computer is

connected with the central computers at the NSE through leased lines and VSAT. The price at

which the buyer and the seller are willing to transact will appear on the screen. When the

price match the transaction will be completed and a confirmation slip will be printed at the

office of the trading member.

OTC Exchange of India (OTCEI)

The OTC e of India (OTCEI) has been setup to provide a cost effective and convenient plat

forms for raising finance from the capital market. OTCEI was promoted by a consortium of

financial institutions sated its operations in 1992. It is a ring less, electronic, nation wider

stock exchange committed to providing entrepreneurs with a smooth economical vehicle for

going public and investors with a fair, sable and efficient market. Thus the OTCEI brings

investors and promoters closer together.

Bombay Stock exchange (BSE)

The stock exchange, Mumbai is popularly known as BSE. It is oldest one in 1875 as The

Native Share and sock Brokers Associations of People (AOP) and is engaged in the process


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of converting itself into demutualised and corporate entity. It has evolved over the years into

its present status as the premier Stock Exchange in the country to have obtained.

Permanent recognition in 1956 from the Govt. of India under the securities contracts

(Regulation) Act, 1956.

Market Size and Characteristics:

The Indian retail brokerage is showing phenomenal growth. The total trading volume of

brokerage companies has increased fromUS$1239.1 billion in 2004 to US$1492.1 billion in

2005, and is expected to reach US$6535.7 billion by 2015. Some of the main characteristics

of the brokerage industry include growth in e-broking; growing derivatives market, decline in

brokerage fees etc.

Today, as per NSDL statistics, we have only 2.4million investors with demat account in the

country. Considering various investor combinations that are holding accounts, we can

presume the country has roughly 5-7.5 lakh active investors now. This figure is unbelievably

small compared to the potential number of investors, which is anything between 200 million

and 250 million. When we take into consideration the way transaction risk and cost in the

Indian capital market is coming down, there will be a massive surge in the number of

investors and also in volumes. The only way to manage this kind of potential growth is to

adopt state-of-the-art trading techniques.

The growth of the Internet-based trading as a mass trading technique in the country is

unstoppable, going by the indicators available and the signals for the future. When it

ultimately gathers momentum, the biggest beneficiary will be the investor, who will be able

to trade with greater speed and transparency, and at lower costs.

Major players in Indian share broking industry are follows

ICIC Securities Ltd.

Kotak Securities Ltd

Indiabulls Financial Services Limited

India Infoline

IL&FS investmart Limited

SSKLI Ltd.

Motilal Oswal securities


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Fortis Securities

Karya securities

Geojit BNP Paribas

HDFC Securities Hedge equities

JRG Securities

India Infoline


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1.2 COMPANY PROFILE

Hedge equities ltd is one of the leading retail stock broking house which is running

successfully in the country. Hedge offers its customers a wide range of equity related services

including trade execution on BSE,NSE, derivatives, depository services, online trading,

investment advice etc. The firm has online trading and investment site-

www.hedgeequities.com. The site gives access to superior content and transaction facility to

retail customers across the country. Known for its jargon-free, investor friendly language and

high quality research, the site has registered base of over thousands of customers. The content

rich and research oriented portal has stood out among its contemporaries because of its

steadfast dedication to offering customers best-of-breed technology and superior market

information. The objective has been to let customers make informed decisions and to simplify

the process of investing in stocks. Hedge equities have always believed in investing in

technology to build business.

About Hedge Equities

Hedge equities is one of the leading Financial services company in India, specialized in

offering a wide range of financial products, tailor made to suit individual needs. As a first

step to make their presence Global, Hedge equities have initiated operations iin Middle Eastto cater to the vast Non Resident Indian (NRI) population in that region. Ever since their

inception, they have spanned their presence all over India through their Meticulous Research,

High Brand awareness, Intellectual Management and Extensive Industry knowledge. Hedge

believe in creating a new breed of investors who take judicious decisions through them.

Team Hedge is a balanced mix of more than 15 years experience cutting across various

industries with a strong background in the financial markets. The board comprises of six

power houses in their respective fields- FedEx Securities, Baby Marine Exports, Thakker

Developers, Smart financial, SM Hedge (CFO, Videocon Industries) and Padmasree Mohan

Lal.

FedEx Securities

Managed by a team of ex-bankers, FedEx is a SEBI registered category I merchant banker.

The company concentrates on non fund based activities like structuring, tie up of project

financing, financial restructuring, investment banking, corporate and advisory services. Thecore management team consists of bankers with rich experience of decades and exposure to
http://www.hedgeequities.com/http://www.hedgeequities.com/


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volatile situations in commercial and investment banking. With offices at Nariman point and

Vile Parle East, Mumbai, state of the art infrastructure and qualified manpower to conduct the

business, FedEx Securities envisages phenomenal growth in this sector of clients.

Baby Marine Exports

Baby Marine Group, started its operations in 1977 from Kozhikode and through innovation

and hard work has grown into three units and related industries spanning both the west and

east coast of Indian. Baby Marine Exports, B.M products, and Baby Marine (Eastern) Exports

are efficiently aided by pre processing units, ice factories and a fleet of insulated and

refrigerated trucks for sea food transportation. Due to constant upgrading of machinery,statement of the art infrastructural facilities, better links with raw materials suppliers, and an

established network of purchasers have obviously made Baby Marine Group a leading

Exporter of processed marine products to various international markets.

Smart Financial

Smart Financial entered the financial market only in 1992 but over this brief span has covered

a niche for itself by becoming leading financial service provider. The company offersguidance to investors as to equities, commodities, mutual funds, portfolio management

services and insurance. It offers complete range of financial solutions that encompasses

every sphere of life.

Thakker Group

Starting of as a land developer and builder in 1962, Thackers group diversified into

commercial production of agricultural and horticultural products, housing real estate

marketing, plantations etc. They have provided shelter to more than 40000 families by

offering residential plots and premises. A Thakker developer is the flagship company of the

group. It was established as private limited in 1987 and later went on to become the only

public limited company in North Maharashtra engaged in housing, commercial construction

and land development.


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S. M. Hedge

Mr S. M. Hedge, a chartered accountant by profession is the Chief Finance Officer of the

Indian Multinational Videocon International and has been at the helm of affairs for the last 20

years.

Padmashree Bharat Mohanlal

Mohanlal, the south Indian movie superstar has become a legend, a brand and cultural

ambassador owing to various factors. Versatility and a natural flair for donning complex

characters have won him numerous accodales not to speak of some unforgettable films

contributed by him. A multifaced personality, he has some business ventures also which

include Vismaya Max Film Post production studio, college for dubbing artists at the Kinfrafil and video park, Trivandrum. He is also the director of Uni Royal Marine Exports; a

Kozhikode based major Seafood Export Company.

Intelllectual and knowledge arbitrage is the face of modern day business. The same holds true

for the financial markets. With the breathy and depth of knowledge of modern day business

that the board of hedge brings to the table, you can be rest assured that some of the business

minds in the business are taking care of your investments.

Mission

To create an ethical and sustainable financial services platform for our customers and

partner them to build business, to provide employees with meaningful work, self-

development and progression, and to achieve a consistent and competitive growth in profit

and earnings for our shareholders and staff.

Vision

Ever since its inception, Hedge equities has been a household name among the masses

owing our success to timely Professional financial assistance to our clients. This aptly

articulates our vision of Evolving into a financial supermarket which will be a one stop shop

for all financial solutions.


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systems ensure service up time and speed, making internet broking through Hedge equities

hassle-free.

Using the easiest facility provided by NSDL, our clients can transfer the shares sold by them

online without delivery instruction slips. Additionally, digitally signed contract notes can be

sent to clients through E-mail.

Depository Services

Hedge offers trading in the futures and options segment of the National Stock Exchange

(NSE). Through the present derivative trading an investor can take a short term view on the

market for up to a three months perspective by paying a small margin on the futures segment

and a small premium in the options segment. In the case of options, if the trade goes in theopposite direction the maximum loss will be limited to the premium paid.

Knowledge Centre

Knowledge centre activities are intended to provide systematic and structured services mainly

to new investors and also to young aspirant aiming for a career in financial markets. The

centre has three functional areas: the publication division, the training center, and wealth

management advisory service which provides complete investment solutions to investmentsthrough knowledge based personalized services.

Equity Research

Hedge equities constantly strive to deliver insightful research to enable pro-active investment

decisions. The research department is broadly divided into two divisions- Fundamental

Analysis Group (FAG) and Technical Analysis Group (TAG) . Our fundamental analysts are

continuously scanning the entire economy for discovering what they call the hidden gems in

stock market terminology and present it to our clients for profitable investments. A good

fundamental analysis team has the capability to identify emerging businesses before such

businesses become the talk of the street and we are proud to say we have one such

fundamental analysis team. Timing the market has always been the most difficult task for all

analysts and our Technical Analysis Group has merged to predict the market movements well

in advance using complex analytical methods including Elliot Wave Theory. We are

equipped with cutting-edge technologies for technical charting which assist our technical


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analysts to predict both upside and downside movements efficiently for the benefit of our

clients.

Portfolio Management Services (PMS)

Hedge equity is a SEBI-approved portfolio manager offering discretionary and non-

discretionary schemes to its clients. Hedge equities portfolio management team keeps track

of the markets on a daily basis and is exposed to a lot of information and analytic tools which

an investor would not normally have access to. Other technicalities pertaining to shares like

dividends, rights, bonus, buy-back, Mergers and Acquisitions and are also taken care of by

us. Maximize your returns by opting for our PMS scheme.

Commodity Trading

One can trade in futures like gold, silver, crude oil, rubber etc and take advantage of the

extended trading hours (10 am to 11 pm) in commodities trading.

Mutual Funds, Bonds etc

Hedge equities also offer Mutual funds and bonds. One can select from a wide range of

Mutual funds and bonds available in the market today.

Currency Trading

Currency derivatives can be described as contracts between the sellers and buyers, whose

values are to be derived from the underlying assets, the currency amounts. These are basically

risk management tools in force and money markets used for hedging risks and act as

insurance against unforeseen and unpredictable currency and interest rate movements.

Any individual or corporate expecting to receive or pay certain amounts in foreign currencies

at future date can use these products to opt for a fixed rate- at which the currencies can

exchanged now itself. Currency derivatives serve the purpose of financial risk management

encompassing various market risks. An upfront premium is payable for buying a derivative.

Currency6 futures will bring in more transparency and efficiency in price discovery,

eliminate counterparty credit risk, provide access to all types of market participants, offer

standardized products and provide transparent trading platform.

Competitors


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Geojit BNP Paribas

JRG Securities

Religare

Karvy Stock Brokers Muthoot Securities

Sharewealth

Motilal Oswal

Anandrathi

1.2.2 Functional departments

Client relation Department

The client relation department assists the client or customer to open an account in Hedge

equities. This department is also known as the front office. A client has to open two types of

accounts to trade and own securities in the NSE & BSE. They are:

Finance Department

Thus a department, to organize financial activities may be created under the direct control of

the board of directors. Finance manager will decide the major financial policy methods.

Lower levels can delegate the other routine activities.

Marketing Department

The major functions of marketing department are:

a) Business associate development: the company takes up the marketing activities of the

various branches . It ensures an efficient marketing arena at its various branches. The

company encourages better relations in its branches and promotes for the development

of various marketing strategies.

b) Brand promotion: An important function of marketing department is to promote the

name of the company. Hedge equities do it through the different promotional activities.

The name of Hedge equities as a stock broking firm is made known to the outside

world.


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c) Investment promotion: The main clients of Hedge equities were its investors. Hence the

marketing department tries to capture as many as possible to encourage them to invest.

d) Delivery promotion: Intraday trading is not always profitable and might involve a lot of

risk hence Hedge equities promotes for delivery where the shares are kept to be sold

for a later date after analyzing the profitability factors.

Systems Department

The systems department is playing a vital role in the day to day operations of the company.

It is through the systems department that the clients can avail the facilities of Internet

trading. Optic fibre cables and high bandwidth connections from the Hedge equities office

to the ISP, a dedicated server and back-up ISDN connections were maintained directly by

the systems department. For the purpose of trading they have made use of two software

namely ODIN (Open Dealers Integrated Network)

Human resource Department

Human resource is often considered as the back of an organization even in this age of

advanced automation & mechanization. Since virtual organizations are not very much

popular in our part of the world, it is very important to any organization to have a HR

department. The presence of an excellent HR department increases the efficiency of an

organization considerably. Human resource management is defined as asset of practices,

policies and programmes designed to maximize both personal and organizational goals.

a) Training & Induction

The selected employees will undergo three days continuous induction. During this period,

he will undergo training with all the department of Hedge equities. There will also be

classroom induction also within three months.

b) Wages and Salary Administration

The wages and salaries of the employees were fixed and granted by the HR department with

consent of the finance department

c) Performance appraisal

It was human resources department which gives the promotions to all employees, makingtransfers and taking disciplinary actions if needed.


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D) Grievance Handling

The grievances of the employees were received only through proper channels i.e, through the

particular department heads. The HR department will make as per the rules and regulations

of the company.

Trading Department

The department deals with the trading related activities of the company. The trading refers to

the buying & selling of shares. This department is the most important part of the

Organization. There are two types of trading. They are:

a)Online Trading

These are the trading terminal of the organization. The each computer of the department is

termed as trading terminal. The each terminal is assigned with NCFM certified dealers, who

is in charge of each portal will do the trade according to the client request. The terminal is

managed by either NEAT (National Exchange for automated trading) software or ODIN

(Open Dealers Integrated Network) software. The client can also place his through written

request or through the telephone, in this the order will be placed by the dealer.

b) Internet Trading

The internet trading is a facility provides by the company in order to trade the securities from

his convenient place like his office, home etc, the order will be placed by the client itself, and

he can make changes before the trade is done for changing the price, cancellation of the

order.

Delivery & Depository Department

Delivery refers to the shares that bought on a particular day are not sold on that day itself and

holding of the shares for an appreciation in the value of the security and to trade it on a future

date. Deliver instruction slip: it is a slip the client should fill and gave to the dealer regarding

the purchase of the share. There are two procedures to move the shares namely,

a)Power of attorney


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This is which the client signs at the time of opening a trading account and depository

participant account. If the client has given the power of attorney, HEDGE EQUITIES (P)

LTD will have the power to transact the clients stocks without pay-in slips.

b) Easiest

It is secured internet enabled service which means Electronic Access to Securities

information and Execution ofSecured Transaction. This is facility where in the clients

can give delivery instructions via internet. Easiest is a facility provided by CDSL.

The activities related with the depository department.

Depository function

Dematerialization

Pledging

Equity Research Department

The function of the department is to study the details regarding the share or security and to

make predictions regarding the future performance of the company.

The types of approaches done in the department

a) Fundamental analysis b) Equity Analysis

There are five analysts in the department. The fundamental analysts are continuously

scanning the entire economy for discovering what they call the hidden gems in stock

markets terminology and present it to the clients for profitable investments. Timing the

market has always been the most difficult task for all analysts and their Technical Analysis

Group has emerged to predict the market movements well in advance using complex

Analytical methods. They are equipped with cutting-edge technologies for technical charting

which assist the technical analysts to predict both upside and downside movements efficiently

for the benefits of clients.


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1.2.3 Research Department Structure and Functions

(Head Research

& Strategies)

(Sr.

Fundamental

Analyst)

(Fundamental

Analyst)

(Economic &

Fundamental

Analyst)

(Sr. Technical

Analyst)

Controlling the

Department

Fundamental

analysis and

report

Fundamental

analysis and

report

Company results

& news tracking

Intraday stock

calls

Morning report-

video

Company results

and news

tracking

Company results

and news

tracking

Company

snippets

(prep/updates)

Intraday futures

calls

Data mining Research

presentations

Derivative

reports

Fundamental

analysis and

report

Position calls

Customer

portfolio review

on request

Company

snippets

(prep/updates)

Research

presentations

Research

presentations

Daily technical

report

Mentoring team

members

Marketing of

reports

Company

snippets

(prep/updates)

Daily economic

report

Investor meets &

branch visits

Attending

management

meetings

MIS-

performance of

calls

Marketing of

reports

Economic news

track and reports

Chat system- for

query handling


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Presentation to

group investor

circles

Auto monthly

sales report

Daily report

(oversight)

Daily currency

report

Articles in Ohari

magazine

Investor meets &

branch visits

Tracking

international

markets

Articles and data

input to medias

(TV Channels,

Newspapers,

Magazines)

Daily

commodity

report

Investor meets &

branch visits

Tracking

international

commodity

markets

Preparing special

commodity

reports


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SECTION II

PROBLEM CENTERED STUDY


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CHAPTER I

PROBLEM FORMULATION


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Title of the study:

A study on risk return analysis of selected Telecom companies at Hedge Equities Pvt. Ltd.,

Ernakulam.

Statement of the problem:

The Indian telecom sector has achieved a phenomenal growth during the last few years,

telecom sector has continued to emerge as the prime engine of economic growth, contributing

to nearly 2.3% of the Indian GDP. Indias teledensity has improved from under 4% in March

2001 to around 73.07% by the end of January 2013. The mobile subscriber base has growth

from under 41 million at the end of March 2000 to touch 893.15 million at the end of January

2013. In this situation, this study aims to analyze riskreturn and financial performance of

companies in telecom services sector is suitable for investment. And provide suggestion

based on this analysis.

Need of the study:

Investment decisions are influenced by various motives. Some people invest in a business to

acquire control and enjoy the prestige associated with it. Some people invest in expensive

yachts and famous villas to display their wealth. Most investors however are largely guided

by the pecuniary motive of earning a return on their investment.

Relevance of the study:

ROE is important to every organization: for-profit, not-for-profit, educational

Institutions, government agencies, and more. There are variations in how they define value,

however, all organizations want value for the investments they make. What makes ROE

important is it provides leaders with an important way of deciding in which programs to

invest and which programs to delay or reject.


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CHAPTER II

RESEARCH PROCESS


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Objectives of the study:

1. To analyze risk return relation of selected companies of telecom service sector.

2. To suggest/recommend the best company out of selected companies.

3.

To make suggestions and recommendations based on analysis.

Scope of the study:

The scope of the study is confined to only five selected companies viz. Bharti Airtel, MTNL,

Idea cellular, RCOM and TATA Communications Ltd., of telecom service sector of India.

Research Methodology:

This project is based on exploratory research with both qualitative analysis as well as

quantitative analysis. The research methodology adopted is based on secondary data. The

various sources include:

Internet

Share prices of different NSE index companies

Information provided by Hedge Equities Pvt. Ltd

Articles

Tools for data collection:

The tools used for analysing the risk and return of five companies are as follows:

Capital yield

Current yield

Rate of return

Beta

Standard deviation


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CHAPTER III

PRESENTATION AND ANALYSIS OF

DATA

INTRODUCTION

Most of the telecommunications forms in India are as prevalent or as advanced as those in

modern Western countries, and the system includes some of the most sophisticated


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technology in the world and constitutes a foundation for further development of a modern

network. Telecom Regularity Authority of India (TRAI) is the sole authority empowered to

take binding decisions on fixation of tariffs for provision of telecommunication services.

India has the world's second largest mobile phone users with over 903 million as of January

2012. It has the world's third largest Internet users with over 121 million as of December

2011. India has become the world's most competitive and one of the fastest growing telecom

markets.

Key developments

Telecom Regulatory Authority of India (TRAI) has revealed that the country's mobile

subscriber base has increased from 893.84 million in December 2011 to 903.73 million inJanuary 2012

Telecom operators added 9.88 million mobile subscribers in January 2012

The overall tele-density reached 77.57 per cent

Broadband subscriber base increased from 13.30 million at the end of December 2011

to 13.42 million at the end of January 2012

Telecom users in rural areas have grown at a faster pace compared to their urban

counterparts in the last five years, a CAG report said

India added around 20 million subscriptions of the estimated 140 million net additions

in mobile subscriptions across the world during the April-June quarter in 2012, said a

report by Ericsson

The Indian telecom sector is a very capital intensive sector and involves high value

investments. Correspondingly, the mobile phone industry is also experiencing a parallel

upward surge, and a parallel enhancement in technologies used. With the liberalization of theIndian economy, the telecom sector has become very attractive for mergers and acquisitions

latest being SingTel increasing its stake in Bharti telecom.

I. BHARTI AIRTEL

Bharti Airtel Limited is a leading global telecommunications company with operations in 20

countries across Asia and Africa. Headquartered in New Delhi, India, the company ranks


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amongst the top 4 mobile service providers globally in terms of subscribers. In India, the

company's product offerings include 2G, 3G and 4G wireless services, mobile commerce,

fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including

national & international long distance services to carriers. In the rest of the geographies, it

offers 2G, 3G wireless services and mobile commerce. Bharti Airtel had over 269 million

customers across its operations at the end of March 2013.

II. IDEA CELLULAR

Idea Cellular is an Aditya Birla Group Company, India's first truly multinational corporation.

Idea is a pan-India integrated GSM operator offering 2G and 3G services, and has its own

NLD and ILD operations, and ISP license. With revenue in excess of $4 billion; revenue

market share of nearly 15%; and subscriber base of over 121 million in FY 2013, Idea is

Indias 3rd largest mobile operator. Idea ranks among the Top 10 country opera tors in the

world with a traffic of over 1.5 billion minutes a day.

Ideas robust pan-India coverage is built on a network of over 100,000 2G and 3G cell sites,

spread across over 55,000 towns in India.

Using the latest in technology, Idea provides world-class service delivery through the most

extensive network of customer touch points, comprising of nearly 4,500 exclusive Idea

outlets, and over 7,000 call centre seats. Ideas customer service delivery platform is ISO

9001:2008 certified, making it the only operator in the country to have this standard

certification for all 22 service areas and the corporate office.

Idea is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE)

in India.

III. MTNL

MTNL was setup on 1st April, 1986 by the Government of India to upgrade the quality of

telecom services, expand the telecom network, introduce new services and to raise revenue

for telecom development needs of India is key metro cities of Delhi & Mumbai. MTNL is the

principal provider of fixed-line telecommunication service in the two Metropolitan Cities

of Delhi and Mumbai. It offers mobile services in the city of Delhi including four peripheral

towns Noida, Gurgaon, Faridabad & Gaziabad and the Mumbai city along with the areas


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falling under the Mumbai Municipal Corporation, New Mumbai Corporation and Thane

Municipal Corporation.

The authorized capital of the Company is Rs. 800 crores. The Paid up Share Capital is Rs.

630 crores divided into 63 crore share of Rs. 10 each. At present, 56.25% equity shares are

held by President of India & her nominees and remaining 43.75% shares are held by FIIs,

Financial Institutions, Banks, Mutual Funds and others including individual investors. MTNL

has been given Navratna status in 1997 and was listed in New York Stock Exchange in

2001.

IV. TATA Communications LTD

Tata Communications is a leading global provider of a new world of communications. With a

leadership position in emerging markets, Tata Communications leverages its advanced

solutions capabilities and domain expertise across its global and pan-India network to deliver

managed solutions to multi-national enterprises, service providers and Indian consumers.

The Tata Global Network includes one of the most advanced and largest submarine cable

networks, a Tier-1 IP network, with connectivity to more than 200 countries and territories

across 400 PoPs, and nearly 1 million square feet of data centre and collocation space

worldwide.

Tata Communications' depth and breadth of reach in emerging markets includes leadership in

Indian enterprise data services, leadership in global international voice, and strategic

investments in South Africa (Neotel), Sri Lanka (Tata Communications Lanka Limited) and

Nepal (United Telecom Limited) Tata Communications Limited is listed on the Bombay

Stock Exchange and the National Stock Exchange of India and its ADRs are listed on the

New York Stock Exchange (NYSE: TCL).

V. RELIANCE Communications

RCOM is an Indian broadband and telecommunications company headquartered in Mumbai,

India. RCOM is the worlds 15th largest mobile phone operator with over 150 million

subscribers and Indias one of the largest telecom operator in India, only after Bharti Airtel

and Vodafone India. Established on 2004, a subsidiary of the Reliance Group. The company

has five segments: Wireless segment includes wireless operations of the company; broadband

segment includes broadband operations of the company; Global segment include national


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long distance and international long distance operations of the company and the wholesale

operations of its subsidiaries; Investment segment include investments activities of the Group

companies; and Other segments consists of the customer care activities and direct-to-home

(DTH) activities.


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Is the industry attractive in terms of long term potential?

Short term profitability (based on demand & supply) - Hyper-competition is good for

natterers, of course: prices have fallen to a level the poor can afford. Firms have become

leaner, too. Bharti outsources furiously. Most companies share radio towers and have learned

how to compress traffic.

Yet the industry is right to fret about returns. Only one of the big four firms was close to

recouping its cost of capital last year (see chart 1), as the price war hit margins and an

expensive 3G spectrum auction in 2010 bloated balance-sheets. Vodafone has a rich parent

company but the others are now uncomfortably indebted. Middle-sized operators, meanwhile,

are thought to be bleeding badly. Of the small fry, only two disclose figures: Uninor, run by

Telenor, a Norwegian firm; and Russian-backed Sistema. Together they lost almost $2 billion

of cashflow last year. Both say they are in India for the long haul.

Longterm Profitability - Weak returns are bearable if the market grows and the rules are

clear. Long-term growth seems certain, but India's spectrum regime, once admired, is now an

embarrassment. A roundtable with the new telecoms minister and mobile-phone executives in

March revealed a fog of confusion about vital issues: the fees on existing spectrum, the terms

on which old licences are renewed and corruptly awarded ones relinquished (if at all), new

spectrum grants and the rules on mergers and acquisitions. It is also unclear whether non-

voice 4G licences, originally intended for data only, some of which are in the hands of

Mukesh Ambani, India's richest man, will have their terms tweaked to allow voice services,

creating even more new entrants into the mobile market.

Is it a Fragmented or concentrated one? - If the market is too fragmented, consolidation is

the only plausible cure. From Brazil to America, places with mosaics of technologies,

operators and regional licences have cleaned themselves up. In India this process may not

correct past injustices, but by allowing unviable firms and their spectrum to be acquired, a

scarce resource could be allocated more efficiently and customers could be saved the

annoyance of having their carrier go bust. Most executives expect a cull. After the scandal

erupted last year, says one boss, banks cut off credit to the industry, making life hardest for

the small firms that have yet to break even. The big operators have stepped back from price

cuts, allowing industry revenues, which had stalled despite the boom in customers, to growagain.


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Entry Barriers - Barriers to Entry in the telecom industry are high and steady and the level

of tax burden is medium and stable. There is also a considerable amount of assistance

provided to the industry and the trend has been increasing. The industry is highly regulated

and the recent spectrum scam has only lead to an increased scrutiny. The Cost Structure

analysis identifies high profit margins and major costs such as depreciation and network

operations expense incurred by the operators. This further justifies the high Capital Intensity

of the telecom industry. The report provides us an analysis on such factors which gives us an

insight into the conditions of the telecom industry of India.

Life Cycle - The telecom sector is going through the growth stage of its life cycle, with

penetration in the rural areas being one of the major areas of opportunity for the next five

years. Until March 2006, the rural tele-density of the Indian telecom sector was just 1.86%

which has increased to 33.79% in March 2011. In the next five years, all the major telecom

operators will be focusing on leveraging the opportunities that lie there about.

Opportunities - This portentous growth of the Indian Telecom sector in the past ten years

has opened up numerous opportunities, with only traces of these being felt by rural India. The

total telecom density of the country is about 71%, but only 33% of the rural India, which

occupies over 70% of the countrys population, has realized the access and benefits of the

industry.


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3.1. RETURN ANALYSIS

Return : The gain or loss of a security in a particular period. The return consists of the

income and the capital gains relative on an investment. It is usually quoted as a percentage.

Tools Used:

Current Yield - The earnings per share for the most recent 12-month period divided by the

current market price per share. The earnings yield (which is the inverse of the P/E ratio)

shows the percentage of each dollar invested in the stock that was earned by the company.

The earnings yield is used by many investment managers to determine optimal asset

allocations.

Formula: Current yield= Annual EPS/ Beginning price *100

Capital Yield - The formula for the capital gains yield is used to calculate the return on a

stock based solely on the appreciation of the stock. The formula for capital gains yield does

not include dividends paid on the stock, which can be found using the dividend yield. The

capital gains yield and dividend yield is combined to calculate the total stock return.

The capital gains yield formula uses the rate of change formula. Calculating the capital gains

yield is effectively calculating the rate of change of the stock price. The rate of change can be

found by subtracting an ending amount from the original amount then divided by the original

amount

Formula: Capitl Yield= End PriceBeginning Price/Beginning Price

Rate of Return - The gain or loss on an investment over a specified period, expressed as a

percentage increase over the initial investment cost. Gains on investments are considered to

be any income received from the security plus realized capital gains.

Formula:ROR = [Annual Income + (End priceBeginning price)]/ Beginning Price *100


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1. BHARTI AIRTEL

Beginning

Price

Closing Price EPS Income (lakhs)

Mar 09 830.00 625.75 40.80 33076.82

Mar 10 626.40 312.55 24.82 21334.76

Mar 11 312.60 357.40 20.32 29900.53

Mar 12 354.60 337.90 15.09 13269.16

Mar 13 338.90 291.75 13.42 13007.01

(Data obtained from nseindia.com website)

Table 3.1.1 - Current Yield, Capital Yield and Rate of Return of Bharti Airtel for

following years:

Current Yield Capital Yield ROR

2009 4.915 -0.246 3960.55

2010 3.962 -0.501 3355.82

2011 6.500 0.143 9579.44

2012 4.255 -0.047 3734.05

2013 3.959 -0.139 3824.09


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Chart 3.1.1Current Yield, Capital Yield and Rate of Return of Bharti Airtel

for following years

0

2

4

6

8

2009 2010 2011 2012 2013

CURRENT YIELD

CURRENT YIELD

-0.6

-0.4

-0.2

0

0.2

2009 2010 2011 2012 2013

CAPITAL YIELD

CAPITAL YIELD

0

2000

4000

6000

8000

10000

12000

2009 2010 2011 2012 2013

ROR

ROR


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2. MTNL

Beginning Price Closing Price EPS Income (lakhs)

2009 97.60 69.00 2.67 409.80

2010 69.50 73.20 -48.63 410.33

2011 73.50 45.35 -44.47 485.18

2012 46.00 27.40 -65.23 423.63

2013 27.45 18.40 -84.46 117.76

Table 3.1.2 - Current Yield, Capital Yield and Rate of Return of MTNL for

following years:

Current Yield Capital Yield ROR

2009 2.735 -0.29 390.57

2010 -69.97 0.053 595.72

2011 -60.50 -0.382 621.80

2012 -141.80 -0.40 880.5

2013 -307.686 -0.329 396.02


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