A

REPORT ON
IDEA CELLULAR LIMITED

SUBMITTED TO:
PROF.POOJA KUMARI

SUBMITTED BY
GROUP 10
MADHURIMA CHATTERJEE (18A2HP448)
DEVANSHI NIRMAL BAGRI (18A2HP421)
AKASH KUMAR SINGH (18A2HP407)
BHARGESH PATEL (18A2HP402)
NILESH PANDURANG KATARE (18A2HP403)

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 ACKNOWLEDGEMENT
We would like to thank our Professor Pooja Kumari who gave us an
opportunity to explore the topic and present our views on the same. It
gives us immense pleasure to prepare a report as a part of our financial
accounting end term project. We are extremely grateful to The Director
sir, Dr. D.V.Ramana, for his valuable time and expert insight into the
various components of the report.

We are immensely grateful to all involved in this project and for

providing their valuable suggestion.
We would like to thank all of them who helped us to complete this
project.

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 TABLE OF CONTENTS
S.NO PARTICULARS PAGE NO

1. Introduction and Company 4

background
2. Interpretation of Trend Analysis 5

3. Ratio Analysis 6

4. Cash Flow Analysis 11

5. Book Value of Equity VS Market Price 12

6. Accounting Standards 13

7. Conclusion 15

8. Appendix-calculation excel sheet 15

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 INTRODUCTION
Idea Cellular Limited now known as Vodafone Idea Limited is India’s largest telecom
operating company.it started its journey in 1995 as Birla Communications Limited with GSM licenses
in Gujarat and Maharashtra. Its headquarters are based in Mumbai, Maharashtra. Idea is a pan-
India integrated GSM operator offering 2G, 3G and 4G mobile services. It has two separate
service entity brands named as Vodafone and Idea. Idea provides its services through digital
channels and as well as retailers and on-ground touch points, the services including Mobile
payments, advanced enterprise offerings and entertainment. Vodafone Idea has 408 million
subscribers as of June 2018, and thus became the largest mobile network company nationally.

COMPANY BACKGROUND
In 1996 the company incorporated as Birla communications limited and it won licenses to
provide GSM services in Gujarat and Maharashtra, it started joint venture between Grasim
industries and AT&T corporations and changed its name to Birla AT&T. IN 1997 it started
operations in Gujarat and Maharashtra, after that it merged with Tata cellular limited and
acquired license for Andhra Pradesh and for Madhya Pradesh the next year and acquired RPG
cellular limited later that year, it changed its name to Birla Tata AT&T limited and obtained
GSM services in 2002, in the same year it launched the IDEA brand name, and changed the
name to Idea cellular and became part of Aditya Birla group. In 2009 it became a pan-India
operator and won the award for emerging company of the year award. In 2010 they won 3G
spectrum in 11 areas and it was a big step for them as it accounted 81% of their total revenue,
it became the only Indian operator company to have ISO certification in 2011 and launched
affordable 3G smartphones, in 2014 it won 4G LTE spectrum for 8 service areas, they received
approval to set up payments bank from RBI and then won back the 900MHZ spectrum in 2015,
in 2016 it launched 4G services across all key markets and rolled out a plan called as fast paced
4G roll-out.

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INTERPRETATION OF TREND ANALYSIS:
Trend Analysis of Income Statement:
The base year is considered as 2013 with respect to the base year sales had increased by 62%
in 2016 and 60% in 2017.
Expenses had increased sharply from 2013 by 15% in 2014,56% in 2016 and 70% in 2017. The
trend had been increasing from the base year 2013.
If we look at the profits it had sharply grew by 223% till 2016 but due to rise in expenses in
2017 loss incurred in 2017 by -10.57%.

TREND ANALYSIS OF BALANCE SHEET:

Shareholder’s funds was on rise till 2016 by 76% but it declined in 2017 by 7%. It implies the
company used less owners’ fund and financed its operations from outside liabilities.
Long term borrowing of the company had increased tremendously by 388%. The company had
borrowed its maximum funds from debt. It can lead to higher debt equity ratio and can act as a
risk to the creditors of the company and can affect solvency of the company.
Coming to assets side the % of non-current assets had increased by189% as per the base year
2013. The company had acquired non current assets to continue their ongoing operations and
they are planning for expansion and merger.
The long term investments of the company had been growing at a decreasing rate but in 2017
the investment share grew by 36.21%. the company had been investing in long term
investments which can be seen as stable and growing.

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RATIO ANALYSIS:

LIQUIDITY ANALYSIS

1. CURRENT RATIO: Current ratio establishes relationship between current asset and
current liabilities. It is an indicator of a company’s ability to pay its short term
obligations and shows the amount of current assets a company has with respect to its
current liabilities.

CURRENT RATIO= CURRENT ASSETS/ CURRENT LIABILITES

YEAR 2013 2014 2015 2016 2017

CURRENT 0.41:1 0.33:1 0.90:1 0.34:1 0.39:1

RATIO

The ideal ratio is considered to be 2:1.

Here we can see that the company had highest current ratio in the year 2015 but all of the ratios
are less than 1 which means company had less current assets to meet its current liabilities, and
it is unfavourable for the company’s short term creditors.so In a concluding note I would like
to say that company should increase their current assets holding so that they don’t face any
disruption in their operations.

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 2. QUICK RATIO: this ratio relates relatively more liquid current assets, usually current
assets less inventories, to current liabilities. the quick ratio is more stringent test as it is
liable to pay its obligations as and when they become due.

QUICK RATIO: QUICK ASSETS/CURRENT LIABILITES

YEAR 2013 2014 2015 2016 2017

QUICK 0.41:1 0.33:1 0.90:1 0.34:1 0.39:1

RATIO
The ideal quick ratio is considered to 1:1.
This ratio concentrates on cash and marketable securities. The quick ratio has decreased
from2013 to 2014 and again increased in 2015 that means company must have sold some
inventories and received cash from debtors which increase its current assets.
Whereas from 2016 to 2017 it has again increased. We can say that although IDEA
CELLULAR’s ability to meet current liabilities is below standard level but they successful
managed to overcome their shortcomings and they are now in a good position to cover current
liabilities.

SOLVENCY RATIO:
A company’s solvency is affected by the extent of debt used to finance its assets. Heavy
reliance on debts can be risky and is thought to reduce the company’s solvency. The debt to
equity ratio and interest coverage ratio as important indicators of solvency.
1. DEBT-TO-EQUITY RATIO: it measures the relationship of the capital provided by
creditors to the amount provided by shareholders

DEBT-EQUITY RATIO: TOTAL DEBT/TOTAL EQUITY

YEAR 2013 2014 2015 2016 2017

DEBT TO 3.19 times 5.16 times 4.45 times 9.97 times 14.32 times
EQUITY
RATIO

From 2013 to2017 the debt equity ratio has increased immensely indicating the company had
used aggressive use of leverage i.e, more than half of the finance had been done via debt and
a highly leveraged company is risky for creditors.
2. INTEREST COVERAGE RATIO: it is a measure of the protection available to the
creditors for payment of interest charges. The ratio shows whether the company can cover
all its interest charges or not.

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INTEREST-COVERAGE RATIO: PROFIT BEFORE INTEREST AND
TAX/INTEREST EXPENSE
YEAR 2013 2014 2015 2016 2017

INTEREST 6 10 11 7 3
COVERAGE
RATIO

The ratio was highest in the year 2015 i.e, 11 times and lowest in the year 2017 i.e,3 times
which shows the company is unable to cover its interest charges. This is not safe for the
creditors the company will face problem to cover the interest charges. Company should reduce
its debt financing and move to equity.

PROFITABILITY RATIO: it measures the degree of operating success of a company.

The only reason why investors are interested in as company is that they think they will
ern a reasonable return in the for of capital gain and dividends on their investments.

1. GROSS PROFIT RATIO: gross profit ratio establishes relationship between

gross profit and sales.it reflects the effective standard of performance’s of firm’s
business.

GROSS PROFIT RATIO= GROSS PROFIT/ NET SALES [%]

YEAR 2013 2014 2015 2016 2017

GROSS 26.41% 27.61% 30.53% 31.32% 23.98

PROFIT
RATIO

The GP ratio was 30.53% in 2015 and has increased in 2016 but has fallen sharply,which is not
a good indicator. The gross margin is not stable.

2. NET PROFIT RATIO: This ratio measures the overall efficiency in operating the
business. higher net profit ratio indicates the standard performance of the
business.

NET PROFIT= NET PROFIT/SALES

YEAR 2013 2014 2015 2016 2017

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 NET 3.71% 6.47% 8.99% 7.39% -2.36%
PROFIT
RATIO
Net profit ratio was highest in the year 2015 and then started declining leading to net
loss in the year 2017. The company had generated low revenues as compare to the
expenses incurred by the company. The cost of goods sold might have increased in the
year 2017 which led to net loss.

3.RETURN ON EQUITY: it is a measure of profitability from the shareholder’s point

of view. It measures the efficiency in the use of shareholder’s funds.

RETURN ON EQUITY= PROFIT/EQUITY

YEAR 2013 2014 2015 2016 2017

ROE 24.69% 50.89% 78.10% 73.50% -23.50%

Higher the ROE higher the shareholders wealth maximisation. It constantly increased
till 2015 at a greater rate and then declined to such extent that ROE became negative.
It means that the firm is in FINANCIAL DISTRESS.

ACTIVITY RATIO: Financial analysis tools used to measure a business’s ability to

convert its assets into cash.
1. INVENTORY TURNOVER : this ratio measures the number of times the
inventory of the company is turned over in a period in order to generate sales.

INVENTORY TURNOVER= COST OF GOODS SOLD/ AVERAGE

INVENTORY
YEAR 2013 2014 2015 2016 2017

INVENTORY 202 times 239 times 278 times 243 times 238times
TURNOVER
RATIO

The turnover ratio increased till 2015 then started falling. Low turnover implies the
presence of more assets than the business needs for operations.

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2. ACCOUNTS RECEIVABLES TURNOVER: this ratio measures the number
of times the receivables are turned into cash.it measure the firm’s credit policy
and collection mechanism.

ACCOUNTS RECEIVABLES TURNOVER= SALES/ AVERAGE

RECEIVABLES
YEAR 2013 2014 2015 2016 2017

RECEIVABLES 12.69 14.16 17.67 21.89 32.94

TURNOVER times times times times times

From 2013 to 2017 the firm’s credit policy is quite satisfying as they are able
to convert their receivables into cash. The highest ratio is 32.94 in 2017. It
provides some indication of the quality if firm’s receivables and the
effectiveness of its collection efforts.

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BOOK VALUE OF EQUITY vs MARKET PRICE:

Table shows the data for Idea Celluar Ltd.

YEAR BOOK VALUE MARKET PRICE PBV
2013 45.83 166.90 3.64
2014 59.23 153.80 2.60
2015 66.97 143.75 2.15
2016 69.09 73.95 1.07
2017 59.78 108.20 1.81

Key Interpretations:

 The book value of equity shows consistent increase but in year 2017 the company
shows drastic decrease the value. The reason for the decrease is drop in equity as
the company increased its long term borrowing for expansion.
 The market price is constantly declining as company is not able to pay expected
dividend to its shareholders. But in 2017 as the company announced its merger with
Vodafone the market price of share increased as it was again growing and could yield
lucrative profits.

Book Value VS Market Price

200
166.9
153.8
143.75
150
108.2
100 73.95

50 69.09
59.23 66.97 59.78
45.83
0
2013 2014 2015 2016 2017

Market Price Book Value

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CASH FLOW ANALYSIS:

NET CASHFLOW FROM OPERATING ACTIVITY

YEAR 2016 2017

Net cash flow from 108529 101727.6

operating activities

Operating Activity- The Cashflow from Operating activity is positive but with respect to
2016 the operating cashflow had declined in 2017.The net profit of the company is negative
but the company
NET CASHFLOW FROM INVESTING ACTIVITY
YEAR 2016 2017

Net cash flow from investing -23020.8 -156595.5

activities

Investing Activity-The Company has invested its resources for early returns on current
investments. The company was in talks with Vodafone for merger so had to invest in
intangible assest.it purchased Computer Software, Bandwidth and Entry License fee. the
negative cash flow in investing activity reflects that the company is expanding by putting
money on its fixed assets is so It can be interpreted that the company is expanding.

NET CASHFLOW FROM FINANCING ACTIVITY

YEAR 2016 2017

Net cash flow from -93300.60 48740.40

financing activities

Financing Activity- cash flow from financing activity had increased positively in the year
2017 .The Company has raised funds by issuing ESOP, Redeemable Non-Convertible
Debentures, Long-term loan from banks and loan for purchasing vehicles and short term
borrowings. The company has paid the bank overdraft, Foreign currency loan,commercial
papers and bank loans. The company has paid its shareholder dividends and paid interest on
borrowings and loans.

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ACCOUNTING STANDARDS

1. Manner of disclosure of the Accounting Policies- In the light of Companies Act,2013

the company prepared its financial statements Balance Sheet, Statement of Profit and
Loss, Statement of changes in Equity and Statement of Cash Flows together with the
notes in accordance with Indian Accounting Standards notified under Companies Rule
(Indian Accounting Standards),2015.The financial statement has been prepared on
Historical Cost basis except for notified financial instruments which are measured on
fair value.
2. Revenue Recognition- Revenue on account of mobile telephony services and sale of
handsets and related accessories is recognised net of rebates, discount, service tax, etc.
on rendering of services and supply of goods respectively. Recharge fees on recharge
vouchers is recognised as revenue as and when the recharge voucher is activated by the
subscriber Unbilled receivables, represent revenues recognised from the bill cycle date
to the end of each month. These are billed in subsequent periods as per the terms of the
billing plans. Debts (net of security deposits outstanding there against) due from
subscribers, which remain unpaid for more than 90 days from the date of bill and/or
other debts which are otherwise considered doubtful, are provided for. Provision for
doubtful debts on account of Interconnect Usage Charges (IUC), Roaming Charges and
passive infrastructure sharing from other telecom operators is made for dues
outstanding more than 180 days from the date of billing other than cases when an
amount is payable to that operator or in specific case when management is of the view
that the amount is recoverable.
3. Recording of Assets and Depreciation polices-All assets and liabilities have been
classified as current or non-current in accordance with the operating cycle criteria set
out in Ind AS 1 and Schedule III to the Companies Act, 2013.

The assets are classified as current when

a) It is expected to be realized or consumed in the Company’s normal operating
cycle
b) It is held primarily for the purpose of trading
c) It is expected to be realized within twelve months after
the reporting period
d) If it is cash or cash equivalent, unless it is restricted from

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 i. Being exchanged or used to settle a liability for at least twelve months
after the reporting period.
ii. Any asset not conforming to the above is classified as noncurrent.

Freehold Land is not depreciated. Depreciation on other assets is provided using

straight-line method on pro rata basis over their estimated useful economic lives.

4.Inventory Valuation- Inventories are valued at cost or net realisable value,

whichever is lower. Cost is determined on weighted average basis and includes cost of
purchase and other costs incurred in bringing inventories to their present location and
condition.

5. Recording of Long Term And Short Term Investments -Short-investments are stated
as lower of cost or fair value in respect of each separate investment.
And long term investment are stated at cost less provision for depreciation.

6.Classification of Extraordinary Items- Extraordinary items are the income or

expenses that arise from events or transactions that are distinct from ordinary activities
of company and do not recur frequently or regularly.
The extraordinary item if incurred in the accounting period is deducted from
statement of profit and loss and same is stated in annual report to give true and fair
view of the profit of the company.

7.Accounting of Employee Benefits-

1. Provident and Pension funds-It is funded with the appropriate authorities and
charged to the Statement of Profit and Loss when the employees have rendered
service.
2. Superannuation Fund- It is funded with the Life Insurance Corporation of India
and charged to the Statement of Profit and Loss when the employees have
rendered service.
3. Gratuity-The Company operates a defined benefit gratuity plan,which requires
contributions to be made to a separately administered fund with the Life
Insurance Corporation of India.

8.Borrowing Cost-Borrowing Costs are costs directly attributable to the acquisition or

construction of an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs
are expensed in the period in which they are incurred. Borrowing costs consist of interest and
other costs that an entity incurs in connection with the borrowing of funds. Interest income
earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization. Borrowing
cost also includes exchange differences to the extent regarded as an adjustment to the interest
cost.

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CONCLUSION
Idea cellular ltd is facing huge loss in the year 2017 and had incurred net loss of 14,190 million.
The liquidity of the company is not good as it had current ratio of 0.39: 1 which is considered
to be poor and risky to meet short term obligations which in turn will affect company’s
operations.
The company has financed more of its funds from long term borrowings i.e, 14.32 times. The
solvency of the company is at stake.
The company’s return on equity (ROE) is in negative 23.50% which means the company is not
using shareholder’s fund efficiently but to retain their existing shareholders company is giving
dividends despite of making loss which eventually will deplete company’s reserve.
The inventory of the company is valued at cost or net realisable value whichever is lower.
Depreciation is valued at Straight Line Method.
But the company is showing positive cash flow from operating activities. The company is
investing in intangible assets like bandwidth, computer software and financing the same from
long term borrowings as it is planning to merge with Vodafone in future.
We conclude on the analysis of the financial statements of Idea cellular ltd is that the company
should have reduced its long term borrowings and utilise more owner’s funds to be able to
survive in the telecom market. It should focus more on operating activities so as to continue
the business efficient.

APPENDIX:
Please refer to the excel sheet for calculations
CALCULATIONS.xlsx

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