Company Analysis

Fundamental Analysis
Fundamental analysis involves determining the intrinsic value of an equity share. To determine
the intrinsic value, the analyst must forecast the earnings and expected dividends from the stock
and choose a discount rate which reflects the risk of the stock. It is the examination of various
factors such as earnings of the company, growth rate and risk exposure that affects the value of
shares of a company.

Fundamental analysis consists of: -

 Economic analysis: Impact 30-35 %

 Industry analysis: Impact 15- 20 %
 Company analysis: Impact 30-35 %

Company analysis is a process carried out by investors to evaluate securities, collecting info
related to the company’s profile, products and services as well as profitability. It is a part of
‘fundamental analysis’ which analyses an economy, Industry and Company. A company analysis
incorporates basic info about the company, like the mission statement and apparition and the
goals and values. During the process of company analysis, an investor also considers the
company’s history, focusing on events which have contributed in shaping the company.
Also, a company analysis looks into the goods and services proffered by the company. If the
company is involved in manufacturing activities, the analysis studies the products produced by
the company and analyses the demand and quality of these products. Conversely, if it is a
service business, the investor studies the services put forward.

Types Of Company Analysis

Company analysis requires analysis of both the qualitative and quantitative

factors of the company,
Qualitative Factors
The qualitative factors are analysed to know about the business profile, product profile, price
profile, the base of its competitive advantage quality and effectiveness of its management; how
far is the shareholder's interests are safeguarded.

 Business Model: - The way in which a company makes money. It describes

company’s operations, mode of revenue generation, nature of expenses, organization
structure and its sales and marketing effort.
 Management: - Good and capable management teams generate profits. Management
should attain the stated objectives of the company and create value for all the stake
holders. The criterion used for management analysis is management discussion and
analysis, management ownership of equity stake.
 Corporate Governance: - It refers to the set of systems and practices put in place by
the company to ensure accountability, transparency and fairness in order to safeguard
the interest of the stake holders. Areas of corporate governance are a) Structure of board
of directors b) Financial and information transparency c) Stake holders rights.
  Corporate Culture: - It refers to the collective beliefs, values, systems and processes
of the company. Every company has set of values and goals that helps to define what the
business is about. The basis of corporate culture is expressed in terms of the policies
and procedures adopted in the company’s functioning.

Quantitative Factors
The quantitative factors are analysed to know about the growth prospects, level of competition
size of the customers and the financial statements regarding the past performance.

1. Earnings of the company: Earnings decide its stock value in the market. Growing
earnings result in high valuation of the stock. Earnings are operating profits. Earnings are
generated from operating sources and non-operating sources.

The following factors influence the earnings of a company: -

a) Change in sales
b) Change in cost
c) Depreciation method
d) Depletion of resources
e) Inventory accounting method
f) Replacement cost of inventory
g) Wages, salaries
h) Income tax and other taxes

Measurement of earnings: -

 Gross Profit= Sales – Cost of Goods Sold (COGS)

 EBITDA = Gross profit- Operating Expenses
 EBIT = EBITDA – (Depreciation and Amortization)
 EBT= EBIT – Interest
 EAT= EBT – Tax
 EPS (Earnings per share): - EPS gives the overall picture of the performance of the
company.

EPS = Net Income – Dividends on Preference Shares

Average Outstanding Shares

 P/E multiple (Price Earnings multiple): - The price earnings ratio reflects the price
investors are willing to pay for every rupee of earning per share. It is calculated in
retrospective or prospective manner. A high P/E ratio indicates high Expectations of the
market regarding the growth of the company’s future earnings. Investors compare the
P/E ratio of company to that of the industry and market.

P/E ratio = Market price per share

Earnings per share

2. Financial Leverage: The degree of utilization of Borrowed money in a business is known

as the financial leverage. It involves the selection of appropriate financing mix, proportion
of long-term debt and equity capital (Net worth) i.e., capital structure of a company. A
high degree of financial leverage results in high interest payments. This will affect the net
profits to equity holders.
  Degree of Financial Leverage (DFL) = % change in EPS

% change in EBIT

 Financial Leverage (DFL) = EBIT

EBIT – Interest (EBT)

3. Operating Leverage: The extent to which an organization uses fixed costs in its cost
structure is called operating leverage. The operating leverage is greatest in firms with a
large proportion of fixed costs, low proportion of variable costs, and the resulting high
contribution-margin ratio. A high degree of operating leverage implies other factors being
constant, a relatively small change in sales results in a large change in return on equity.

 Degree of Operating Leverage (DOL) = % Change in Operating Income

% Change in Sales

 DOL = Total Contribution (Sales – Variable Cost) = Total Contribution

Operating Income Total Contribution – FC

4. Competitive Edge: The competitiveness of a company can be assed by looking at the

following aspects,

 Market share: The market share of annual sales helps determine a company’s
relative position within the industry. If market share is high the company will be able
to meet the competition successfully. While assessing the market share the size of
the company should also be considered.
 Growth of sales: A company with rapid growth in sales is better for shareholders than
one with stagnant growth rate. Investors prefer a large company because it can
withstand the business cycle. Growth in sales results in growth in profits.
 Stability of Sales: A company with stable sales revenue will have more stable
earnings. Wide variation in sales lead to variation in capacity utilization. The fall in
market share indicates a declining trend for the company even if the sales are stable.
Stability of shares should be compared to market share.
 Production Efficiency: Production efficiency means producing the maximum output at
minimum cost per unit of output. This measures how well the production process is
performing. Increasing efficiency boosts the capacity of the business without any
change in number of inputs employed. Production efficiency enables the firm to
produce goods at a lower cost than competitors and generate more profits.
Production efficiency results in Increase in profitability, Low operational costs,
Optimum use of company resources, Enhanced competitiveness and market share
and superior return to the investor.

5. Financial Analysis : It involves analysing the financial statements of the company from
various viewpoints. The financial statements give the historical and current information of
the company’s operations. Historical financial statements help to predict the future.

The financial statements of the company include:

 Balance sheet: It shows the status of a company’s financial position at the end of the
year. It is snapshot of company’s Assets, Liabilities and Equity
 Profit and loss account: It show the profit and loss made by the company during a period.
It shows the Sales, expenses, and taxes incurred to operate
 Fund flow and Cash Flow Statement: It shows the sources and application of funds

Analysis of Financial Statements It helps the investor in determining the financial position and
progress of the company. The various simple analyses that are performed to ascertain the
financial position of the company are:

 Comparative financial statement: Here data from the current year’s financial
statements is compared with similar data from the previous year’s financial
statements.
 Trend analysis: It shows the growth and decline of sale or profit over the years.
 Common size statement: Common size balance sheet shows each item in balance
sheet as a percentage of total assets for assets and each item as a percentage of
total liabilities. Common size income statement shows each item of expense as a
percentage of net sales. With common size statements comparisons can be made
between firms of different sizes.
 Fund flow analysis: It is a statement of the sources and application of funds.
 Cash flow analysis: It shows cash inflow and outflow of a company during the year.
 Ratio analysis: Ratios summarize the data for easy understanding, comparisons and
interpretations

 Financial Ratio Analysis

o Liquidity Ratios (ability to meet financial obligations) : - Measure ability to pay maturing
obligations.

Current ratio = Current assets / current liabilities

Quick ratio or • Acid test ratio = Current assets – Inventories / current liabilities

o Leverage Ratios (use of debt) : - Measure extent to which firm uses debt to finance
asset investment (risk attribute)

Debt-equity ratio = Total debt / Equity( Net worth)

Total debt to total assets ratio

Debt to asset ratio = (Current liabilities + long-term debt) / Total assets

Interest coverage ratio = EBIT / Interest

o Turn over Ratios (asset management or efficiency ratios) : -  Measure effectiveness of

asset management

Inventory turnover (times per year)= Net sales / Average inventory

Total asset turnover = Sales Average / Total assets

Fixed asset turnover = Sales Average / net fixed assets

Debtor turn over = Net credit Sales / Average Debtors

o Profitability Ratios (Reflect profitability) : - Measures profits relative to sales (profit margin
ratios)

Gross profit margin = Gross profit (Sales – COGS) / Sales

Operating Profit Margin =Operating profits(Gross Profit – OE) / Sales

Net profit margin = Sales / Net profit (PAT)

Rate of return ratios -

Return on Assets (ROA) = Net Profit(PAT) / Total Assets

Return on Equity (ROE) = Net Profit / Stockholder Equity

(Excludes preferred stock balances)

o Valuation Ratios : -

Dividend yield = Annual dividend / price per share

Dividend payout = Dividends per share (DPS) / Earnings per share (EPS)

Book value per share = Net worth / Number of shares

Market price to Book Value( P/B ratio) = Market price per share / Book value per share

o Growth in Earnings : -

Growth Rate= Retention ratio X ROE

Retention Ratio= Retained earnings / Net Income

 Bharathi Airtel
Bharti Airtel Limited is a leading global telecommunications
company with
operations in 16 countries across Asia and Africa.
Headquartered in New
Delhi, India, the Company ranks among the top three 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 home broadband, DTH, enterprise services
including national & international long-distance services to
carriers. In the rest of the geographies, it offers 2G, 3G, 4G
wireless services and mobile commerce. Bharti Airtel had over
413 million customers across its operations at the end of March
2018.
Qualitative Analysis of the Company

Business Model
 Brilliant Network
Airtel acquire the best spectrum and invest in cutting edge network
infrastructure, automation tools and optimization techniques to provide best
network experience to our customers.
 Obsession with Customers - Digital Airtel
Airtel focus on serving our customers digitally in one touch error free manner
through extensive adoption of digital tools .
 Scientific Sales & Distribution
Airtel carry out scientific micro marketing through our pan India sales &
distribution backbone (of channels partners, retailers and owned stores) to
efficiently serve 300+ Mn customers. This three-tiered machinery is managed
digitally to ensure uninterrupted
services to customers.
  Cost Frugality
We are obsessed with stripping out waste and driving cost efficiencies. Airtel is
pioneer in infrastructure sharing and have developed a prudent cost operational
model through focus on smart procurement and process optimization.
 Driving Innovation while managing complexities
Airtel is able to successfully run and scale up key business activities (Mobility,
DTH, Broadband and Airtel Business) along with growing new lines (Wynk, Airtel
TV etc.)despite different challenges associated.
 Open Telecom Platform - New Businesses
Airtel is in the process of transforming Airtel into an open platform of tomorrow
to seamlessly connect customers to the best brands and thus, create value for
entire ecosystem.

Management
The management of Bharathi Airtel is able to generate profit over the past
periods of operations and take into consideration the interest of all stakeholders
of the company. The management has considered the global, national and
sectoral position of the business and framed policies for ensuring the growth
perspectives of business they include,
 Ethics, Transparency and Accountability

 Product Lifecycle Sustainability

 Ensure Employees’ Well-being

 Commitment towards protection of Human Rights

 Protection of the Environment

 Systematic mapping through regular Stakeholder Engagement

 Responsible Policy Advocacy

 Support Inclusive Growth

 Providing Customer Value

Corporate Governance
CRISIL has assigned to Bharti Airtel its Governance and Value Creation (GVC)
rating, viz. CRISIL GVC Level 1 for Corporate Governance practices. At Bharti
Airtel, Corporate Governance focuses on creating and sustaining a deep
relationship of trust and transparency with all stakeholders. Governance
philosophy reflect commitment to disclose timely and accurate information
regarding our financial and operational performance, as well as leadership and
governance structure.

Transparent procedures and practices and decisions based

on adequate information.
> Compliance with all relevant laws in letter and spirit.
> High levels of disclosures to disseminate corporate, financial and operational
information to all stakeholders.
> Policies on tenure of Directors, rotation of Auditors and a Code of Conduct for
Directors and Senior Management.
> Constitution of various Committees for Audit, HR and Nomination, Risk
Management, Corporate Social Responsibility, Employee Stock Option Plans,
Stakeholders’ Relationship etc.
> Complete and timely disclosure of relevant financial and operational
information to enable the Board to play an effective role in guiding strategies.
> Meetings of Independent Directors without the presence of any Non-
Independent / Executive Directors and members from the management to
identify areas, where they need more clarity or information and for open and
transparent discussions and placing these before the Board and management.
> Formal induction schedule and familiarisation programme for new Board
members that enable them to meet individually with the top management team,
customers etc.
> Regularly reviews and establishes effective meeting practices that encourage
active participation and contribution from all members.
> Independence of Directors in reviewing and approving corporate strategy,
major business plans and activities.
> Well-defined corporate structure that establishes checks, balances and
delegates decision making to appropriate levels in the organisation though the
Board always remains in effective control of affairs.

The Corporate Structure

 At the apex level is the Board of Directors and various committees,

which collectively direct the highest standards of Corporate
Governance and transparency in the Company’s functioning. The Board
is chaired by the Chairman, who is responsible for the overall strategy
development, alliances, leadership development, international
opportunities, strengthening governance practices and enhancing
brand value and Airtel’s global image and reputation.

 At one level below the Board, strategic co-ordination and direction is

provided by the Airtel Corporate Council (ACC). The ACC is headed by
the Chairman and comprises the Managing Directors & CEOs and
selected senior management personnel as its members.

 The Managing Director & CEO (India & South Asia) is responsible for
strategy deployment and overall business performance of India and
South Asia. He is supported by the Airtel Management Board (AMB).
The Company’s business in India is structured into six business units
(BUs) i.e. Mobile Services, Homes, Airtel Business, Global Voice & Data
Business, Wynk and Emerging Businesses and Digital TV Services.
While the Mobile Services business is headed by the MD & CEO (India &
 South Asia) himself, the other five businesses are headed by respective
CEOs. The Company’s operations in India are run in 22 Circles, each
headed by Circle CEO or a Chief Operating Officer, each supported by
an Executive Committee. The Sri Lankan operations are headed by the
Country MD, supported by an Executive Committee.

 The Company’s operations in Africa are guided by the Managing

Director & CEO (Africa) of Bharti Airtel International (Netherlands) B.V.,
a subsidiary company. He is responsible for strategy deployment and
overall business performance. He is supported by the Africa Executive
Committee (Exco). Each of the operations in the 14 countries in Africa
are headed by a Country MD, each supported by an Executive
Committee.
 The AMB in India and South Asia, and Exco in Africa provide support
relating to the Company’s business strategy and also derive
operational synergies across business units.
Board Committees

Audit Committee
HR and Nomination Committee
Stakeholders’ Relationship Committee
Special Committee of Directors (Monetization o stake in Bharti Infratel
Limited)
Special Committee of Directors (Restructuring of overseas holding
structure)
Corporate Social Responsibility (CSR) Committee

Airtel’s governance structure thus helps in clearly determining the

responsibilities and entrusted powers of each of the business entities,
enabling them to full fill those responsibilities in the most effective manner. It
also allows the Company to retain the organisational DNA , while enabling
effective delegation of authority and empowerment at all levels.
Board of Directors
Mr. Sunil Bharti Mittal, Chairman
Mr. Ben Verwaayen
Ms. Chua Sock Koong
Mr. Craig Edward Ehrlich
Mr. Dinesh Kumar Mittal
Mr. Manish Kejriwal
Mr. Rakesh Bharti Mittal
Mr. Shishir Priyadarshi
Ms. Tan Yong Choo
Mr. V. K. Viswanathan
Mr. Gopal Vittal, Managing Director & CEO
(India & South Asia)
Managing Director & CEO (Africa)
Bharti Airtel International (Netherlands) B.V.
Mr. Raghunath Mandava
Chief Financial Officer
Mr. Nilanjan Roy
Company Secretary
Mr. Pankaj Tewari
Statutory Auditors
Deloitte Haskins & Sells LLP
Chartered Accountants
Internal Assurance Partners
Ernst & Young LLP
ANB & Co., Chartered Accountants
Cost Auditors
R.J. Goel & Co.,Cost Accountants

Corporate Culture
The Bharathi Airtel maintains good corporate culture, To create sustainable value
for all stakeholders, Airtel manages financial capital in an astute, optimum and
diligent manner, thereby harnessing opportunities for long-term value creation.
Intellectual Capital consists of strong brand, highly experienced people, world -
class technology and robust processes and systems. The intellectual capital
underpins company’s vision to ‘win customers for life’. They consistently strive to
innovate with new offerings, technologies and accessibility to bring brilliant
customer experience in an evolving industry landscape.
Bharti Airtel considers ‘Win With People’ to be one of the key business priorities
and firmly believe that Airtel’s success is a true reflection of its culture of pride,
ownership and sense of belongingness. ‘People Agenda’ is linked with the
organizational strategy where the company partner with 15,000 plus employees
under Airtel ILearn,Ascent and Embark programmes for building a world class
environment and helping them learn, lead and grow.
The quality of manufactured capital is ensured using quality of spectrum for
service and transparency using the Open Network platform developed by the
company.
The company prepared to step up business for next level growth, value creation
for key stakeholders remains the priority, this is ensured using Decision Tree,
Happy Code, Konnect App, e-KYC etc. The Company undertakes Corporate Social
Responsibility seriously spending around 0.26 % of 3 years average Net profit
through Bharathi Foundation mainly under educational and healthcare sector.
Airtel steadfast to responsible environment governance to ensure that
operations have minimum impact on the surrounding environment, The company
is trying hard to implement green approach in it’s operations. The approach
towards environment protection and conservation of natural resources is guided
by internal policies and applicable external standards.
 Reducing the impact of telecom infrastructure on the environment
 Reducing the impact of telecom infrastructure on the environment
 Resource and waste optimization
Quantitative Analysis of the Company
Earnings Of Company
The earnings of the company is in a growth stage for the years till 2016(Reliance
Jio’s market entry) which changed the telecom Industry drastically but Airtel was
able to maintain stability in market by leading the sector. The market
performance of Airtel was on the medium side the EPS and P/E ratio was almost
stable over the period and maintained low values.

Financial Leverage
The financial leverage of the company is on the negative side here which means
the company have a higher debt load on the assets of the company than
shareholders and the value of the firm goes on increasing with the increased
usage of debt, which is a riskier source.
Operating Leverage
The Operating leverage is positive for the company which means that the
company operates above the breakeven level and with the increase in operating
leverage the Earning Per Share(EPS) of the company increases directly in
proportion with the EBIT. companies with high operating leverage ratios are
poised to reap more benefits from good marketing, economic pickups, or other
conditions that tend to boost sales.

Competitive Edge
The Competitive edge of the company refers to the performance with regards to
the industrial performance which can be used for comparison with other firms.
The Competitive edge includes the Sales Growth of the company, market share
and presence and production efficiency.
The company is seeing a decrease in the sales growth in the recent years due to
the increased competition in the sector and the company has introduced new
methods to protect the profitability of the company.

The company has a very favourable market share and market position and tops
the industry with a total of 304.19 million rupees still with growing customers.
The Company maintains a production efficiency around 1.5 % for the whole
period of time. This indicates that the company uses it’s resources well.

Financial Analysis
The sales of the company has increased over the years and towards end it has
become almost stable and the growth rate began to decrease.

The profitability ratio is falling in the present period. The increased market
competition has been a major reason for this.
The cash flow over the period has been affected by steep fluctuations and has
negative values during some financial years.

Ratio Analysis:-

The company maintains a low liquidity ratio where the company is having double
the rate of current liabilities than the current and quick assets thus increases the
risk of meeting short term obligations.
The Activity ratios of the company shows a positive trend across the total period
except the working capital ratio where the company maintains more amount of
current liability than current assets.

The company maintains mediocre performance with regard to profitability

variables the higher the rate the performance increases and it can be seen only
in terms of Return on equity.
The company maintains good leverage and solvency ratio and is able to cover all
obligations. The company’s debt is more than equity all over the period and with
the increased use of debt capital to the end has resulted in the decrease of
interest coverage ratio towards the end. The Long term debt to asset ratio
indicates that the proportion of debtors in ownership is more.

The company has ensured a regular and high dividend payment and reasonable
dividend yield. The company maintains reserves out of retained earnings to meet
other obligations. The company has an increased growth rate on return on
equity.
Conclusion
Bharathi Airtel over the period has been the market leader in the telecom
industry and the company analysis of the company give insight to the
strongholds of the company and its growth perspective. The qualitative analysis
shows that the company has a good business model and corporate culture. The
quantitative analysis shows the financial performance and it suggests that the
company’s recent performance has been not up to the expectation due to the
change in market scenario with Reliance Jio’s entry and the company has
decided to overcome this reduction in revenue from direct operation by
diversification and ensuring revenue from indirect source,104.5 % growth in this
regard gives investors a ray of hope. With the leader with regard to new
technology with the coming of 5G in India and Growth in developing African
continent would increase the growth prospective of the company.