6/28/2012
Analysis of Telecom
Sector
At Cholamandalam
Securities
MASTER IN MANAGEMENT STUDIES
(MMS)
UNIVERSITY OF MUMBAI
SUBMITTED TO
GURUNANAK INSTITUTE OF
MANAGEMENT STUDIES
UNDER THE GUIDANCE OF
ANANTHANARAYANA J
SUBMITTED BY
NILESH J NAVI
2
Acknowledgement
“Gratitude is the hardest of emotions to express and often does not find adequate ways to
convey the entire one feels.”
Summer training is the one of the important part of MMS course, which has helped me to
learn a lot of experiences which will be beneficial in my succeeding career.
For this with an ineffable sense of gratitude I take this opportunity to express my deep sense
of indebtedness to Respected Dr. Vidya Hatangadi, Director of the Gurunanak Institute of
Management Studies, who has provided me an opportunity to learn the corporate culture
during my MMS course. At the same time I want to thanks all my faculty members.
I am also very much thankful to Mr.Ananthanarayan J, AVP institutional Sales,
Cholamandalam Securities, for his interest, constructive appreciation, persistent
encouragement and untiring guidance throughout the development of the project. It has been
my great privilege to work under his inspiring guidance.
Further I would also like to extend my sincere ‘Thanks’ to Mr. Riken Mehta, Branch Equity
Manager, for his valuable guidance, suggestions and outstanding mentorship. I am also
thankful to Mr. Girish Patil for extending support & guidance. I would have never been able
to complete my project without the enormous help extended by the whole staff of
Cholamandalam Securities.
3
Declaration
I, Nilesh J Navi, Student of 3rd Semester (MMS (Finance)), Roll no. 36, Gurunanak
Institute of Management Studies, Matunga declare that the project on “EQUITY ANALYSIS
OF THE TELECOM SECTOR is the result of my own effort and it is based on data collected
and guidance given to me.
I have prepared this project during my Summer Internship from 2nd May 2012 and the
same was completed on 30th June 2012. This report is correct to my knowledge and so far has
not been published anywhere else.
NILESH J NAVI
4
TABLE OF CONTENTS
S.No
CHAPTERS
PAGE. NO.
CHAPTER – 1: INTRODUCTION
1.1
Sectorial Analysis
6
1.2
Fundamental Analysis
20
1.3
Company Profile
25
1.4
Telecom Company Profile
32
CHAPTER – 2: DEVELOPMENT OF MAIN THEME
2.1
Need / Rational of the study
41
2.2
Limitations of the study
42
2.3
Objectives of the study
43
CHAPTER – 3: ANALYSIS & INTERPRETATION
3.1
3.2
Research Methodology
Analysis & Findings
45
47
3.3
Suggestions
60
3.4
Conclusion
61
APPENDIX
Bibliography
63
5
CHAPTER 1
INTRODUCTION
6
EXECUTIVE SUMMARY
The field of equity research is very vast and one has to look into various aspects of the
functioning of the company to get to any conclusion about the possible performance of the
company in the market. Investors like warren buffet made a fortune out of investments in the
stock market, which is quiet impossible without proper research about the companies. The
field of equity research is full of challenges. It is your door to fame, fortune and, above all,
professional challenge. In a world that is shrinking in size due to information technology and
blurring boundaries between nations, the stock market (or the equities market), which is
considered to be in its infant stage, is all set to grow in size.
The project on “Analysis of Telecom Sector” was carried out in Cholamandalam Investment
& Finance Co. Ltd, a very well known company in the field of stock broking and capital
market services sector. The duration of the project was two months i.e. from 2 nd May 2012 to
30th June 2012. These two months were not only limited to learning and devoting time
towards equity research but it also provided an insight on what various services such broking
houses provide and what efforts are required to manage such organizations.
The reason behind choosing this project is that it provides hands on experience with what
goes on in the stock market on a day-to-day basis. Some value investors only look at present
assets/earnings and don't place any value on future growth. Other value investors base
strategies completely around the estimation of future growth and cash flows. Despite the
different methodologies, it all comes back to trying to buy something for less than it is worth.
The project initiated with understanding the mannerisms of the stock market trading followed
by the dynamics of the telecom sector. Some of the major players in Telecom sector were
then chosen for further analysis. These companies were further studied in detail with respect
to their financials and fundamental aspects.
7
OVERVIEW OF THE INDIAN SECURITIES MARKET
Introduction:The Indian security market, considered one of the most promising emerging markets, is
among the top eight markets of the world. The stock exchange, Mumbai, which was
established in 1875 as “The native Share and stock broker Association” (a voluntary nonprofit making association), has evolved over the years into its present status as the premier
Stock Exchange in the Country. At present 24 stock exchanges provide facilities for trading
securities. Securities markets provide a common platform for transfer of fund from the person
who has excess funds to those who need them. Securities market is regulated by the
Securities & Exchange Board of India (SEBI).
Component of Security Market
The major components of the securities market are listed below:
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Securities-Shares, Bonds, Debentures, Futures, options, Mutual Fund Units
Intermediaries-Brokers, Sub brokers, Custodians, Share transfers agents, Merchant
Bankers
Issuer of Securities-Companies, Bodies corporate, Government, Financial Institutions,
Foreign Institutional investors
Market Regulators-SEBI, RBI, (to some extent), Department of Company Affairs
8
TELECOM SECTOR IN INDIAN ECONOMY
India, emerging as a major player:
In 1975, the Department of Telecom (DoT) was separated from P&T. DoT was responsible
for telecom services in entire country until 1985 when Mahanagar Telephone Nigam Limited
(MTNL) was carved out of DoT to run the telecom services of Delhi and Mumbai. In 1990s
the telecom sector was opened up by the Government for private investment as a part of
Liberalisation-Privatization-Globalization policy. Therefore, it became necessary to separate
the Government's policy wing from its operations wing.
The Government of India corporatised the operations wing of DoT on October 01, 2000 and
named it as Bharat Sanchar Nigam Limited (BSNL). Many private operators, such as
Reliance India Mobile, Tata Telecom, Hutch, BPL, Bharti, Idea etc., successfully entered the
high potential Indian telecom market.
Growth of mobile technology:
India has become one of the fastest growing mobile markets in the world [2]. The mobile
services were commercially launched in August 1995 in India. In the initial 5-6 years the
average monthly subscribers additions were around 0.05 to 0.1 million only and the total
mobile subscribers base in December 2002 stood at 10.5 millions. However, after the number
of proactive initiatives taken by regulator and licensor, the monthly mobile subscriber
additions increased to around 2 million per month in the year 2003-04 and 2004-05.
Although mobile telephones followed the New Telecom Policy 1994, growth was tardy in the
early years because of the high price of handsets as well as the high tariff structure of mobile
telephones. The New Telecom Policy in 1999, the industry heralded several pro consumer
initiatives. Mobile subscriber additions started picking up. The number of mobile phones
added throughout the country in 2003 was 16 million, followed by 22 millions in 2004, 32
million in 2005 and 65 million in 2006 and over 100 million by mid of 2007. The only
countries with more mobile phones than India with 156.31 million mobile phones are China –
408 million and USA – 185 million.
India has opted for the use of both the GSM (global system for mobile communications) and
CDMA (code-division multiple access) technologies in the mobile sector. In addition to
landline and mobile phones, some of the companies also provide the WLL service.
The mobile tariffs in India have also become lowest in the world. A new mobile connection
can be activated with a monthly commitment of US$ 5 only. In 2005 alone 32 million
handsets were sold in India. The data reveals the real potential for growth of the Indian
mobile market.
9
NEW DEVELOPMENTS IN
TELECOMMUNICATIONS SECTOR
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Launch of MNP services
Proposed telecommunications infrastructure policy
Approach towards green telecommunications
Proposed telecommunications equipment manufacturing policy
New National Telecommunications Policy
Update on lawful interception
Comment
This update sets out some of the recent significant developments and proposed developments
in the Indian telecommunications sector. All such developments and policy initiatives are
aimed at making the sector more beneficial, for both service providers and consumers in
India.
1. Launch of MNP services
Mobile number portability (MNP) services were launched in India on January 20 2011. MNP
permits mobile phone users to change their service providers without having to forgo their
numbers. To make use of the MNP service, a customer must pay a maximum of Rs19 to the
new operator for 'porting' the number. The customer must send a text message from the
existing phone to 1900. Based on this, a unique porting code will be sent by the existing
service provider to the customer. The customer must then file an application with the new
service provider mentioning the code for transferring the connection. A subscriber is eligible
to make a request for porting his or her number provided that a period of 90 days has expired
from:


The date of activation of his or her mobile connection in the case of a mobile number
not ported earlier; or
From the date of activation of his or her mobile number after its last porting, in the
case of a mobile number which has been ported earlier.
2. Proposed telecommunications infrastructure policy
On April 13 2011 the Telecom Regulatory Authority of India (TRAI) released its
recommendations on telecommunications infrastructure policy. At present, India does not
have a policy for ensuring the growth and deployment of an efficient telecommunications
infrastructure. The TRAI has formulated recommendations based on a consultation process.
This recommendation suggests, among other things, that:



the telecommunications infrastructure be treated as an essential infrastructure;
infrastructure provider-1 (IP-1) companies be brought under the unified licence;
telecommunications infrastructure provider companies be extended tax benefits; and
10

IP-1 companies be permitted to install and share active networks (limited to antenna,
feeder cable, Node B, Radio Access Network and transmission systems), provided that
they are brought under the proposed unified licensing regime.
3. Approach towards green telecommunications
On April 12 2011 the TRAI released its recommendations on the approach towards green
telecommunications. With the increasing pervasiveness of mobile phones and the widespread
adoption of information and communications technology (ICT) worldwide, the ICT sector is
expected to contribute around 3% of global greenhouse gas emissions by 2020. While
globally the telecommunications sector contributes around 0.7% of greenhouse gas
emissions, the corresponding figure in India is 1%. While this might appear insignificant in
absolute terms, the rapid growth of telecommunications envisaged over the next decade calls
for an effort to contain and reduce its carbon footprint. Carbon emissions in the
telecommunications sector are mainly from three areas - network operations, equipment
manufacturing and waste disposal.
Among other things, the TRAI suggested that measures to make the telecommunications
sector more environmentally friendly should be an integral part of the proposed National
Telecom Policy. At least 50% of rural towers and 33% of urban towers should be powered by
hybrid power (a combination of renewable energy technologies and grid power) by 2015,
while all rural towers and 50% of urban towers should be hybrid-powered by 2020. By 2015,
all products, equipment and services in the telecommunications network should be assessed
for energy and performance and certified with a 'green passport', including an energy
consumption rating (ECR), and an 'energy passport'.
The Telecommunications Engineering Centre (TEC) should be the nodal centre, which will
certify telecommunications products, equipment and services on the basis of ECR ratings.
The TEC can either appoint independent certifying agencies under its guidance or certify
them through its quality assurance teams. The TEC must also prepare and issue an ECR
document delineating the specifics of the test procedures and the measurement methodology
used.
By 2015, all mobile phones must be free of brominates, chlorinated compounds and antimony
trioxide in accordance with the E-waste (Management and Handling) Rules 2010 proposed by
the Ministry of Environment and Forests, to be followed by all telecommunications
manufacturers, as and when notified. All mobile manufacturers and distributors must place
collection bins at appropriate places for the collection of e-waste, including mobile phones,
batteries and chargers. All service providers must declare the carbon footprint of their
network operations to the TRAI, in the prescribed format.
11
4. Proposed telecommunications equipment manufacturing policy
On April 12 2011 the TRAI also released its recommendations on telecommunications
equipment manufacturing policy. These recommendations outline:
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
Policy targets;
Measures to achieve these targets;
A plan of action;
The financial implications of the measures proposed; and
The benefits of the policy.
The proposed policy aims to enhance the share of domestically manufactured products. They
can be either Indian manufactured products (IMPs) or Indian products (IPs), based on where
the IP rights reside. Under the proposal, domestically manufactured products will be given
preferential market access, to the extent of the percentages indicated for them. All
government licensees are required to give preference to an IP or IMP (in that order) before
accessing low value-added products or imported products. Under the recommendations, all
domestic manufacturers with an annual turnover of less than Rs10 billion will receive a
subsidy for equity capital and working capital for a period of five years, at a rate of 6% for IP
manufacturers and 3% for IMP manufacturers. The recommendations also propose a variety
of fiscal incentives for domestically manufactured products.
5. New National Telecommunications Policy
The first National Telecommunications Policy (NTP) was announced by the government in
1994, when there were around 8 million telecommunications lines.(1) The 1994 NTP defined
certain important objectives, including:
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
The availability of telephone on demand;
The provision of basic telecommunications services at affordable and reasonable prices
and at world standards; and
The promotion of India's emergence as a major manufacturing base and exporter of
telecommunications equipment.
Private sector participation was also invited, with licences issued to 14 operators in the
private sector. In 1999 a new NTP was announced that further opened up the
telecommunications sector for private sector participation. Key objectives of the 1999 NTP
included:




Availability of affordable and effective access to telecommunications;
Creation of a modern and efficient telecommunications infrastructure;
Transformation of the telecommunications sector into a more competitive sector; and
Enhanced efficiency and transparency in spectrum management.
12
The telecommunications sector has since witnessed drastic growth - by September 30 2010
the total telephone subscriber base had reached 723.28 million.(2) As a consequence, the
minister of communications and information technology recently announced plans for a 2011
NTP. Consultations will be held with stakeholders to formulate a clear and transparent
telecommunications regime covering:
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Licensing;
Spectrum allocation;
Tariffs and pricing;
Flexibility within licences;
Spectrum sharing;
Spectrum trading; and
Mergers and acquisitions.
The minister also added that three elements - revenue for the government, affordable services
to users and robust growth of the sector - would be the base on which the new
telecommunications policy would be built.
6. Update on lawful interception
On October 18 2011 the Department of Telecommunication issued a public notice directed at
all persons and companies that have imported, procured or possess equipment or sub-systems
for the monitoring, interception or surveillance of communication. Such persons must inform
the department of the details of such equipment within 60 days of publication of the notice, to
the relevant telecommunications enforcement, resource and monitoring cells of the
Department of Telecommunications.
The notice makes it clear that the government has the power to order the interception of
telegraph messages (i.e., any communication sent by telegraph or given to a telegraph officer
to be sent by telegraph or to be delivered) under the Telegraph Act 1885, in the interest of the
sovereignty or integrity of India, the security of the state, friendly relations with foreign states
or public order, or for preventing incitement to the commission of an offence. The Telegraph
Act defines 'telegraph' as:
"any appliance, instrument, material or apparatus used or capable of use for transmission or
reception of signs, signals, writing, images and sounds or intelligence of any nature by wire,
visual or other electro-magnetic emissions, Radio waves or Hertzian waves, galvanic,
electric or magnetic means".
7. Comment
Driven by various policy initiatives, the Indian telecommunications sector has witnessed a
complete transformation in the last decade. It has achieved phenomenal growth during the
last few years and is poised to take a big leap in the future.
13
HISTORY OF INDIAN TELECOMMUNICATION
India is the world’s fastest growing industry in the world in terms of number of wireless
connections after China, with 811.59 million mobile phone subscribers.
According to the world telecommunications industry, India will have 1.200 billion mobile
subscribers by 2013.
Furthermore, projections by several leading global consultancies indicate that the total
number of subscribers in India will exceed the total subscriber count in the China by 2013.
So how Telecommunication started in India??
Well Postal means of communication was the only mean communication until the year 1850.
In 1850 experimental electric telegraph started for first time in India between Calcutta
(Kolkata) and Diamond Harbor (southern suburbs of Kolkata, on the banks of the Hooghly
River).
In 1851, it was opened for the use of the British East India Company. Subsequently
construction of telegraph started throughout India. A separate department was opened to the
public in 1854. Dr.William O’Shaughnessy, who pioneered the telegraph and telephone in
India, belonged to the Public Works Department, and worked towards the development of
telecom. Calcutta or the-then Kolkata was chosen as it was the capital of British India.
In early1881, Oriental Telephone Company Limited of England opened telephone exchanges
at Calcutta (Kolkata), Bombay (Mumbai), Madras (Chennai) and Ahmedabad. On the 28th
January 1882 the first formal telephone service was established with a total of 93 subscribers.
From the year 1902 India drastically changes from cable telegraph to wireless telegraph,
radio telegraph, radio telephone, trunk dialing. Trunk dialing used in India for more than a
decade, were system allowed subscribers to dial calls with operator assistance. Later moved
to digital microwave, optical fiber, satellite earth station. During British period all major
cities and towns in India were linked with telephones.
So who was looking after Telecom??
In the year 1975 Department of Telecom (DoT) was responsible for telecom services in entire
country after separation from Indian Post & Telecommunication. Decade later Mahanagar
Telephone Nigam Limited (MTNL) was chipped out of DoT to run the telecom services of
Delhi and Mumbai.
In 1990s the telecom sector was opened up by the Government for private investment. In1995
TRAI (Telecom Regulatory Authority of India) was setup. This reduced the interference of
Government in deciding tariffs and policy making. The Government of India corporatized the
operations wing of DoT in 2000 and renamed Department of Telecom as Bharat Sanchar
Nigam Limited (BSNL).
In last 10 years many private operator’s especially foreign investors successfully entered the
high potential Indian telecom market. Globally acclaimed operators like Telenor, NTT
Docomo, Vodafone, Sistema, SingTel, Maxis, Etisalat invested in India mobile operators.
14
Wireless Communication
Pager Services
Pager communication successful launched in India in the year 1995. Pagers were looked upon
as devices that offered the much needed mobility in communication, especially for
businesses. Motorola was a major player with nearly 80 per cent of the market share. The
other companies included Mobilink, Pagelink, BPL, Usha Martin telecom and Easy call.
Pagers were generally worn on the belt or carried in the pocket.
The business peaked in 1998 with the subscriber base reaching nearly 2 million. However,
the number dropped to less than 500,000 in 2002. The pager companies in India were soon
struggling to maintain their business. While 2-way pagers could have buffered the fall, the
pager companies were not in a position to upgrade their infrastructure to improve the ailing
market. The Indian Paging Services Association was unable to support the industry.
Pager companies in India also offered their services in regional languages also. However, the
end had begun already. By 2002, Motorola stops making or servicing pagers. When mobile
phones were commercially launched in India, the pager had many advantages to boast. Pagers
were smaller, had a longer battery life and were considerably cheaper. However, the mobile
phones got better with time and continuously upgraded themselves.
Mobile Communication
First mobile telephone service on non-commercial basis started in India on 48th
Independence Day at country’s capital Delhi. The first cellular call was made in India on July
31st, 1995 over Modi Telstra’s MobileNet GSM network of Kolkata. Later mobile telephone
services are divided into multiple zones known as circles. Competition has caused prices to
drop and calls across India are one of the cheapest in the world.
Most of operator follows GSM mobile system operate under 900MHz bandwidth few recent
players started operating under 1800MHz bandwidth. CDMA operators operate under
800Mhz band, they are first to introduce EVDO based high speed wireless data services via
USB dongle. In spite of this huge growth Indian telecom sector is hit by severe spectrum
crunch, corruption by India Govt. officials and financial troubles.
In 2008, India entered the 3G arena with the launch of 3G enabled Mobile and Data services
by Government owned MTNL and BSNL. Later from November 2010 private operator’s
started to launch their services.
Broadband communication
After US, Japan, India stands in third largest Internet users of which 40% of Internet used via
mobile phones. India ranks one of the lowest provider of broadband speed as compared
countries such as Japan, India and Norway. Minimum broadband speed of 256kbit/s but
speed above 2Mbits is still in a nascent stage.
Year 2007 had been declared as “Year of Broadband” in India. Telco’s based on
ADSL/VDSL in India generally have speeds up to 24Mbit max while those based on newer
Optical Fiber technology offer up to 100Mbits in some plans Fiber-optic communication
(FTTx). Broadband growth has been plagued by many problems. Complicated tariff structure,
metered billing, High charges for right of way, Lack of domestic content, non implementation
of Local-loop unbundling have all resulted in hindrance to the growth of broadband.
15
Next Generation Network (NGN)
Next Generation Networks, multiple access networks can connect customers to a core
network based on IP technology. These access networks include fiber optics or coaxial cable
networks connected to fixed locations or customers connected through Wi-Fi as well as to 3G
networks connected to mobile users.
As a result, in the future, it would be impossible to identify whether the next generation
network is a fixed or mobile network and the wireless access broadband would be used both
for fixed and mobile services. It would then be futile to differentiate between fixed and
mobile networks both fixed and mobile users will access services through a single core
network. Cloud based data services are expected to come.
Indian Satellites
India has launched more than 50 satellites of various types, since its first attempt in 1975. The
organization responsible for Indian satellites is the Indian Space Research Organization
(ISRO). Most Satellites have been launched from various vehicles, including American,
Russian, European satellite-launch rockets, and the U.S. Space Shuttle. First Indian satellite
Aryabhata on 19th April 1975, later Bhaskara, Rohini, INSAT, Edusat, IRS, GSAT, Kalpana,
Cartosat, IMS, Chandrayaan, ResourceSat, RiSat, AnuSat, etc.
Well guys this is how telecom Industry is growing in India, hope to see India far ahead of
other countries in near future.
16
INDIAN TELECOM INDUSTRY
CURRENT SCENARIOS
If I look two years back, a mobile user would never have imagined that two years down the
line he could be talking to someone on an STD call at a tariff quite less than that of local
calls! This has happened and we all are witnessing it.
The competition in present Indian market has never been so intense as it is now, no matter if
the operator is incumbent or a newbie, we can hear about the launch of new tariff plans, easy
recharge vouchers, free minutes calling and more exclusive services almost on daily basis and
still feel that a lot more is yet to come. It seems that one day an ideal mobile user will be
confused about what plan to choose among the countless options available. Anyway that day
seems to be near and we all are going to witness that but what our eyes are witnessing right
now is the punch line “Why can’t your mobile operator count in seconds?”
Have you ever gone through this suchlike? If ‘Yes’ then you would be reading about none
other than TATA DOCOMO.
During its early launch, some conceptions were held that would TATA flourish with its GSM
network or not? There are still so many GSM operators in India would TATA be able to
make a mark among this huge set of competition? Yet it has proved its mark by achieving a
milestone – 5 lakh subscribers in Tamil Nadu circle, barely a month after the launch of its
service.
The launch of new tariff plans which captured every talking mouth and it’s 1p/sec or the
launch of “Diet SMS”, wherein the company will levy charges only for the characters sent in
the short message under the scheme Diet-SMS. Moreover its website is showing us how
much we can save by getting per sec pulse scenario amazing!!! Also the launch of ‘Pay Per
Call’ plan by TATA INDICOM thrived the telecom industry as the way by any CDMA
operator has done, till now.
All this again resulted in the permanent setting of a per-second pulse and lesser tariffs by
other GSM/CDMA operators too – AIRCEL & MTS. The recently released data of net
telecom subscribers added in the month of August released by COAI, shows a steady decline
in the count of new GSM subscribers. The expert says that it was quite expected – we can
have a look at the number of new GSM subscribers being added month on month: 10.8
million (March 2009), 9.89 million (July 2009) and 9.74 million (August 2009).
The questions still arise: Whether these trends can pose a threat to upcoming Telecom
operators who have yet to start their operations or in future time something else is to be seen!
Whether is it about the total number of subscriber base or new subscribers added by an
17
operator in August, AIRTEL is maintaining its position at no 1 spot. IDEA, AIRCEL &
RELIANCE GSM have shown a steady growth in net % gain in comparison with previous
month, with IDEA Cellular showing 0.03% gain, Aircel has 0.18% and Reliance GSM 0.02%
gain all the way.
The dates for the 3G auction have been announced and Mobile Number Portability (MNP)
declared to hit the country in December 2009, but the future talks / presumptions remain the
same about MNP. “Will subscribers start jumping from existing incumbent operator to
newbie’s giving more lucrative plans” and the mentioned point feels quite debatable, I have
been asked many a times about my views on the same so I just want to share with all our
esteemed reader of TELECOM TALK what my guess would be: the most use of MNP will be
done amongst the youth segment and that too for getting group plans free/CUGs more low
tariff’s, and mostly for those who calls to any one number particularly the most and want that
they must pay the less they can.
Secondly MNP would be a thought for that person who is frustrated with his over-busy
network during peak hours and daily ridicules the network, because of what use is a cell
phone indeed if one cannot make an urgent call at his desired time. The same thought applies
for a person who has to often roam out of his home network and he’ too once again becomes
a victim of network not supporting him fully when in roaming or charges which are way too
high!
Another factor affecting MNP will be “Word of mouth’” – yes and quite obviously there are
very less people who read telecom articles & news. If one’s friend tells the other that he is
getting N number of benefits in his or her plan given by this network and if plans are really
affable this type of “Word of mouth” will generally influence an ideal customer to think
about MNP. The fifth genre comes of ‘Operator loyal customers’ who are using a particular
operator for years and don’t face network hazards often and are quite happy with the services,
mostly this segment comprises of post-paid customers. This genre will be least prone to
MNP. These were some of the scenarios related to MNP and there could be many had any
one talked about the shifting of co-corporate connections in name of MNP if not then also
give a thought.
So Operators hold your subscribers firmly, provide them with good network coverage,
lucrative plans etc. because the only thing which was previously holding a dissatisfied
subscriber was the retention of the same ’10digit mobile number’ and now he’s about to get
the privilege of shifting to the rosiest garden available in the telecom sphere!
All Our TELECOM TALK reader are invited to share their views freely on the current Indian
telecom scenarios ‘healthy & beneficial discussions Not just lame comments please share
your valuable views.
18
TELECOM COMPANY – COST ANALYSIS
After discussing the revenue aspects of telecom service providers, let us now understand the
major cost heads for these companies. These cost heads can be broken up into regulated and
non-regulated costs. Entry fee, access deficit charge and license fee are regulated. On the
other hand, sales, general and administrative (SG&A) and employee expenses are nonregulated in nature.
Entry fee:
The companies providing national and international long distance (NLD and ILD) services
are required to pay a flat entry fee of Rs 25 m each (from earlier fees of Rs 1,000 m and Rs
250 m respectively). These fees are to be paid to the central government for obtaining a
license for providing these services.
Access deficit charge:
The government also collects from the cellular operators an access deficit charge. The charge
payable is 1.5% percent of non-rural annual gross revenue (AGR) of the telecom service
providers and the amount collected is used to subsidise the telecom service provided by
BSNL in rural areas.
License fees:
Telecom companies are required to pay an annual license fee of 6% of their AGR to the
Government of India. Licenses offered to the telecom players are for a limited period of time
and these are required to be renewed on expiry.
SG&A expenses:
Telecom companies incur expenditure in the form of advertisement costs for enhancing their
visibility and also to make their brand more appealing to the consumers. Expenses are also
incurred on customer acquisition and on maintenance of telecom equipment and network.
Personnel expenditure:
These are costs incurred for maintaining the staff for executing the telecom companies'
marketing strategies, for general administrative purposes, for maintenance and repair of
telecom infrastructure, and customer relationship management in call centres.
Apart from these operating costs, telecom companies also incur cost for servicing debt and
tax payments. Telecom is an operating leverage play (indicates that each new subscriber will
come at a higher profitability than the previously added subscriber), and, as such, the benefits
of faster subscriber addition are directly seen on companies' improving operating profitability
(as fixed costs are apportioned over a larger subscriber base).
19
NEW TELECOM POLICY
In the spotlight is the upcoming new telecom policy. Early signs pointed to a policy that will
charge additional fees for licences and spectrum restrict mergers and acquisitions and impose
limitations on companies, such as a curb on sharing spectrum between operators. It was quite
contradictory to the early discourse from the telecom ministry that Kapil Sibal took over.
Yet the new policy is unlikely to come out before the second half of 2012 given the large
number of stakeholders. Till then, companies will bide their time and survive on incremental
moves rather than any major strategic corporate action, said Ajay Srinivasan, head of industry
research at CRISIL. The sector is hopeful that the long-awaited reform will make it profitable
again, issuing a universal license, rather than separating the country into 22 different circles
or service areas.
The industry expects a clearer statement on spectrum and licence charges. After paying a
hefty Rs 51,000 crore for 3G airwaves the private sector telecom companies also expect
increased charges on the current voice calling technology they are using.
Nilangshu Katriar, partner in the Indian arm of Ernst & Young Global, said charges on
additional spectrum, clarity on terms of license renewal, and terms of spectrum trading will
be essential elements of the policy that will govern the future interest of investors in the
sector.
The government, seeing the success of the auction of 3G spectrums, has set targets on
revenue from telecom companies, including fees from auctioning new airwaves in the 700
MHz frequency. However, operators say bidding for spectrum is not likely to beat that of the
3G auction. Vodafone India chief Marten Pieters said that the 3G spectrum bids them would
have been half had there been four available slots instead of three.
"I wish they stop squeezing the sector like a lemon and take a more moderate view keeping in
mind companies need to generate returns," said a senior official at one of the top three Indian
telecom operators.
Ballooning debt from 3G licence fees, high interest rates and a lending freeze on the sector
since the outbreak of the 2G scam have brought expansion and investments from telecom
companies in India to a near standstill. Companies have been consolidating and providing 3G
services in areas where they see highest revenue opportunity, such as metro cities.
20
FUNDAMENTAL
ANALYSIS
21
Fundamental analysis
refers to the study of the core underlying elements that
influence the economy of a particular entity. It is a method of study that attempts to predict
price action and market trends by analyzing economic indicators, government policy and
societal factors (to name just a few elements) within a business cycle framework.
I. ECONOMIC ANALYSIS:
POLITICO-ECONOMIC ANALYSIS:
No industry or company can exist in isolation. It may have splendid managers and a
tremendous product. However, its sales and its costs are affected by factors, some of which
are beyond its control - the world economy, price inflation, taxes and a host of others. It is
important, therefore, to have an appreciation of the politico-economic factors that affect an
industry and a company.
II. INDUSTRY ANALYSIS
The importance of industry analysis is now dawning on the Indian investor as never before.
1. BARRIER TO ENTRY
New entrants increase the capacity in an industry and the inflow of funds. The question that
arises is how easy is it to enter an industry?
There are some barriers to entry:
a) Economies of scale
b) Product differentiation
c) Capital requirement
d) Government policy
2. THE THREAT OF SUBSTITUTION
New inventions are always taking place and new and better products replace existing ones.
An industry that can be replaced by substitutes or is threatened by substitutes is normally an
industry one must be careful of investing in. An industry where this occurs constantly is the
packaging industry -bottles replaced by cans, cans replaced by plastic bottles, and the like. To
ward off the threat of substitution, companies often have to spend large sums of money in
advertising and promotion.
22
3. BARGAINING POWER OF THE BUYERS
In an industry where buyers have control, i.e. in a buyer's market, buyers are constantly
forcing prices down, demanding better services or higher quality and this often erodes
profitability.
4. BARGAINING POWER FOR THE SUPPLIERS
An industry unduly controlled by its suppliers is also under threat.
5. RIVALRY AMONG COMPETITORS
Rivalry among competitors can cause an industry great harm. This occurs mainly by price
cuts, heavy advertising, additional high cost services or offers, and the like.
III. COMPANY ANALYSIS:
At the final stage of fundamental analysis, the investor analyzes the company. This analysis
has two thrusts:
How has the company performed vis-à-vis other similar companies?
And
How has the company performed in comparison to earlier years?
It is imperative that one completes the politico economic analysis and the industry analysis
before a company is analyzed because the company's performance at a period of time is to an
extent a reflection of the economy, the political situation and the industry. What does one
look at when analyzing a company?
The different issues regarding a company that should be examined are:




The Management
The Company
The Annual Report
Ratios
23
THE MANAGEMENT:
The single most important factor one should consider when investing in a company and one
often never considered is its management. In India management can be broadly divided in
two types:


Family Management
Professional Management
THE COMPANY:
An aspect not necessarily examined during an analysis of fundamentals is the company. A
company may have made losses consecutively for two years or more and one may not wish to
touch its shares - yet it may be a good company and worth purchasing into. There are several
factors one should look at.
THE ANNUAL REPORT:
The primary and most important source of information about a company is its Annual Report.
By law, this is prepared every year and distributed to the shareholders. Annual Reports are
usually very well presented. A tremendous amount of data is given about the performance of
a company over a period of time.
The Annual Report is broken down into the following specific parts:
A) The Director's Report,
B) The Auditor's Report,
C) The Financial Statements, and
D) The Schedules and Notes to the Accounts.
RATIOS:
Ratios express mathematically the relationship between performance figures and/or
assets/liabilities in a form that can be easily understood and interpreted. No single ratio tells
the complete story. Ratios can be broken down into four broad categories:
24
 Profit and Loss Ratios
These show the relationship between two items or groups of items in a profit and loss account
or income statement.
 Balance Sheet Ratios
These deal with the relationship in the balance sheet such as:
1. Current assets to current liabilities.
2. Liabilities to net worth.
 Balance Sheet and Profit and Loss Account Ratios.
These relate an item on the balance sheet to another in the profit and loss account such as:
1. Earnings to shareholder's funds.
2. Net income to assets employed.
 Financial Statements and Market Ratios
These are normally known as market ratios and are arrived at by relative financial figures to
market prices:
1. Market value to earnings and
2. Book value to market value.
(a) Market value
(b) Earnings
(c) Profitability
The major ratios that are considered:
(i) Market value
(ii) Price- earnings ratio
(iii) Market-to-book ratio
(iv) Earnings
(v) Earnings per share
(vi) Dividend per share
25
COMPANY OVERVIEW
“CHOLAMANDALAM SECURITIES LTD”
26
“CHOLAMANDALAM SECURITIES LTD”
Cholamandalam Investment and Finance Company Ltd (CIFCL) was incorporated in 1978
with initially offering asset finance through leasing and hire purchase to corporates and then
to retail customers. It has since evolved itself into a large, composite financial services
organization. Today, Cholamandalam Investment and Finance Company Ltd (CIFCL) offers
stock broking, mutual fund and investment advisory services through its subsidiaries. The
basic tenet of their values is a strict adherence to ethics and a responsibility to all those who
come within its corporate ambit - customers, shareholders, employees and society
VEHICLE
FINANCE
DISTRIBUTI
ON
SERVICES
HOME
EQUITY
LOANS
CIFCL
CORPORATE
MORTGAGE
SECURITIES
GOLD
LOANS
27
Products offered
Vehicle finance
Chola Vehicle Finance offers finance for a large variety of vehicles through a wide range of
products. It includes products from small commercial vehicles to Light and Heavy
Commercial Vehicles and from Multi Utility Vehicles to tractors and cars. They offer finance
for both new and used vehicles.
Home equity loans
It provides home equity loans at affordable rates. It provides loans from 10 lakhs to 5 crores
depending on the needs. Longer tenure loans for easy repayment. They also provide fast
track approvals and special products for self-employed.
Corporate mortgage finance
The Corporate mortgage finance division caters primarily to Corporate, Promoters, High Net
worth Individuals and Retail investors. The acceptable collaterals are listed Equity shares,
Mutual Fund units, Add Gold ETFs, Property in nature of commercial/residential space and
other assets.
Gold loans
Innovative strategies representing their philosophy of safety, trust and transparency is
provided to the gold loan customers. Chola also intends to be part of the financial inclusion
strategy by serving customers who are bereft of banking services.
Securities
Cholamandalam Securities is a registered Member of NSE and BSE since 1995 and a
depository participant in National Securities Depository Ltd (NSDL) and Central Depository
Services Ltd (CDSL). The company offers its clients a complete package in broking services,
with an on-line and off line trading platform, enabling prompt customer service. The
company provides advisory services to its select client base, through responsive research and
scientific market analysis. The company also created a Mutual Fund Service System (MFSS),
enabling Mutual Fund and Equity transactions through a single window
Distribution services
Cholamandalam Distribution Services provides wealth management services to its 2,000 plus
client base. As part of its growth initiatives, the division has created sectoral , client servicing
groups, to handle Portfolio spreads in Mutual Funds, Corporate Deposits, Infrastructure
Bonds, Share Trading and other fee based financial products. Educational loans and
facilitation of real estate transactions are the other financial services here. To enlarge the
scope of its operations, the company entered into cross sell tie-ups with the Group companies,
accessing a large and captive client base.
28
Net profit (in Rupees Billions)
2
1.72
1.8
1.6
1.4
1.2
1
0.8
0.6
0.62
0.59
0.42
0.4
0.15
0.2
0
2008
2009
2010
2011
2012
YEAR
Revenue from each segment (Year ended March 2012)
Distribution
0.50%
Broking
0.28%
Financial
99.21%
Majority of the revenues came from the financial services put together. Broking contributes to 0.28%
and distribution service contributes to 0.50%.
29
MANAGEMENT
Cholamandalam Investment and Finance Company Ltd (CIFCL), in its efforts to pursue
principles of corporate governance, have the following management team.
Mr. M B N Rao
Mr. N Srinivasan
Mr. Vellayan Subbiah
Mr Kaushik Banerjee
Mr. Rohit Phadke
Chairman
Vice-Chairman
Managing Director
President Asset Finance
Sr. Vice President & Business Head-Home Equity
Mr. Arul Selvan,
Sr. Vice President & Chief Financial Officer
SHARE HOLDING PATTERN
International finance corporation
Other
institution
al and
individual
investors
9%
29%
Promoters
62%
30
CHOLAMANDALAM SECURITIES LIMITED
It was started in 1994 and is a subsidiary of Cholamandalam investment and finance limited.
 It provides broking services to HNIs and Institutional Investors
 It is present across 11 metro’s and mini metro’s
 Strong dealing team with state of art technology
 E- broking facilities
It is a registered member of the National stock exchange (NSE) and Bombay stock exchange
(BSE) since 1995 and a depository participant in National Securities Depository Ltd (NSDL)
and Central Depository Services Ltd (CDSL).
Revenue since 5 years (Rs in Million)
250
206
200
137
150
132
101
100
63
50
0
2008
2009
2010
2011
2012
YEAR
Profit before tax (Rs in Millions)
60
35
40
20
5
0
-20
-40
-26
-32
-60
-80
-100
-90
2008
2009
2010
YEAR
2011
2012
31
TELECOM COMPANY PROFILE
32
BHARTI AIRTEL
Bharti Airtel Limited is a leading integrated telecommunications company with operations in
20 countries across Asia and Africa. Headquartered in New Delhi, India, the company ranks
amongst the top 5 mobile service providers globally in terms of subscribers. In India, the
company's product offerings include 2G, 3G and 4G services, fixed line, high speed
broadband through DSL, IPTV, DTH, enterprise services including national & international
long distance services to carriers. In the rest of the geographies, it offers 2G, 3G mobile
services. Bharti Airtel had over 246 million customers across its operations at the end of
February 2012.
Highlights
 Airtel brings the 4G revolution to Bengaluru
 Airtel forays into mobile advertising
 Airtel announces all new affordable tariffs for 3G customers
 Bharti Airtel and Axis Bank announce strategic alliance for financial inclusion
 National Telecom Awards 2012 acknowledges Bharti Airtel's network strength Bharti
Airtel announces its fourth quarter and full year ended March 31, 2012 on May 2, 2012.
Shareholding pattern - Bharti Airtel Ltd.
Holder's Name
Promoters
Foreign Promoter
Foreign Institutions
Other Companies
Financial Institutions
N Banks/Mutual Funds
General Public
Others
Foreign Ocb
Foreign NRI
Foreign Industries
No of Shares % Share Holding
1735453890
45.70%
865673286
22.80%
642750737
16.93%
173105810
4.56%
164470503
4.33%
145295224
3.83%
54993607
1.45%
7457739
0.20%
5082710
0.13%
3246535
0.09%
55
0.00%
33
Bharti Airtel ltd
% Share holdings
45.70%
22.80%
16.93%
4.56% 4.33% 3.83% 1.45%
0.20% 0.13% 0.09% 0.00%
Company : BHARTI AIRTEL LTD. ( 532454 )
Period ( Year 2008 to Year 2012 )
Year
2008
2009
2010
2011
2012
Open
Price
1,010.00
719.7
330
358.4
346
High
Price
1,010.00
990
376.5
444.7
400.9
Low
Price
484
229.5
254
304.25
280.1
Close
Price
715.1
328.8
358.4
342.9
306.3
No. of
Shares
19,37,93,529
31,05,29,831
23,20,54,436
11,41,01,048
4,52,10,576
No. of
Trades
23,88,730
39,29,773
26,42,282
13,07,446
8,18,959
* Spread(Rs.)
H-L
C-O
526
-294.9
760.5 -390.9
122.5
28.4
140.45 -15.5
120.8
-39.7
1,200.00
1,000.00
800.00
Open Price
High Price
600.00
Low Price
Close Price
400.00
200.00
0.00
2008
2009
2010
2011
2012
34
IDEA CELLULAR
IDEA Cellular is a publicly listed company, having listed on BSE & NSE in March 2007. It
is the 3rd largest mobile services operator in India with wireless revenue market share at 13.9
% in Q1 FY2012. Idea has joined the select global operator’s club servicing over 100 million
subscribers, as of September 2011. Idea is a pan-India integrated GSM operator and has its
own NLD and ILD operations, and ISP license.
Idea was originally incorporated as Birla Communications Limited, with the license to
provide cellular services in Maharashtra and Gujarat. Post an acquisition of stake by AT&T
and the Tata Group, the company was renamed Birla-Tata-AT&T, with operations spread in
Andhra Pradesh and Chhattisgarh. The company seeking brand positioning changed its name
to Idea Cellular Limited in 2001. The company has, in the past few years, seen exponential
growth in terms of additions to its subscriber base. Idea currently caters to 11 circles in India,
effectively covering around 57% of the country’s population.
With traffic in excess of a billion minutes a day, Idea ranks among the Top 10 country
operators in the world. Idea operates across all 22 service areas with 2G services, and 3G
services are being progressively rolled out to cover over 3,000 towns by FY 2012.
Idea has a network of over 70,000 cell sites covering the entire length and breadth of the
country. Idea has over 3,000 Service Centres servicing Idea subscribers across the country,
including 450 special Experience Zones for 3G promotion. Idea’s 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’s strong growth in the Indian telephony market comes from its deep penetration in nonurban & rural markets. It has the highest share of rural subscribers as a percentage of total
subscribers, amongst other GSM players. In fact, 2 out of every 3 new Idea subscribers come
from rural/ semi-urban India.
Idea is the winner of ‘The Emerging Company of the Year Award’ at The Economic Times
Corporate Excellence Awards 2009. IDEA Cellular also received the prestigious Avaya
Global Connect Award for being the ‘Most Customer Responsive Company’ in the Telecom
sector in the year 2010. The company has received several other national and international
recognitions for its path-breaking innovations in mobile telephony products & services. It
won the GSM Association Award for ‘Best Billing and Customer Care Solution’ for 2
consecutive years. It was awarded ‘Mobile Operator of the Year Award – India’ for 2007 and
2008 at the Annual Asian Mobile News Awards.
IDEA Cellular is an Aditya Birla Group Company, India’s first truly multinational
corporation. The group operates in 33 countries, and is anchored by more than 132,000
employees belonging to 42 nationalities.
35
Shareholding pattern - Idea Cellular Ltd.
Holder's Name
% Share Holding
Promoters
Foreign Ocb
Foreign Institutions
Financial Institutions
General Public
N Banks/Mutual Funds
Other Companies
Others
Foreign NRI
Directors
No of Shares
45.96%
29.92%
15.26%
4.96%
2.00%
1.24%
0.52%
0.09%
0.06%
0.00%
1,52,06,79,047
99,01,62,003
50,48,62,049
16,40,39,251
6,61,35,251
4,11,39,244
1,70,44,484
28,33,594
18,76,448
73,739
Idea Cellular Ltd
Share Holdings
45.96
29.92
15.26
4.96
2
1.24
0.52
0.09
0.06
0
36
Company : IDEA CELLULAR LTD. ( 532822 )
Period ( Year 2008 to Year 2012 )
Year
2008
2009
2010
2011
2012
Open
Price
139.85
52.75
58.2
70.5
82.2
High
Price
148.9
91.7
79.9
103.65
102.15
Low
Price
34.05
41.3
48.65
55.65
71.2
Close
Price
52.65
58.2
69.4
82
74.15
No. of
Shares
49,06,66,215
51,89,65,419
22,89,15,841
17,32,91,192
4,72,15,196
No. of
Trades
18,87,430
20,30,383
11,31,760
9,82,440
3,24,698
* Spread(Rs.)
H-L
C-O
114.85 -87.2
50.4
5.45
31.25
11.2
48
11.5
30.95
-8.05
160
140
120
100
Open Price
High Price
80
low Price
Close Price
60
40
20
0
2008
2009
2010
2011
2012
37
RELIANCE COMMUNICATIONS
Reliance Communications Ltd. (commonly called RCOM) is an Indian broadband and
telecommunications company headquartered in Navi Mumbai, India. RCOM is the world's
16th largest mobile phone operator with over 150 million subscribers. 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 long distance and international
long distance operations of the company and the wholesale operations of its subsidiaries;
Investment segment includes investment activities of the Group companies, and Other
segment consists of the customer care activities and direct-to-home (DTH) activities.
Reliance Communications is notorious for its actions against freedom of speech getting sites
like vimeo blocked by its sister concern [Reliance Entertainment].
Main subsidiaries
1. Reliance Telecommunication Limited (RTL)
In July 2007, the company announced it was buying US-based managed ethernet and
application delivery services company Yipes Enterprise Services for a cash amount of 1200
crore (the equivalent of US$300 million). The deal was announced of the overseas
acquisition, the Reliance group has amalgamated the United States-based Flag Telecom for
$210 million (roughly 950 crore). RTL operates in Madhya Pradesh, West Bengal,
Himachal Pradesh, Orissa, Bihar, Assam, Kolkata and Northeast, offering GSM services.
2. Reliance Tech Services
Reliance Tech Services is the IT wing of Reliance Anil Dhirubhai Ambani group. It provides
IT consultancy, business process outsourcing and software development for Reliance
Communications and other ADA group companies. It provides services to industry sectors
such as telecommunications, financial services, utilities, entertainment, infrastructure, BPO
operations and health care.
3. Reliance Globalcom
RGL owns the world’s largest private undersea cable system, spanning 65,000 km seamlessly
integrated with Reliance Communications. Over 110,000 km of domestic optic fiber provides
a robust Global Service Delivery Platform, connecting 40 key business markets in India, the
Middle East, Asia, Europe, and the U.S.
4. Reliance Internet Data Centre (RIDC)
Spread across 650,000 sq ft (60,000 m2) of hosting space, it offers IT infrastructure
management services to large, medium and small enterprises. It is one of the leading data
centre service providers in India and provides services like colocation, managed server
hosting, virtual private server and data security. It has launched cloud computing services,
38
offering product under its infrastructure as a server (Iaas) and software as a service (Saas)
portfolio, which enables enterprises, mainly small and medium, a cost-effective IT
infrastructure and application on pay-per-user model.
5. Reliance Digital TV
Reliance Big TV launched in August 2008 and thereafter acquired 1 million subscribers
within 90 days of launch, the fastest ramp-up ever achieved by any DTH operator in the
world. Reliance Big TV offers its 1.7 million customers DVD-quality pictures on over 200
channels using MPEG-4 technology.
Shareholding pattern
Shareholding pattern - Reliance Communications
Ltd.
Holder's Name
Promoters
General Public
Financial Institutions
Foreign Institutions
Other Companies
N Banks/Mutual Funds
Foreign NRI
Central Govt
% Share Holdings
68.12
11.69
8.23
7.42
2.75
1.08
0.66
0.05
No of Shares
1400708557
240398656
169294118
152563475
56473974
22261355
13641243
984211
Reliance Communication
% Share Holdings
68.12
11.69
8.23
7.42
2.75
1.08
0.66
0.05
39
Company : RELIANCE COMMUNICATIONS LTD. ( 532712 )
Period ( Year 2008 to Year 2012 )
Year
2008
2009
2010
2011
2012
Open
Price
749.7
228
175.9
147.15
70.5
High
Price
844
359
204.75
149.9
109.7
Low
Price
148.6
131.35
119.75
61
60
Close
Price
227.25
172.9
145.1
69.85
62.5
No. of
Shares
63,73,56,180
79,47,52,129
38,20,41,993
55,55,12,570
36,75,39,046
No. of
Trades
96,17,115
91,41,946
35,16,053
35,81,293
20,35,022
* Spread(Rs.)
H-L
C-O
695.4
-522.45
227.65
-55.1
85
-30.8
88.9
-77.3
49.7
-8
900
800
700
600
Open Price
500
High Price
Low Price
400
Close Price
300
200
100
0
2008
2009
2010
2011
2012
40
CHAPTER – 2:
DEVELOPMENT OF MAIN THEME
41
RATIONALE FOR THE STUDY
In an industry plagued with scepticism and a stock market increasingly difficult to predict and
contend with, if one looks hard enough there may still be a genuine aid for the Day Trader
and Short Term Investor.
The price of a security represents a consensus. It is the price at which one person agrees to
buy and another agrees to sell. The price at which an investor is willing to buy or sell depends
primarily on his expectations. If he expects the security's price to rise, he will buy it; if the
investor expects the price to fall, he will sell it. These simple statements are the cause of a
major challenge in forecasting security prices, because they refer to human expectations. As
we all know firsthand, humans expectations are neither easily quantifiable nor predictable.
If prices are based on investor expectations, then knowing what a security should sell for (i.e.,
fundamental analysis) becomes less important than knowing what other investors expect it to
sell for. That's not to say that knowing what a security should sell for isn't important--it is.
But there is usually a fairly strong consensus of a stock's future earnings that the average
investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each
other. Since all the investors in the stock market want to make the maximum profits possible,
they just cannot afford to ignore either fundamental or technical analysis.
Each investment alternative has its own strengths and weaknesses. Some options seek to
achieve superior returns (like equity), but with corresponding higher risk. Other provide
safety (like PPF) but at the expense of liquidity and growth. Other options such as FDs offer
safety and liquidity, but at the cost of return. Mutual funds seek to combine the advantages of
investing in arch of these alternatives while dispensing with the shortcomings.
Indian stock market is semi-efficient by nature and, is considered as one of the most
respected stock markets, where information is quickly and widely disseminated, thereby
allowing each security’s price to adjust rapidly in an unbiased manner to new information so
that, it reflects the nearest investment value. And mainly after the introduction of electronic
trading system, the information flow has become much faster.
But sometimes, in developing countries like India, sentiments play major role in price
movements, or say, fluctuations, where investors find it difficult to predict the future with
certainty. Some of the events affect economy as a whole, while some events are sector
specific. Even in one particular sector, some companies or major market player are more
sensitive to the event. So, the new investors taking exposure in the market should be well
aware about the maximum potential loss, i.e. Value at risk.
42
SCOPE OF THE STUDY

The scope of this project is limited to only one sector i.e. telecom (service provider)
sector. This project is concerned with only one sector of companies in the stock market.
The project does not extend its scope to any other sector of companies.

Also, the project is concerned with only two companies from among the major players in
the Telecom sector i.e. Bharti Airtel Limited and Videsh Sanchar Nigam Limited
(VSNL).
LIMITATIONS

While conducting the research I was unable to collect data from primary source which I
feel would have had a bearing on the outcome of the research. Through interviews with
the concerned authorities I could have got first hand information about the company and
this could have certainly given me a broader perspective on the company’s future plans.

Future changes are largely unpredictable; more so when the economic and business
environment is buffeted by frequent winds of change. In an environment characterized
by discontinuities, the past record proves to be a poor guide to future performance.

The market behavior if irrational may give rise to – under-valuations for extended
periods; over-valuations from unjustified optimism and misplaced enthusiasm for
unreasonable lengths of time. The slow correction of under or over valuation poses a
threat to the analysis.
43
OBJECTIVE OF THE STUDY

To analyze the telecom industry and find the future growth opportunities.

To carry out the company analysis of the selected companies and to suggest whether
they are a viable investment option.
Looking at the historical performance data of the company and estimate the future
performance of stocks. Looking at this information to gain an insight of the company’s future
performance. It is a method of evaluating a security by attempting to measure its future
performance by examining related economic, financial and other qualitative and quantitative
factors. To estimate a value that an investor can compare with the securities current price and
figure out what sort of position to take with that security.
44
CHAPTER – 3:
ANALYSIS
&
INTERPRETATION
45
RESEARCH METHODOLOGY
Research is often described as an active, diligent and systematic process of inquiry aimed at
discovering, interpreting and revising facts. This intellectual investigation produces a greater
understanding of events, behaviour or theories and makes practical applications through laws
and theories. The term research is also used to describe a collection of information about a
particular subject, and is usually associated with science and scientific method.
BASIC RESEARCH:
Basic research is also called as fundamental or pure research. Its primary objective is the
advancement of knowledge and the theoretical understanding of the relations among the
variables. It is exploratory and often driven by researcher’s curiosity or interest. It is
conducted without any practical end in mind. Basic research often lays down the foundation
for further applied research.
APPLIED RESEARCH:
Applied research is done to solve specific, practical questions. Its primary objective is not to
gain knowledge for its own sake. It is usually descriptive in nature. It is almost always done
on the basis of basic research. As far as equity research is concerned there are two types
of research methods that are followed:
o Fundamental analysis
o Technical analysis
Financial statement analysis is the biggest part of Fundamental analysis also known as
quantitative analysis, it involves looking at historical performance data to estimate the future
performance of stocks whereas Technical analysis does not care one bit about the value of the
company, it is only interested in the price movements of the company s share in the market.
This project deals with the fundamental analysis aspect of the equity research. This project
has tried to look into the details of the financial statements of the companies, the environment
surrounding the telecom sector, the latest developments in this regard.
46
DATA COLLECTION:
o Primary data for a project is the first hand information regarding the project being
studied. In this regard the primary data for this project would be getting the necessary
information from the company management by an interview, telephonic conversation
or direct mail.
o Secondary data for a project would be the collection of information that has a bearing
on the outcome of the project from secondary sources like news, press releases,
internet etc.
o The data collected for this project is from a secondary source. The data was
complied with the help of sources like News articles, Internet, Capitaline
software. In this research, primary data could not be gathered as the company
officials could not be contacted for a one to one interview or a telephonic
interview.
47
Analysis
Stock Price Movement
With Sensex
48
BHARTI AIRTEL LTD
IDEA CELLULAR
49
RELIANCE COMMUNICATIONS
All
50
BHARTI AIRTEL LTD
Dividends Declared
Announcement Date
02-05-2012
05-05-2011
28-04-2010
29-04-2009
Effective Date
17-08-2011
18-08-2010
24-07-2009
Dividend Type
Final
Final
Final
Final
Dividend (%)
20%
20%
20%
20%
Ratio analysis
Ratios
EBITDA Ratio
Net Profit Ratio
Debt-Equity Ratio
Current Ratio
Earnings Per Share
Return on Equity (%)
Return on Capital Employed (%)
M12
M11
M10
M09
M08
0.33
0.14
6.26
0.82
8.30
1.57
-
0.32
0.13
6.27
0.72
7.21
1.44
9.72
0.34
0.19
2.65
0.72
9.71
1.94
21.39
0.36
0.22
4.06
0.59
21.24
2.12
25.30
0.37
0.25
3.46
0.49
23.40
2.34
25.05
1. EBITDA Ratio:
This ratio has always been decreasing from the previous year. At present it is slightly
more than the previous year.
2. Net Profit Ratio:
This ratio has always been decreasing from the previous year. At present it is slightly
more than the previous year.
3. Debt to Equity Ratio:
Ratio has always been low and at present is slightly more than its previous year. On
the whole the company uses very little debt financing.
4. Current Ratio:
Current ratio of this company is improving year by year. 2:1 is the slandered accepted
by the company’s norm. This company is showing the around 1:1 ratio, which is quite
satisfactory.
5. Earnings per Shares:
This ratio is now improved by 1 %, and now it is at 8.30 per share.
6. Return on equity:
This ratio has been decreasing significantly.
51
7. Return on capital employed:
Return on capital employed has been decreased in last two years.
Cash flow from operation
Particulars
Mar '11
Net Profit Before Tax
Net Cash From Operating Activities
Net Cash (used in)/from
Investing Activities
Net Cash (used in)/from Financing
Activities
Net (decrease)/increase In Cash and Cash
Equivalents
Opening Cash & Cash Equivalents
Closing Cash & Cash Equivalents
Mar '10
Mar '09
Mar '08
8725.8
13215.4
10699.25
12692.63
8161.54
11853.15
6972.54
10459.85
4601.37
8107.95
-19075
-10601.66
-10894.38
-11648.41
-7975.05
5646.5
-2539.32
-672
898.03
340.13
-213.1
341.5
128.4
-448.35
789.88
341.53
286.77
503.31
790.08
-290.53
793.47
502.94
473.03
307.43
780.46
Cash Flow from operation
Cash Flow from operation
790.08
780.46
502.94
341.53
128.4
2007
2008
Mar '07
2009
2010
2011
52
Balance sheet
Particular
Sources of funds
Owner's fund
Equity share capital
Share application money
Preference share capital
Reserves & surplus
Loan funds
Secured loans
Unsecured loans
Total
Uses of funds
Fixed assets
Gross block
Less : revaluation reserve
Less : accumulated depreciation
Net block
Capital work-in-progress
Investments
Net current assets
Current assets, loans & advances
Less : current liabilities & provisions
Total net current assets
Miscellaneous expenses not written
Total
Notes:
Book value of unquoted investments
Market value of quoted investments
Contingent liabilities
Number of equity sharesoutstanding
(Lacs)
Mar ' 11
Mar ' 10
1,898.80 1,898.77
278.6
186.09
41,932.10 34,650.19
Mar ' 09
Mar ' 08
Mar ' 07
1,898.24
116.22
25,627.38
1,897.91
57.63
18,283.82
1,895.93
30
9,515.21
39.43
4,999.49
51.73
7,661.92
52.42
6,517.92
266.45
5,044.36
56,007.00 41,773.97
35,355.48
26,809.71
16,751.95
61,437.50
2.1
20,736.70
40,698.70
6,497.60
11,813.00
44,212.53
2.13
16,187.56
28,022.84
1,594.74
15,773.32
37,266.70
2.13
12,253.34
25,011.23
2,566.67
11,777.76
28,115.65
2.13
9,085.00
19,028.52
2,751.08
10,952.85
26,509.93
2.13
7,204.30
19,303.51
2,375.82
705.82
13,730.10 9,225.08
16,732.40 12,842.00
-3,002.30 -3,616.92
-
10,466.63
14,466.89
-4,000.26
0.09
8,439.38
14,362.33
-5,922.95
0.2
5,406.81
11,042.67
-5,635.86
2.66
56,007.00 41,773.97
35,355.48
26,809.71
16,751.95
11,708.00 11,619.95
105.1 4,216.67
49,771.40 3,921.50
9,898.56
1,887.76
4,104.25
9,379.62
1,574.29
7,140.59
580.43
125.85
7,615.04
18982.4
18979.07
18959.34
17.1
11,880.40
37975.3
37975.3
53
IDEA CELLULAR
Ratio analysis
Ratios
EBITDA Ratio
Net Profit Ratio
Debt-Equity Ratio
Current Ratio
Interest Cover
Earnings Per Share
Return on Equity (%)
Return on Capital Employed (%)
2012
2011
2010
2009
2008
0.22
0.03
3.06
0.67
1.93
1.74
0.17
-
0.20
0.05
3.20
0.62
4.64
2.56
0.26
5.72
0.25
0.09
1.98
0.96
6.66
3.19
0.32
8.99
0.28
0.10
2.44
1.39
3.38
3.25
0.33
8.17
0.34
0.16
2.47
0.60
5.02
3.96
0.40
16.91
1. EBITDA Ratio:
As per the given table it is clear that the earnings before interest, tax, and depreciation
went on decreasing side but after 2011 it again back on track.
2. Net Profit Ratio:
Every year sales has gone up by more than 25 % so that Net profit ratio decreases Yo-Y. And the ratio in 2008 (0.16) reached to (0.03) in 2012.
3. Debt to Equity Ratio:
This ratio indicates the relationship between loan funds and net worth of the company,
which is known as 'gearing’. Being equity constant this ratio is fluctuating Y-o-Y. For
the year ended 2012 this ratio is 3.06.
4. Current Ratio:
Current liability of the company increased from 2008 to 2012. On the other hand the
Current asset of the company is fluctuating every year. The current ratio for the year
2012 is 0.67.
5. Interest Cover:
An interest cover of 2 times is considered reasonable by financial institutions. In 2012
the company reached to 1.93 times of interest cover which is good for the company.
6. Earnings per Shares:
Due to heavy depreciation the PAT came down in last 3 years, so that the earnings per
shares were decreased gradually.
7. Return on equity:
As compared to previous year, every next year return on equity came down. 0.17 is
the preset return on equity.
54
8. Return on capital employed:
This ratio is low from last five years. And decreasing every year.
Cash flow from operation
Particulars
Mar '12
Net Profit Before Tax
Net Cash From Operating Activities
Net Cash (used in)/from Investing
Activities
Net Cash (used in)/from Financing
Activities
Net (decrease)/increase In Cash and Cash
Equivalents
Opening Cash & Cash Equivalents
Closing Cash & Cash Equivalents
576.54
3055.01
-4366.35
57.75
-1253.58
1383.61
130.03
Mar '11
Mar '10
Mar '09
Mar '08
844.6 1053.66 1001.21
4500.7 1985.14 1863.74
-7644.44 2095.94 7655.36
3314.83 2530.57
7639
171 2641.38 1847.37
280.44 2921.82 497.06
451.54 280.44 2344.43
1044.36
2502.22
5956.18
Cash flow from operation
2500
2000
1500
1000
500
0
.
2008
497.06
2009
2344.43
2010
280.44
2011
451.54
2012
130.03
2131.29
1322.67
1819.73
497.06
55
Balance sheet
Particular
Sources of funds
Owner's fund
Equity share capital
Share application money
Preference share capital
Reserves & surplus
Loan funds
Secured loans
Unsecured loans
Total
Uses of funds
Fixed assets
Gross block
Less : revaluation reserve
Less : accumulated
depreciation
Net block
Capital work-in-progress
Investments
Net current assets
Current assets, loans &
advances
Less : current liabilities &
provisions
Total net current assets
Miscellaneous expenses not
written
Total
Notes:
Book value of unquoted
investments
Market value of quoted
investments
Contingent liabilities
Number of equity shares
outstanding (Lacs)
Mar ' 11
Mar ' 10
3,303.27
47.81
-
Mar ' 09
3,299.84
44.45
-
8,979.62
7,760.04 5,988.61
2,797.42
537.81
22,888.16 17,983.65
Mar ' 07
3,100.10
18.23
-
8,112.95
Mar ' 08
2,635.36
3.76 8,176.09
906.91
5,564.93 5,454.43
2,014.43 1,060.33
18,873.78 10,060.79
28,938.75 22,834.40
15,562.75 12,791.22
9,807.13 7,907.34
19,131.62 14,927.06
3,594.05
462.58
2,572.81 2,755.13
-
2,592.86
-413.71
3,539.77
710.74
6,429.66
8,229.61
4,739.86
10,822.89
1,721.82
4,928.81
3,123.83
9,667.39
941.13
569.93
2,637.18
5,592.43
506.52
13.83
3,906.64
4,290.41
4,994.96
1,674.14
2,550.93
6,316.96
-2,410.32
4,451.52
-161.12
3,594.69
1,400.27
2,791.81
-1,117.67
2,234.05
316.88
22,888.16 17,983.65
18,873.78 10,060.79
2,572.81
2,755.13
2,724.62
3,409.89
1,960.75
1,634.32 2,279.41 2,308.87
1,236.57
33032.72
32998.38
31000.95
25928.61
-
-
569.93
6,429.66
26353.61
13.83
56
Reliance Communications
Dividends Declared
Announcement
Date
28-05-2012
Effective
Date
Dividend
Type
Final
Dividend
(%)
5%
31-05-2011
17-05-2010
24-07-2009
30-04-2008
15-09-2011
13-09-2010
04-08-2009
19-09-2008
Final
Final
Interim
Final
10%
17%
16%
15%
30-04-2007
05-07-2007
Final
10%
Remarks
Rs.0.50 per
share(10%)Dividend
AGM
AGM
Ratio Analysis
Ratios
2011
2010
2009
2008
EBITDA Ratio
Net Profit Ratio
Debt-Equity Ratio
Current Ratio
Earnings Per Share
Return on Equity (%)
0.12
-0.04
30.48
1.84
-4.16
-0.83
0.19
0.02
23.72
2.17
2.32
0.46
0.38
0.19
29.95
2.73
23.27
4.65
0.32
0.13
19.66
1.65
12.53
2.51
1. EBITDA Ratio:
This ratio has always been low and at present is slightly more than its previous year.
2. Net Profit Ratio:
At present this ratio is negative due to the loss in the organization.
3. Debt to Equity Ratio:
There is a fluctuation in this ratio as they are using fluctuating debt every year.
4. Current Ratio:
This ratio has been maintained around 1.84 indicating a good ability to meet its short
term obligations.
5. Earnings per Shares:
It has decreased significantly from the previous years.
57
6. Return on equity:
It has decreased significantly from the previous years. And now it is standing negative
at (-0.83).
Cash flow from operation
Particulars
Mar '11
Net Profit Before Tax
Net Cash From Operating Activities
Net Cash (used in)/from
Investing Activities
Net Cash (used in)/from Financing
Activities
Net (decrease)/increase In Cash and
Cash Equivalents
Opening Cash & Cash Equivalents
Closing Cash & Cash Equivalents
Mar '10
Mar '09
Mar '08
-859.51
725.56
619.47
1043.88
4815.07
1884.87
2604.09
2982.8
2420.85
10469.12
-2800.94
4339.32
-7650.54
-11263.9
-4883.86
5807.12
-5868.66
6405.25
6234.75
4645.92
3731.74
81.47
3813.21
-485.46
567.64
82.18
639.58
205.57
845.15
-2046.32
2240.4
192.66
10231.18
-10162.7
68.45
Cash flow from operation
Cash flow from operation
3813.21
845.15
68.45
2007
192.66
2008
Mar '07
82.18
2009
2010
2011
58
Balance sheet
Particular
Sources of funds
Owner's fund
Equity share capital
Share application money
Preference share capital
Reserves & surplus
Loan funds
Secured loans
Unsecured loans
Total
Uses of funds
Fixed assets
Gross block
Less : revaluation reserve
Less : accumulated depreciation
Net block
Capital work-in-progress
Investments
Net current assets
Current assets, loans & advances
Less : current liabilities &
provisions
Total net current assets
Miscellaneous expenses not
written
Total
Notes:
Book value of unquoted
investments
Market value of quoted
investments
Contingent liabilities
Number of equity
sharesoutstanding (Lacs)
Mar ' 11
Mar ' 10
Mar ' 09
Mar ' 08
Mar ' 07
1,032.01
-
1,032.01
1,032.01 1,032.01
1,022.31
47,112.47 49,466.88
50,658.31 23,808.02
19,503.23
15,226.02 3,000.00
16,226.72 21,478.28
79,597.22 74,977.17
3,000.00
950
27,903.61 19,336.43
82,593.93 45,126.46
5,113.57
9,454.27
35,093.38
40,904.17 39,838.17
37,941.15 21,576.32
20,625.82
12,063.27 9,225.69
6,533.38 4,688.69
2,527.37
28,840.90 30,612.48
31,407.77 16,887.63
18,098.45
9,907.66 1,683.52
3,643.86 7,117.56
2,185.60
32,102.13 31,898.60
31,364.75 13,844.14
5,434.43
-
19,153.82 20,005.94
25,543.01 18,515.29
20,107.04
10,407.29 9,223.37
8,746.53 10,782.57
9,365.46 11,238.16
16,177.55 7,277.13
10,732.14
9,374.90
79,597.22 74,977.17
82,593.93 45,126.46
35,093.38
32,101.85 31,898.31
31,364.63 13,844.14
5,434.43
0.28
1,958.61
0.29
3,274.83
0.12 6,555.82 4,392.73
3,781.30
20640.27
20640.27
20640.27
20446.15
20640.27
59
SUGGESTIONS
&
CONCLUSION
60
SUGGESTIONS
Volatile markets are characterized by wide price fluctuations and heavy trading. They often
result from an imbalance of trade orders is one direction, wide price fluctuations are a daily
occurrence on the world's stock markets as investors react to economic business and political
events. Market watchers see high volatility as a sign of investor nervousness which, in the
counter-initiative world of market, is of course bullish
The present study on the simple moving average model applied on selected company's scripts
would help the investors to take investment decision. It is suggested that the investors can
invest in the shares that shows a definitive signal of buy or sell decisions. The investors can
invest in the companies which are recovering out of either over brought or oversold condition
since there might be a definite trend reversal in those stocks. It is also advised for the
investors to hold the stock which keep fluctuating unless until the stock follows definite
bearish or bullish trend. And also the investor can make investment not only following a
particular indicator but by confirming the signal with several indicators for better returns.
CONCLUSION
Company
Bharti Airtel
Idea Cellular
Rel. Comm.
Market
Cap
(Rs. in Cr.)
1,16,318.04
24,540.16
12,900.13
P/E
(TTM)
(x)
20.3
43.62
82.24
P/BV
(TTM)
EV/EBIDTA
(x)
(x)
2.35
11.13
1.9
9.57
0.27
31.54
ROE
(%)
19.1
4.6
-2.5
ROCE
(%)
18.5
8.2
-0.6
D/E
(x)
0.21
0.64
0.57
61

By Observing the above table my suggestion is…..
 Buy & Hold Bharti Airtel for short term.
 Hold All the Reliance Communications stocks.
 Sell All the Idea Cellular stocks.

Strong growth in subscriber base, increasing non voice revenues and lowering fixed cost
per unit, the Indian telecom service sector is set to report buoyant growth in revenues and
profitability in the short to medium term.

There are two key drivers for the growth in this business. First, the enhanced capability of
the Company to deliver services on a global basis is attracting new customers and opening
up new markets. Second, there is significant growth in the existing customers' businesses
globally.

Bharti Airtel, one of the major players in the telecom service provider industry has
attained a significant market share in the country with its widespread network, huge
subscriber base and quality service. Also, the company to make its presence felt all across
the globe is spreading its wings to international markets.

In India most of the industries require huge amount of investments. Funds are raised
mostly through the issue of share. An investor is satisfied from the reasonable return from
investment in shares.

Speculation involves higher risks to get return on the other hand investment involves no
such risks and returns will be fair. An investor can succeed in his investment only when he
is able to select the right shares.

The investors should keenly watch the situations like market price, economy, company
progress, returns, and the risk involved in a share before taking decision on a particular
share. This study will help the investors know the behavior of share prices and thus
can succeed.
62
APPENDIX
63
Bibliography
 www.bseindia.com
 www.nseindia.com
 www.wikipedia.com
 http://telecomtalk.info
 http://www.topnews.in/business-news/telecom-sector
 http://www.investarindia.com
 www.cholamandalam.com
 www.financialtimes.com
 www.moneycontrol.com
 www.yahooindiafinance.com
 www.equitymaster.com
 http://economictimes.indiatimes.com
REFERENCES
 Economic survey 2011-12
 Principles of corporate finance – Brealey and Myers
 Financial management- Prasanna Chandra
 Economic times