R-Com vs Airtel_Annual Report Analysis

7/28/2019 R-Com vs Airtel_Annual Report Analysis

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Management Accounting (MA) I for the AY2011-12:GROUP ASSIGNMENT


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INDEX


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Industry Overview

The Indian Telecommunications network is the third largest in the world and the secondlargest among the emerging economies of Asia. Today, it is the fastest growing market inthe world. The telecommunication sector continued to register significant success duringthe year and has emerged as one of the key sectors responsible for resurgent Indiaseconomic growth.

Growth - This rapid growth has been possible due to various proactive and positivedecisions of the Government and contribution of both by the public and the private sector.The rapid strides in the telecom sector have been facilitated by liberal policies of the

Government that provide easy market access for telecom equipment and a fair regulatoryframework for offering telecom services to the Indian consumers at affordable prices.

Global Satellite Mobile Communication (GSM) - In terms of the Global System for MobileCommunication (GSM) subscriber base this now places India third after China and Russia.China had 401.7 million GSM subscribers.

Code Division Multiple Access (CDMA) - CDMA technology was introduced in India as alimited mobility solution. The introduction of CDMA services has created competition,lowered tariffs and offered many citizens access to communication services for the firsttime

Internet Services - Internet services were launched in India on August 15, 1995. InNovember 1998 the government opened up the sector to private operators. A liberallicensing regime was put in place to increase Internet penetration across the country.

Major Players: There are three types of players in telecom services: State owned companies (BSNL and MTNL) Private Indian owned companies (Reliance Infocomm, Tata Teleservices,) Foreign invested companies (Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communications)


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Sr.No Parameter Airtel RCom

1 Accounting Methods

the Companys

financial statements had beendrawn in accordance with the

Indian GAAP and IFRS

financial statements are prepared under historical costconvention, on accrual basis of accounting, and in accordance

with the provisions of the Companies Act, 1956.

2 Growth Prospects

Airtel focus is to lead as a Multi

national Mobile service provider

by entering already to African

countries and expanding to

Bangaladesh, Srilanka

Rcom focus is on India as Mobile service provider and also to

achieve high speed network of present and future technologies.

Relience has 13 circles by 2011. Rcom focus is on providing high

speed latest generation networks in India and abroad. It has 400Gbps between Europe and US AacrossTrans Atlantic Link and

analyzing new markets to extend our IP and Ethernet services.

Reliance has recently expanded into Australia, and

are looking at South America, and further into more US metro

markets.

3 OpportunitiesUntapped Landscape, Newtechnologies and paradigms

Dual Technology CDMA and GSM, Strong infrastructure with

50000 towers of "Pan India Towers" which is suitable for CDMA,

GSM 900, GSM 1800, 3G and 4G networks

MANAGEMENT DISCUSSION & ANALYSIS FOR FY 2010-11


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Sr.No Parameter Airtel RCom

4 Digital TV services Crossed 5Mn mark and fastest growing

Rcom plays major role as fifth leading

partner in Digital TV Services, and areexpanding continuously.

5 Outlook

Positive,Emerging markets like Srilanka and

Bangladesh and newer product family of digital TVwill be focus areas. Airtel will continue its journey

with Commerce and Enetrtainment verticals. With

strong emphasis on data business across domestic

and international markets, the Company believes

data will be a key driver of overall growth.Exploited

fully, these opportunities have the potential to make

Airtel truly unique to both current and prospective

customers in the market.

Reliance believes in incorporating change

in technology at faster rate. RCOM shift to

maintain data and video at primary, alongwith audio. Wirefree India, 3g Spectrum in

13 circles. Under VAS, Rworld storefront,

Reliance Connect service with social

networking site tie-up with facebook,

twitter, gmail, yahoo etc. Company focus

in purely on customer retention and

market penetration with more VAS

features and new technology ontime.

6 Mobile services

Only GSM services,Though coampany managed inincreasing its customer base and revenues, EBIT

has reduced due to competition, Forex restatement

losses, Rebranding expenses and increase in

spectrum charges in India. Customer base for

Mobile Services: 211.9Mn

Mobile services of CDMA, GSM and 3G.

Wireless segment 32.52% growth

compared to last year interms of number

of customers.

MANAGEMENT DISCUSSION & ANALYSIS FOR FY 2010-11


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BALANCE SHEET ANALYSIS (AIRTEL & RCOM)Please refer to Excel sheet: Tab BS COMMON SIZE

Unsecured Loans: Airtel, there is an increase in the unsecured loans from 9.14 to 16.51% and

Incase of RCOM, there is a decrease from 25.51 to 18.03 %. Because Airtel is depending more onLoans whereas RCOM is funding through financing activities

Cash & Bank balances: Airtel, there is a drop from 1.49 % to .19% and incase of RCOM,There is an increase from 0.10 to 4.24 %

Loans & Advances: Airtel, there is an increase from 11.54 to 14.32% and incase of RCOM,There is a decrease from 18.95 to 12.17 %.Both companies have increased their fixed assets. Means more investments for future

Net worth: Both the companies have been experiencing an erosion of net worth due

To poor operational effieciencies and decline in margins.


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P&L ACCOUNT ANALYSIS (AIRTEL & RCOM)Please refer to Excel sheet: Tab P&L COMMON SIZE

Total Expenditure: RCOMs total expenditure is too high which is equal to 93% of the salesAnd in case of Airtel it is 53%. RCOM has to focus on improving internal efficiencies and reducingTotal expenditure.

RCOMs Gross profit margings are as low as 7% compared to Aitels 46.5% and this is again due toHigh total expenditure incase of RCOM.

PAT: RCOMsPAT is also seen decreasing and is -6% as compared to 20% for Airtel.The reason could beDue to decrease in sales and high total expenditure.


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CASH FLOW STATEMENT ANALYSIS (AIRTEL & RCOM)Please refer to Excel sheet: Tab Analysis of CFS

AIRTEL (FY2011-2010) RCOM (FY2011-2010)

Net cash from operating activities increased

by 4.12%

Around 80% net increase in investments to

purchase fixed assets compared to previous

year

Around 52% increase in net cash and cash

equivalents, mainly from long term barrowings.

Huge borrowings during FY 2011 will put the

company at high risk at the same time,

company is expanding its business

Around 62% down in cash and cash

equivalents at the year end

Sale of investment is 17% higherDividend payout was 20% of face value

Fixed assets purchase worth Rs 212,304 mi ,

3 times higher than previous year. This

indicates the companys plans of expansion

Slight drop in purchase of investments

Slight improvement in working capital

Net cash from operating activitiesdecreased by 32.53%Around 165% net increase ininvestments to purchase fixed assets,capital work in progress and loans tosubsidiariesOver 920% increase in net cash andcash equivalents, mainly from short termbarrowings4594% up in cash and cash equivalentsat the year endSale of investment is 600% higher in FY

2011Dividend payout was 17.5% in 2010and 10% during 2011.Fixed assets purchase worth Rs 87,457mi, 10 times higher than previous year,very aggressive plans of expansioncompared to previous year4-5 times higher in purchase ofinvestments.Reduction in working capital


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Gross Profit Margin:

Indicates that Airtel is operates more efficient compared

to Reliance .

Compared to 2010, both company margin is showing

decrease in trend due to price war

Operating Profit Margin:

Operating Margin indicates that how company is able

make on each rupee of sales.

Airtel is able to maintain the healthy operating margin

compared to Reliance.

Reliance Operating margin is -6.87 due to the huge

operational expenses

Net Profit Margin

Net Margin indicate the company ability to make profit .

Net Profit margin for Reliance very low and it becameve

in 2011 due to increase in operational expenses and

reduction ins sales

PROFITABLITY RATIO Margin On Sales

7.18

-6.87-6.01

8.72

5.10

3.83

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Gross ProfitMargin (%)

Operating ProfitMargin (%)

Net Profit Margin(Profit after Tax)

(%)

2011

2010

46.49

22.9520.30

49.23

30.0526.47

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Gross ProfitMargin (%)

Operating ProfitMargin (%)

Net Profit Margin(%)

2011

2010

Reliance

Airtel


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PROFITABLITY RATIO Return on Investment

Reliance

Airtel

14.512.82

17.49

27.46

24.2

25.65

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Operating Profit toOperating Assets

(%)

Net Income toTotal Assets (%)

Return on Equity(ROE) (%)

2011

2010

-1.49-1.30

-1.57

1.20

0.91 0.95

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

Operating Profitto OperatingAssets (%)

Net Income toTotal Assets (%)

Return on Equity(ROE)

2011

2010

Operating Profit to Operating Assets:

The operating profit into operating asset is decreased in

2011 by 50% for airtel since the operating profit decreased

and current asset and fixed asset increased

There is 120% dive for Reliance due to increase in the

operating asset and reduction in the operating profit

Net Income to Total Assets

This ratio is also called as return on Total Asset (ROTA).

In the year of 2011, both ROTA dropped signfincally for

both Airtel and Reliance

Return on Equity

Return on Equity measures the return available to theshare holder.

Airtel maintains the healthy 17% for 2011 against -1.57%

for Reliance


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PROFITABLITY RATIO Return on Investment

Reliance

Airtel

20.32

17.6

1.00

24.82

12.6

1.00

0

5

10

15

20

25

30

Earnings per share(Rupees)

Price Earning (P/E)Ratio

Dividends pershare ( Rupees)

2011

2010

-3.70

-44.86

0.502.41

45.35

0.85

-50.00

-40.00

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

50.00

Earnings pershare (Rupees)

Price Earning(P/E) Ratio

Dividends pershare ( Rupees)

2011

2010

Earning Per share:

Earnings per share is generally considered to be the single

most important variable in determining a share's price. It is also a

major component used to calculate the price-to-earnings valuation

ratio

Airtel EPS is far superior that the Reliance for 2010 and 2011

PE Ratio

A valuation ratio of a company's current share price compared to its

per-share earnings

In the year of 2011, though the PE ratio for Airtel is 17.6% compared

to 12.6 in 2010

In 2010, Reliance Communication is perceived as high growth

company but in the 2011, the PE ratio isve due tove earning per

share and reduce share price.

Dividend

Both Reliance and Airtel pay dividend for 2010 and 2011. Reliance

dividend payout has been decrease by 40% in 2011 while Airtel

maintains the same


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Reliance

Airtel

Return on Total Asset:

This ratio is also called as return on Total Asset (ROTA).

In the year of 2011, both ROTA dropped significantly for both Airtel

and Reliance

Operating Asset Turnover:

Operating Assets turnover relate to the operating asset used.

Both Reliance and Airtel, Operating asset turnover is reduced in 2011

compared to previous year

Shareholder Equity Turnover:

.

It shows that Airtel is able to efficiently utilize the shareholder fundsboth with respect to efficient operation and in terms of eff icient

financial management

Working Capital Turnover

It indicates the Reliance is efficiently using the working capital

compared to Airtel.

PROFITABLITY RATIO Efficiency

14.5

0.63 0.86

27.46

0.91 0.97

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Return on TotalAssets (%)

Operating AssetTurnover

ShareholderEquity Turnover

2011

2010

-1.49

0.22

1.08

0.26

1.20

0.24

0.88

0.25

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

Return onTotal Assets

(%)

OperatingAsset

Turnover

WorkingCapital

Turnover

ShareholderEquity

Turnover

2011

2010


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LIQUIDITY RATIO Short term

Reliance

Airtel

0.87 0.87 0.89

0.76 0.76

1.03

0

0.2

0.4

0.6

0.8

1

1.2

Current Ratio Quick Ratio Operating Cashflow ratio

2011

2011

2.54 2.50

0.09

3.42 3.37

0.18

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Current Ratio Quick Ratio Operating Cashflow ratio

2011

2010

Current Ratio:

Reliance - The higher the current ratio, the more capable the

company is of paying its obligations

Airtel: Since the Ratio under 1 suggests that the

company would be unable to pay off its obligations

Quick Ratio:

The quick ratio measures a company's ability to meet its short-term

obligations with its most liquid assets. Reliance has the higher the

quick ratio, the better the position of the company compared to Airtel

Operating Cash Flow Ratio:

A measure of how well current liabilities are covered by the cashflow generated from a company's operations

The operating cash flow ratio can gauge a company's liquidity in the

short term


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Networking Capital

Net working capital is financed by long-term sources of funds and provides cushion to liquidity. Reliance has excess of

working capital indicates that the it is inefficiency use of the resources by means of accumulation of inventory, over-due

receivables and idle cash

Account Receivable Turnover

The time taken for collection of receivables for Reliance is lower compare to Airtel for 2011 and 2010. Account receivable in

Reliance is better than Airtel

Inventory Turnover:

Inventory holding period for Airtel is approx 300 days on average in 2010 and reduced by appro 200 days in 2011

Solvency Ratios

Short-TermAirtel RCOM

2011 2010 2011 2010

1Net Working Capital (Mn) -18471 -29549 116,019 141,694

2Current Ratio 0.87 0.76 2.54 3.42

3Quick Ratio 0.87 0.76 2.50 3.37

4Accounts Receivable Turnover 16.00 16.90 6.40 7.205Collection Period (Days) 22.8 21.6 57 50.7

6Inventory Turnover 0.47 0.75 - -

Solvency Ratio Short term


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Debit to Equity Ratio

The Debit Equity Ratio on the both company is higher due to the lot of loans taken for taking fixed asset in 2011

Interest Cover

Interest cover for Airtel has been reduced from significantly from 2010 to 2011. Reliance com has less interest cover

Equity Multiplier:

Equity Multiplier for both companies are same. It indicates that ability of the owners equity to command the resources.

Solvency Ratio Long Term

Long-TermAirtel RCom

2011 2010 2011 2010

1Total Debt to Total Capital 1.63 1.49 1.87 1.67

2Long-Term Debt to Total Capital 0.27 0.14 0.65 0.48

3Long-Term Debt to Fixed Assets 0.25 0.17 0.81 0.76

4Interest Cover 19.5 41.5 0.68 1.86

5Gearing 1.63 1.49 1.87 1.67

6Equity Multiplier 1.63 1.49 1.87 1.67


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DUPONT ANALYSIS (AIRTEL & RCOM)Please refer to Excel sheet: Tab FINANCIALRATIOS

Airtel: Drop in net profit marginsdue to increase in OPEX

RCOM: Drop in net profit marginsbecause of marginal increase in sales andincrease in OPEX

Airtel: Efficiency was reduced due todue to disparity between increase inassets and sales

RCOM: No significant change in

efficiencyAirtel & RCOM: Both the Companies are highly leveraged andseen as relying more on debt to acquire assets

Return on Equity (ROE): Both companies have seen a declining trend of ROE, where Airtel isstill having a comfortable 17.5% of ROE and RCOM is having a (1.57%) ROE.


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REPORT HIGHLIGHTS

The FY 2010-11 was uncertain for the telecom industry due toQuestions on US recovery, financial crisis in Europe and on domestic frontThere were challenges due to issues like 2G scam, high competition withIrrational price wars, increase in Licenses fees and so on. In spite of all theseOdds, Airtel has performed well in terms of revenues and improvingmarket share

Both Airtel & RCOM have been spending on acquiring fixed assets for future growthAnd this is a good sign and shows their optimism about future growth.

Airtel was relying more on long term borrowings, whereas RCOM was funding fromFinancing operations.

Documents

R-Com vs Airtel_Annual Report Analysis