Sep 3 2010 DTU DSM Bharti Airtel Strategy

8/8/2019 Sep 3 2010 DTU DSM Bharti Airtel Strategy

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NMIMS- MBA Capital

Markets- 2008-2010

Presented By: -Gaurav Aggarwal - 02Dhawal Kantawala - 12Yatin Mota - 19Hardik Shah - 29Anurag Surana - 31Jwalit Vyas - 33Suyash Gupta - 34


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Indian TelecomSector

Fastest Growing Sector CAGR22% (2002 -08)

Second Largest TelecomMarket

Lowesttariffcharges in the world Wireless Subscribers 315.3 Mn Wireline Subscribers 38.4 Mn Teledensity 30.6

23 Circles - 4 Categories ( Metro, A, B & C)

Bharti Airtel Largest playerwith presence in

23 Circles


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GROUP 7 2


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Subscribers(in

millio

n)

Teledensity(in

percent)

Why Mad Rush for Telecom ??Large number of

addit ions in telecom

subscribers

Low teledensity

(depicting large untapped potential)

TelecomA

dvantage

250

200

150

100

50

0

5.1

53

7.0

76

9.1

98.4

12.8

140.3

18.3

206

24

19.9 20

16

225.21 12

8

4

0

200203 200304 200405 200506 200607 200708 (as

of June

2007)

TelecomSubscr iber Base Teledensity

GROUP 7 3


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Evolution of Telecom In IndiaDepartment of Telecommunicat ion (DoT) is the main body formulatinglaws and various regulations for the Indian telecom indust ry.

Privateplayers wereallowed in

Independentregulator,TRAI, wasestablished

B SNL wasestablishedby DoT

ILD services wasopened tocompetition

Go-ahead to

Calling PartyPays (CPP) wasimpl en

Intra-circlemergerguidelineswere established

Attempted toboost Rural

Numberportabili tywas proposed(pending)

Value AddedServices

the CDMAtechnology

em tedtelephony

1992

1994

1997

1999

2000

2002

Internettelephonyinitiated

2003

UnifiedAccessLicensing(U A SL) regime

2004

Broadbandpolicy 2004

2005

2006

2007

NationalTelecom Policy(N TP) wasformulated

IL D

NTP-99 led tomigration fromhigh-cost fixedli cense fee tolow-cost revenuesharing regim e

InternationalLong

Reduction oflicence fees

wasintroduced

ReferenceInterconnectorder wasissued

wasformulatedtargeting 20millionsubscribers by 2010

FDI li mit wasincreased from49 to 74percent

Decision on 3Gservices(awaite d)

Distance GROUP 7 4


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Telecom Ecosystem

In d ia n

Telec o

m In d u st

ry F

ra

me

wor

k

They formulate variouspoli cies andpass laws to regulate the telecom

industry in India.

Wireless

They undertake various research activitiesand monitor the quality of service provided in the Indian telecom industry .They also provide various recommendations

Pla n n i n g an d C o o rd i nati o n (WPC)

Handles spectrumallocation andmanagement

to improve the status of telecomoperations in India .

Telec o m Re g u lat o ryDe p artme n to f

DoT Licensee andA u t h o rit y o f I n d ia

Telec o mm u n ic

ati o n s

Telec o mC o mmissio n

Gro u p o n Telec o m a n d IT (G

oT

-IT)

frequency management

for telecom

Exclusive policy making body of DoT

Handles ad hocissues of thetelecom industry

(TRAI)

Telec o m Dis p u tes Settleme n t an d A p p ellat e Tri b u n al (TDSAT)

Independent regulatorybody

Telecom disputessettlement body

GROUP 7 5


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Bharti Airtel

La rgest Private Integrated TelecomCompany in India

3rd Largest Wireless Operatorin theWorld

La rgest & Fastest Growing Wireless

Operatorin India Largest Telecom Company lis tedon

IndianStock ExchangeGROUP 7 6


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Vision 2010

By 2010 Airtel will be the mostadm iredbrand in India:

Lovedby morecustomers

Targetedby top talent

Benchmarkedby morebusinesses


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Vision 2020

To build India'sfinestbusine sscongl omerate by 202 0

Supporting education ofunde rprivilegedchildrenthroughBharti Foundation

StrategicIntent:

To createa conglomerate of thefuture by bringing about BigTransformationsthrough BraveActions.


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Mission

We at Airtel alwaysthinkin freshand innovative ways abouttheneeds of our custom ers and how

we want themto fee l.We deliverwhat wepromiseand go out of ourway to de ligh tthe custom er with a

littlebitmore


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Core Values

Empowering People - to do theirbest

Being Flexible - to adapt to thechanging environme nt and evolvi ngcustomer nee ds

Ma king it Happ en-by strivi ng tochangethe statusquo, innovateandenergizenew ideas with a strongpassi onand entrepreneurial spirit

Opennes sand transparency- withan innatedesireto do good CreatingPositiveImpactwi th a

desireto createa meaningfuldifference in society.


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Objectives/Goals

To unde rtake transformat ionalprojectsthat have a positiveimpacton the societyand

contribu teto thenationbuild ingprocess.

To Diver sifyintonew businesses

in agriculture,financial servicesand retailbusiness with world-classpartners

To laythe foundation forbuil ding a


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Regulatory Framework

74% FDIInvestment

Lack ofTransparencyinSpectrum &LicenseAllocation

3G Policy & MNPGROUP 7 still Pending 12


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Declinging Tariff Rising Revenue

Source : TRAIReport

GROUP 7 13


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Economic Factors

GD P growth rate - Averaged around 7.9 %

f

rom

2002-2008Ris ing Tele-dens ity Target of 45% by 2010

Growing per capita income/di sposable Incom eRs 12000 in 2002 to Rs 33000 in 2008)

Fal ling Handset Pr ices

Moderate inflat ion levels which were prevalent duringthe past 7 years around 5-6%


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Changing Demographics

Demand for V A S& Broadbandservices Among Youth28%

Urban Populat ion

Rapid UrbanizationRis ing Incom e level

Source: Mckin sey Report


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Technology

CD M A Already there ar ebig players in this

segment Reliance , Tata

3G Value added servicespotential still to be

tapped fully

2G/3G GS M Currentlycommands 70% of mobilesubscribers in India

I t t d T l


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Integrated TelecomCompany(Product Portfolio)

qWirelessServices

2G/3G

Rural Market

qTelemedia

Services

Fixed Line

Broadband

DTH

qEnterpriseServices

Carrier

Corporate

qPass iveInfrastructure

Bharti Infratel

Indus Tower

GROUP 7 17


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Bharti AirtelCorporate structure

18


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Wireless Market Share - India

GROUP 7 19


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Soucre: TRA 20

Geographical Presence India ...

I


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Financials Snapshot

Details Q2 FY 09 Y-on-Y

Customers 79.99 mn 57.00%

Revenue $ 1,942 mn 42.30%

EBITDA $ 796 mn 36.50%

Cash Profit $ 673 mn 20.30%

Net Income $ 441 mn 26.80%

21


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Financial Snapshot - Ratios

eebyt- Eaq u oitsy- .3a8r- 0.5a4r- 0.8a3r- 0.6ar- 0.0a7r-

Long Term Debt-Equity Ratio 0.35 0.5 0.76 0.5 0.03

ROCE (%) 34.88 34.07 22.55 23.96 0.16

RONW (%) 39.53 43.04 31.82 23.88 -0.27h tt p :/ /ww w . c ap ita li n e .co m

Key Ratios - Industry 2007 2006 2005 2004 2003

Debt-Equity Ratio 0.35 0.21 0.27 0.34 0.36

Long Term Debt-Equity Ratio 0.3 0.19 0.24 0.29 0.33

ROCE (%) 9.72 10.28 8.25 8.43 3.07

RONW (%) 10.11 10.62 10.87 6.76 0.18htt p ://ww w.capitali ne.com

22
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Strengths

SWOT ANALYSIS

LargestTele complayerin India subscriberbase over100 mn

Pan IndiaPresence

High Pat Margins 24.8% Low debt on books D/E of0.3

Good ARPU of RS 199

StrategicAlliancewith other stakeholders in

Bharti Airtel include Sony-Ericsson, Nokia -and Sing Tel

Experience of launching 3G services inSriLanka

High cash balance of $1bn


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SWOT ANALYSISWeakness

Tariff war at its peak

Increasedcompetitiondue to newlicense s & issu ance of crossovertechnology

ARPU drop is a certainty,expe ct drop ofabout 20%

Mobile Termination Chargesreduced to .20 permin, indi cations

towards zero MTC M & A regulations rest rictatt ractive

synergies DTH a big worry

Land Line & fixed line se rviceare in a


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SWOT ANALYSIS

Opportunity Lot of scopein rural areas CurrentTele-Density 37 is sti ll low

among developingcount ries

Low broadband penetration companywell equippedto takebusi ness to nextlevel

Fast extending IPLC market, only player

otherthan VSNL to have InternationalSubmarine cable network Expectedconsolidation in industry in

mediumterm due to tariffwa rs


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Threat

SWOT ANALYSIS

Indiacentric - MajorrevenuesfromIndia

93% revenu es from BhartiTeleventures,only 7% fromother group companies

Mobile Number Portability by Jan

2010 impacton margins Inabilityto obtain3G spec trum in key

circle

Revi sion of Licensefee s

BCG M i f Bh i Ai l


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L

O

W

H

I

G

H

BCG Matrix for Bharti Airtel

St arsMobile ServicesBharti Infratel

?Broad BandInsuranceRetailFixed Line Services

Co ws

DogsDTH

HIGH

MMaar

rkkeett SShh aar

r

ee

L O W


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LOW

27


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Porters 5 Forces

28


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1. Threat from Competition

Wireless Market market

s h are

T o p 4 g arn eri n g 7 5 %

HIGH

29


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Competitor Analysis

O P Marg i n Net Marg i n

O P Marg i

n s

C o m p a n y

& Net Pro fit Margi n s am o n g

Rcom

IDEA

M TNL

Se p - 07

Peers37.90%

32.80%

23.70%

Se p - 08

31.60%

26.60%

22.90%

Se p - 0 72

23.90%

14.10%

7.00%

Se p - 0 83

13.20%

6.50%

6.80%

Source: CMIE November 2008


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30


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ARPU

(USD

perm

on

th)

AMOU & ARPU StatsMi n u tes o f Usa g e p er M o n t h M o b ile

Serv icesUSA 838

India 461

China

D

1

m

g

espite a low teledensit y of approximately9 percent, India has the second highestinutes of usage per month. This offers hugerowth opportunity to telecom companies.

Russ ia 88

ARPU* i n I n d i a M o b il e Serv ices

10

8

The declining A R PU implies that India Inc.6is tapping a large market at the bott om of

4

2

0

Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q12007

GSM CDMA

the pyramid by reducing tariffs;enhancing affordabilit y.

thereby,

31


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2. Customer Bargaining Power

Lack of differentiation among Service

Providers

Cut throat Competition

Low Switching Costs

Number Portability will have Ve Impact

Businesses & Consumers

HIGH

32


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Market Scenario

Postpaid Vs Prepaid Customers & Market Share

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3. Suppliers Bargaining Power

LOW

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4. Threat of Substitutes

Landline

CDMA

Video Conferencing

DIMINISHING MARKETH

IGH

BROADBAND SERVICE S

VOIP - Skype, Gtalk, Yahoo Messenger

e-Mail & Social Networking Websites


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5. Threat of New Entrants

Huge License Fees to be paid upfront & High gestation

period

Entry of MVNOs & WiMAX operators

Spectrum Availability & Regulatory Issues

Infrastructure Setup Cost - High

Rapidly changing technology

LOW

36

G E M t i C l ifi ti


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M

a

r

k

e

t

A

tt

r

a

c

t

i

ve

n

e

s

s

L

o

w

M

e

d

i

u

m

H

i

g

h

GE M atrixClass ificatio n

Stro ng

B u si n ess Stre n g t h

Me d i u m Weak 5 . 0 0

3 . 6 7

2 . 3 3

5 . 0 0 3 . 6 7 2 . 3 3

1 . 0 037


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37


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B u sin ess Stre n g th

Currentmarket shareBrand imageBrand equity

Productioncapa ci tyCorporate image

Profit margins relativetocompetitors

R & D perform anceManagerial per son alPromotionaleffectiveness

GROUP 7 38

U d l i M k


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Factors Underlying Market

Factors Weight Rating(1 5)

Value =(Weight * Rating)

Resource availability 0.20 3.5 0.7

Overall market size 0.15 4 0.6

Annual Market growth rate 0.20 4 0.8

Profitability 0.15 4 0.6

Competitive intensity 0.10 4 0.4

Technological requirements0.20 4.5 0.9

Total 1.0 4.0

39

Factors Underlying Market/Biz


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Factors Underlying Market/BizStrengthFactors Weight Rating

(1 5)

Value =

(Weight * Rating)

Market share 0.15 5 0.75

New product development 0.10 3.5 0.35

Brand Image 0.10 4 0.40

Sales force 0.15 3 0.45

Pricing 0.15 3 0.45

Distribution capacity 0.10 4.5 0.45

Product quality 0.10 4.5 0.45

R&D Performance 0.15 3 0.45

Total 1.0 3.75

40


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Moder

Market

Attrac t

iveness

Airtels GE Matrix

High Business Strengths LowHigh

Attractive

Airtel E n terpri se

5 . 0 0

3 . 6 7

TeleMd ia

ateAttractive

2 . 3 3

Unattractive

Low

5 . 0

0

3 . 6

7


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2 . 3 3 1 . 00

41


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Airtel Strategy

MANTRA : Focus on CoreCompe tenciesand Outsource therest!


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Strategy

Airtelpartneredwith leading playersin telecommunicationpl aye rsacrossthe globe .

Ithas managedto work with thebest of domain specialistsgloballyand emerge as a world class entity.

Partnerships include ope rationalcontracts with marquee vendorsand str ategic investorsrangingfromprivateequ ity investorsto

global telecomgiants.

S i hi / Sh h ld


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Strategic partnerships/ Shareholders

Warburg Pincus a celebrated PEinvestorhelda stake for asubs tantialperiod of timeand was

instrumental inproviding Airtelsupportin itsearly stages.

Vodafonewas a strategic investorin

Airtel. Temasekthe Singapo rebased

investorholds a considerablestake

in it.


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quality assurancein Airtels then 13mobi le circles.

Outsourcing deals in 2004

Ericsson was given the mandate toprovide ,manage and maintain theequ ipmentas well provide

IBM was giventhe manda te to

handlethe back officerequ irements of Airtelspresence inIndia


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Operational Strategies.

Higherempha sison ARPU/min starkcontrast with otheroper ators whoconcentrateon ARPU only.

Aim to be become a one stop shop forall telecomm unication services underthe Bharti umbrella.

Exploring opportunities in internationalmarkets.

Hived off towerinfrastructure into aseparate entity.


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Performance till date

Bharti Airtel has enjoye dan excellentrun ever sincethe telecomsectoropened.

Ithas managedto hold on to itsleade rshipposition inspite of the

presence of other pla yers with deeppoc kets Ambanis, Tatas,Birlas

and Vodafone. Has copedwell with regu latory

changes.

Continues to att ractand delight


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Future Strategies

Translateits exper tise in Indianmarkets to ot her emergingeconomies.

This could call for acquisi tions globally. Technology leadership is a must

Airtel must ens urethatits relianceon

GSM technology does not renderitobsolete.

Indianmarket insp ite ofbeing thewo rlds largest is still not matured.

Opportunities abound in the


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hinterlandwhichmustbe exploited.


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Growth Factors

GROUP 7 49


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Road Map Growth Path

VPN & VoIP

WiMAX

3G

2G/2.5G

GROUP 7 50


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References

Bharti Airtel,Annual Report -2009

Investorspresentation,Bharti Airtel Limited,November 2009

Telecommunication Services, IndianIndustry: A

Monthly Review, CMIE November20 09 Analyst Report Bharti Airtel,AsitC. MehtaInvesmentIntermediate sLtd.

Telecommunication Sector Report March2009,CRISIL

Capitaline Databasehttp:// capita line.com IndianTelecommunication Sector - August2008,

IBEF Report Next Big Spenders Indian MiddleClass,

BusinessweekGROUP 7 51
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THANK YOU !!

Documents

Sep 3 2010 DTU DSM Bharti Airtel Strategy