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8/7/2019 Term Paper Sandeep Anurag Gautam
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DEPARTMENT OF MANAGEMENT STUDIES
IIT DELHI
SML 870: Advanced Financial Management
Term Paper
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Problem Statement
Balak Obama has recently joined Bharti Airtel as a
Young Business Leader (YBL). Being an MBA from the
reputed Department of Management Studies- IIT Delhi,
he has been trusted with the task of valuation of Bharti
Airtel as a business firm. The following data is
available.
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Balance Sheet (5 yr period)
(Rs in Crs)
YearMar08(12)
Mar07(12)
Mar06(12)
Mar05(12)
Mar04(12)
INCOME :
Sales Turnover 25,761.11 17,851.60 11,231.47 7,903.03 0
Excise Duty 0 0 0 0 0
Net Sales25,761.
1117,851.
6011,231.
477,903.0
3 0
Other Income 359.91 148.49 94.3 122.02 63.15
Stock Adjustments 9.05 30.07 -13.84 11.57 0
Total Income
26,130
07
18,030
16
11,311
93
8,036.6
2 63 15
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Tax 859.36 495.03 166.52 8.61 -0.12
Deferred Tax -168.24 47.61 88.14 345 0
Reported Net Profit6,244.1
94,033.2
32,012.0
81,210.6
7 0.37
Extraordinary Items 48.38 31.19 12.57 28.22 13.29
Adjusted Net Profit6,195.8
14,002.0
41,999.5
11,182.4
5 -12.92
Adjst. below Net Profit -22.25 -5.92 0
-1,750.0
2 0P & L Balance brought
forward5,533.9
21,456.3
8 -786.43 0.81 0.44
Statutory Appropriations 0 0 0 0 0
Appropriations -41.36 -50.23 -230.73 247.89 0
P & L Balance carried down11,797.
225,533.9
21,456.3
8 -786.43 0.81
Dividend 0 0 0 0 0
Preference Dividend 0 0 0 0 0Equity Dividend % 0 0 0 0 0
Earnings Per Share-Unit Curr 32.9 21.27 10.62 6.53 0
Book Value-Unit Curr 106.34 60.19 38.71 24.44 26.03
P fit d L A t (5 i d)
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Net Block19,030.
65 19,305.6313,006.
889,764.9
9 14.56
Lease Adjustment 0 0 0 0 0
Capital Work in Progress2,751.0
8 2,375.822,341.2
5 994.46 0.1
Investments10,952.
85 705.82 719.7 931.91,762.
67Current Assets, Loans &
Advances
Inventories 59.94 51.55 18.59 31.58 0
Sundry Debtors2,776.4
6 1,873.301,076.1
7 715.74 0
Cash and Bank 502.94 780.46 307.43 384.14 0.13
Loans and Advances4,666.8
9 2,587.251,857.8
21,204.9
43,693.
01
Total Current Assets8,006.2
3 5,292.563,260.0
12,336.4
03,693.
14
Less : Current Liabilitiesand Provisions
Current Liabilities11,957.
84 9,459.426,477.7
14,207.9
9 13.56
Provisions1,965.1
0 1,262.33 539.3 249.31 6.99
Total Current Liabilities13,922.
94 10,721.757,017.0
14,457.3
0 20.55
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Jun-03 3386.89 0.017
Jul-03 3665.46 0.3012
Aug-03 3977.86 0.3699
Sep-03 4314.74 0.1667
Oct-03 4742.32 0.1741
Nov-03 4951.1 -0.0535
Dec-03 5424.67 0.2848
Jan-04 5954.15 0.2148
Feb-04 5826.74 0.0292
Mar-04 5612.92 -0.0509
Apr-04 5809.01 0.0456
May-04 5204.65 0.1858
Jun-04 4823.87 0.0141
Jul-04 4972.88 0.0916
Aug-04 5144.17 0.0741
Sep-04 5423.27 0.0653
Oct-04 5701.61 0.0767
Nov-04 5960.75 0.0984
Dec-04 6393.85 0.161
Jan-05 6306.99 0.0684
Feb-05 6595.05 0.0227
Mar-05 6679.18 -0.1233
Apr-05 6379.29 0.0015
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Apr-07 13477.79 0.064
May-07 14156.47 0.044
Jun-07 14334.3 -0.014
Jul-07 15253.42 0.0789
Aug-07 14779.05 0.0077
Sep-07 16046.02 0.071
Oct-07 18500.31 0.0682
Nov-07 19259.55 -0.0037
Dec-07 19827.28 0.0587
Jan-08 19325.66 -0.1059
Feb-08 17727.54 -0.0449
Mar-08 15838.38 0.0006
Source: www.capitaline.com
http://www.capitaline.com/http://www.capitaline.com/8/7/2019 Term Paper Sandeep Anurag Gautam
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PAT 1690 3292 5084 6131 7839 9447 10854
12266
13334 14400
No. ofShares
250Crore
250Crore
250Crore
250Crore
250Crore
250Crore
250Crore
250Crore
250Crore
250Crore
EPS 10.62 21.27 32.90 43.00
53.00
64.00
75.00
86.00
92.00 97.00
Other Given Data:
The yield on 10 yr Central Government Bonds is 7.5%.
Market Risk premium corresponding to telecom industry
is 9%.Corporate tax rate applicable is 33%.
You are required to assist Balak in valuation of the firm
and draw inferences from the results obtained.
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Risk Free Rate: 7.5% p.a (Yield on 10yr central govt bonds)
Market Premium: 9 % (for telecom Industry)
Bharti Airtels Beta
We use 5-year monthly data for calculating monthly returns on
market (Sensex) and Bharti Airtel
Beta is calculated using regression equation
R Bharti Airtel= + *RMarket +
Using the regression analysis tool of excel and the above data,
value of beta is obtained
Beta= .793
Cost of equity of Bhart Airtel= Risk free rate + (Market rate
risk free rate)*
= .075 + .09*.793
1464
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Total Debt Rs
6570.32
Cost of debt = 0.117*(50/6570.32) + 0.13*(2.42/6570.32) +
0.18*(6517.9/6570.32) = 0.1795
Tax Adjusted Cost of Debt = 0.1795 * (1- 0.33)
= 0.1184 = 11.84%
Weighted Average Cost of Capital
Total Debt Rs 6570.32
Crores
Total Equity Rs 20241.4
Crores
Total Rs
26811.72 Crores
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Capital Employed = Total Assets Current Liabilities &
Provisions
= 14765.7
Less Normal Profits = 14765.7 * (0.0735 + 0.09)
Rs 2414.19
Super profits Rs 3430.72
Multiplied by annuity for 5 years at 16.35 per cent
(*) 3.247
PV of super profits/ Value of Goodwill
Rs 11139.5
Economic Value Added
EVA [N t ti fit ft t (T t l it l *
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EVA = [7051.9 (26875.7 * 0.1395)]
= Rs 3297.4 Crores
TV2015 = FCFF2015 / WACC
= 24800/13.95
= 1777.77
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Estimates of Free Cash Flow
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015PBDIT 4069.6
2
7265.4
5
10746.
9
13250 16500 19500 21800 24300 25800 27200
LessDepreciation
1547 2353 3166 4100 4800 5100 5600 5900 5800 5600
PBIT 2522 4912 7588 9150 11700 14100 16200 18400 20000 21600Tax(0.33)
832 1620 2504 3019 3861 4653 5346 6133 6666 7200
PAT 1690 3292 5084 6131 7839 9447 10854 12266 13334 14400Add
Depreciation
1547 2353 3166 4100 4800 5100 5600 5900 5800 5600
LessChangein NWC
(3757) (5429) (5916) (6600) (7300) (8100) (9000) (9700) (10300)
(10800)
LessCapex
4700 7500 10000 13000 15000 14000 11000 8000 5000 3500
FCFF 2294 3574 4166 3831 4939 8647 14454 19866 24434 27300
1777Net CashFlows
2294 3574 4166 3831 4939 8647 14454 19866 24434 29077
PV @14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270
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1) Bharti Airtel keeps a negative working capital. It can afford to do it as it
has a very good credit rating in the market and is not expected to default.
2) The have not given dividends to the shareholders uptill now that also has
been the reason for appreciation of Share price.
3) Telecom industry requires very high capital investments and because of
Bharti Airtel good balance sheet position it can invest in capital intensive
projects.