A

PROJECT REPORT
ON

FINANCIAL STATEMENT ANALYSIS

A detailed study done in
Tata Communications Internet Services Limited

Submitted in partial fulfillment of the requirement for the

award of degree of
Master of Management (MMS) under Mumbai University

Submitted by
Deepa Hariharan
Harshad.R.Joshi

Under the guidance of

J. KRISHNA
(Desig)

Corporate Office: C21 & C36, ‘G’ Block, Bandra Kurla Complex,

Mumbai – 400 098. Tel: +91 22 6657 8765 Fax : +9122 6639 5162
ABSTRACT
 ACKNOWLEDGEMENT

We wish to express heartiest thanks to management of TCISL for

providing the opportunity to undergo training in the esteemed organization.
A nice environment, systematic work approach and target oriented task
management of this division provided us the much-desired training experience
needed for future manager..
We also owe a special thanks to Mr. J Krishna - Designation, for allowing
us to do project under their guidance.
Last but not least we wish to regard my sincere thanks to all the
employees of Finance department; in particular Mr. Mahesh P. Babu
(Designation) who directly or indirectly helped us in completion of this project.

.
TABLE OF CONTENTS
About the Company

Tata Communications Internet Services Limited (formerly VSNL

Internet Services Limited) is a wholly owned subsidiary of Tata
Communications. In 2007, TCL hived off its broadband business to
TCISL . Since then this TCL arm has been acquiring around 4,500
customers per month across India.

TCISL serves over 4,50,000 customers offering services like broadband,

Wi-Fi, dial up and a bouquet of value-added services such as
entertainment-on-demand, interactive education, net telephony, PC
security and website hosting.

About Tata Communications:

Tata Communications is a leading global provider of telecommunications

solutions serving the voice, data and next-generation service needs of
carriers, enterprises and consumers in over 30 countries.

Earlier known as Videsh Sanchar Nigam, the company became a part of

the Tata Group in 2002. In 2008, VSNL, VSNL International, Teleglobe,
Tata Indicom Enterprise Business Unit, VGSL and CIPRIS were brought
under one global brand name – Tata Communications. The company is
now the number one global international wholesale voice operator and
India's largest provider of international long distance, enterprise data and
internet services in India.

Tata’s global network spans five continents and comprises major

ownership in over 200,000 km of territorial network fibre and subsea
cable capacity. The company has a trans-Atlantic and trans-Pacific data
transfer capacity of 1 trillion bits per second, a global MPLS network and
the world’s largest VoIP network.

Tata Communications was named "Best Wholesale Carrier" at the World

Communications Awards in 2006 and "Best Pan-Asian Wholesale Provider"
at the 2006 and 2007 Global Wholesale Telecommunications Awards. It is
listed on the Bombay Stock Exchange and the National Stock Exchange of
India and its ADRs are listed on the New York Stock Exchange (NYSE:
TCL). Tata Communications is a partner of the Metro Ethernet Forum
(MEF), the pre-eminent industry organization dedicated to facilitating the
adoption of Ethernet networks and services.

Areas of business
The company extends its global reach to over 200 countries and
territories with more than 300 PoPs and more than one million square feet
data centre space worldwide.Its portfolio covers:

Global voice solutions

Carrying over 20 bn minutes of traffic annually, the company's customer
base includes over 1500 carriers, mobile operators and ISPs. It provides
value-added services such as international toll free calls and account
calling in addition to domestic and international long distance calls.
Services include:

 Voice termination services

 Mobile Direct
 VoIPLinkTM
 Global calling cards
  truerootsTM

Global data solutions

The company serves the connectivity needs of global enterprises and
service providers with solutions such as virtual private networks, global
ethernet, managed data network services, leased lines, etc. The company
also offers customised industry specific solutions and is the leading
provider of bandwidth and IP connectivity. Services include:

 Global transmission services

 Global IP and VPN services
 Managed services
 Mobility services
 Transformation services
Joint ventures, subsidiaries, associates

 Tata Communications Lanka offers wholesale, enterprise and

retail solutions which include international voice services,
international IP bandwidth for internet service providers,
international private lease circuit, MPLS-based global VPN services,
corporate voice services and their global calling card.
 Tata Communications Banking InfraSolutions (TCBIL) offers
solutions that cater to the banking industry which include ATM
services, card issuance and management, end-to-end point of sale
acquiring and hosted core banking.
 Tata Communications Transformations Services delivers end-
to-end outsourcing services for global carrier and
telecommunications customers.
 Neotel (South Africa) provides a range of value-added voice and
data services for businesses, wholesale network operators,
providers and consumers using its pure-IP next generation network.
 Tata Communications Internet Services
TCISL Locations

Registered Office:

274 Capt Gaur Marg, Srinivaspuri,

New Delhi 110 065

Corporate Office

Corporate Center,

Tower ‘C’, 1st Floor,

Plot No.C-21 & C-36, Bandra - Kurla Complex,

Bandra (East), Mumbai 400051,

TCISL Key people and List of Directors:

Key People:

President
Chief Operating Officer Prateek Pashine
VP & Head Finance Sameer Shah
Program Management Officer Mehul Kapadia

List of Directors:
Organization Structure:

 Organization Structure of the company:

  Organization Structure of Finance RBU:

Main Products, Services and Delivery Mechanisms

Tata Communications Internet Services is engaged in providing internet

access services to retail customers. These cover individual users/ families
accessing the internet from their homes, small businesses and ‘Out of
Base’ access through Wi-Fi hotspots and CyberCafes. The different
services (means to offer access) offered can thus be classified as follows:

 Broadband
 Dial Up
 WiFi
 CyberCafe

Tata Indicom Broadband-

Description

TRAI has defined Broadband as ‘an always on data connection with

minimum download speed of 256 kbps’ Broadband access in India is
provided through various technologies such as WiMAX, DSL, Cable
Modem, Ethernet LAN, Fiber, Radio and Leased Line. For practical
purposes, RBU considers all connections provided by the above
technologies as Broadband, classifying connections with less than 256
kbps download speed as ‘high speed internet’ connections

Delivery Mechanism:

Tata Indicom Broadband is provided through different technologies:

 DSL – Across 35 cities

 Metro Ethernet – Across 12 cities
 WiMax – Across ~100 cities

For last mile access permissions, TCISL has entered into service
agreements with local cable operators (referred to as Access Partners) to
get right of way. In Mumbai and Pune, there are certain customers who
are connected on the network owned and maintained by the Access
Partners. Such networks are referred to as CAT-A networks. Networks
owned and maintained by Tata Communications are referred to as CAT-B
networks.

TCISL is in the process of rolling out Buried network as well as using the
Enterprise business infrastructure to provide very high speed access up to
100Mbps. At the same time, due to service related challenges faced in the
arial wireline networks, TCISL will soon stop acquiring new customers on
arial wireline.

Market Position
As per TRAI performance indicators report for Jun-2009, there were 6.6
mn Broadband (<=256 kbps) customers in India. Of these, BSNL has a
57% share followed by Airtel (13%) and MTNL (11%). TCISL has a share
of 3.5%.

Broadband Customer Base

16% BSNL
4% Airtel
11% MTNL
57%
TCISL

13% Others

Tata Indicom Total Internet (Dial Up) –

Description:

Dial Up is the traditional method of Internet access by which a customer

connects to the Internet through his wireline phone. A modem acts as an
interface between the computer and phone and connectivity is established
by dialing an access number specific to the Internet Service Provider.

Delivery Mechanism:

TCISL fulfills customer requirements for Tata Indicom Total Internet packs
through a Retail Distribution Network, Walk In Counters or through Online
mechanisms such as Credit Card, Net Banking and Cheque on Delivery.
Market Position:

As per TRAI performance indicators report for Jun-2009, there were 7.4
mn Dial Up customers in India. Of these, BSNL has a 50% share followed
by MTNL (20%) and Reliance (11%) TCISL has a share of 2%.

Dial Up Customer Base

17.00%
BSNL
2.00% MTNL
11% 50% Reliance
TCISL
20% Others

It should be noted that in case of BSOs, since the service is a pay as you
use service, once a person uses the service he is classified as a customer
for life. In case of SIFY, customers accessing internet from their
CyberCafes are also classified as Dial Up customers. Applying these
factors, we estimate the active Dial Up base is about 3.7 mn.

Tata Indicom Wi-Fi -

Description:

Wi-Fi, or Wireless Fidelity is based on the 802.11b standard for wireless

LANs operating in the 2.4 GHz spectrum.
Wi-Fi services from Tata Communications are offered under the Tata
Indicom brand, since 2005
Delivery Mechanism:

Tata Indicom Wi-Fi is offered as a service across Tata Communications

owned hotspots. These hotspots are deployed at partner sites & range
across segments such as:-

 Airports
 Hotels
 Cafes
 Restaurants
 Education Institutes
 Stadiums and other venues

Tata Indicom Wi-Fi is the only Wi-Fi operator that offers Global Roaming
as well. This service is offered across our partner hotspots across the
globe.

Market Position:
Tata Indicom Wi-Fi is the largest Wi-Fi hotspot provider in the country
today, with over 500 hotspots across India and over 40% market share.
It also provides access to over 135,000 global hotspots across over 160
countries to all TCISL customers.
Other players in this segment are mostly system integrators. Players such
as Microsense, Convergent & Maginet account for the remaining majority
of operators in the market. Telecom operators such as Reliance & Airtel
have entered the foray in a restricted manner.

Markets and Customer Requirements:

Broadband

Tata Indicom Broadband 2.0 has a presence across over 100 cities which
are divided into 9 regions. As on October 2009, TCISL’s 0.17 mn
customer base was divided into the 9 regions in the following ratio:

Active Base

Central
15% 11%
East
7%
North
8% Chennai
9%
AP
9% Karnataka
11%
Kerala and Rest Of TN
14% Mumbai
16%
Rest Of Maharashtra
Target Customers:

Tata Indicom Broadband 2.0 service primarily targets internet savvy, high
usage customers who contribute high ARPUs.

Customers from both, the Home as well as the Business segment are
targeted.

For Home applications, we seek tech enthusiasts, avid gamers, families

with multiple internet users and also individuals with high internet usage.

Among Businesses, we seek a cross section of customers across

businesses for which internet is an important business resource and are
seeking high levels of reliability for which they are willing to pay a
premium.

Accordingly, the following features and services are built in their service
offerings:

Multiple plan options:

Volume based, Time based and Unlimited plans are available in Prepaid
and Postpaid payment mechanisms.

Value Added Services for Individual/ Home users:

E-mail, Net Telephony, Streaming Videos, Music Downloads, Online Radio,

Games, Learning, Live Darshan and more

Value Added Services for Businesses

Security Services covering PC Security (Anti Virus + Anti Spyware +

Spam Control + Personal Firewall) with management controls, Server
Security, Mobile Phone Security and Internet Monitoring, Web Services
such as Domain Name Registration, Website Hosting and Business Mail. A
variety of features such as Static IP on demand, dial up roaming in India
is also offered. On the immediate roadmap is to offer roaming on our WiFi
network in India and Global Roaming in over 200 countries.

One Account Multiple Features

A Tata Indicom Account is all one needs to subscribe to any of the

services. In case of Prepaid customers, charges are debited from their
account balances. In case of Postpaid, charges are billed on their account
to be settled in the next bill.

Examples of Customers Targeted

 Individuals/ Home Users - Tech Enthusiasts, Gamers, Investors,

the ‘Full Nest’ Family where more than 2 members of the family use
the Internet account.
 Businesses - Small scale manufacturing business, agencies,
traders, exporters, professionals such as CAs, Lawyers, Consultants,
etc.

Some Firsts to TCISL’s credit

 First ISP to launch a full suite of unlimited plans – first to launch

512 kbps, 750 kbps, 1Mbps, 1.5Mbps, 2Mbps, 2.5Mbps and 4Mbps
plans.
 First ISP to launch Booster plans which deliver 4 times the speed at
night
 First ISP to launch plans bundled with value added services for
businesses
 Only ISP to offer International and Domestic Internet Roaming
facility to its customers on the unique – One World One Account
platform
Competition Background and Market Share:

Competition in the Broadband segment comprises of:

1. State Owned BSOs – BSNL and MTNL

2. Private BSOs – Airtel, Reliance, HFCL
3. ISPs – SIFY, YOU Telecom, Hathway, Asianet and local players

Due to their wide reach and availability, the state owned BSOs – BSNL
and MTNL have a distinct advantage over the other players. Private BSOs
have their pockets of strength. For example – Airtel has a wide availability
in cities like Delhi, Chennai, Bangalore, etc whereas HFCL is strong in
Punjab. BSOs are able to provide voice and broadband over a single
copper line which is a distinct advantage for them and helps them realize
better combined ARPUs (Average Revenue Per User per month)

As per companywise Broadband (connections with speed >= 256kbps)

numbers reported by TRAI as of Mar-09, there were 6.2mn Broadband
customers in India. The Market Shares for the various service providers
as reported by TRAI are as follows:

Broadband
2% MS 08-09
2%

2% 5% BSNL
4% Airtel
4% MTNL
Hathway
11%
TCISL
57% You
Reliance
13%
SIFY
Others
 CHAPTER- 3
ANALYISIS AND INTERPRETATION

Contents:
 3.1 Ratio Analysis
3.1.1 Table indicating the ratios
3.1.2 Interpretation of Ratios

3.2 Common Size Statement Analysis

3.2.1 Common Size Balance Sheet
3.2.2 Common Size Income Statement
3.2.3 Interpretation

3.3 Cash Flow Statement Analysis

3.1 Ratio Analysis

3.1.1 Table Indicting Different Ratios

As on 31-Mar-09 31-Mar-08 31-Mar-07

Return Related

Return on Total Assets (%) - 0.51 0.97

Return on Net worth (%) -0.27 - 0.40

Profitability

Gross Margin (%) 39.90 52.40 45.28

Operating Margin (%) 11.20 22.80 18.16

Net Profit Margin (%) 35.30 19.30 16.40

Adjusted Net Profit Margin (%) 9.90 19.40 16.56

Asset Turnover(x) 0.20 0.30 0.40

Leverage

Debt/Equity ratio (x) 0.60 0.80 0.56

Total Debt/Total Assets (x) 0.40 0.40 0.32

Long term Debt/Networth (x) 0.50 0.60 0.56

Interest Coverage (x) 3.70 5.60 8.96

Liquidity

Current Ratio (x) 0.30 0.20 0.16

Quick Ratio (x) 0.40 0.20 0.16

Cash Ratio (x) 0.10 -- --

Working Capital

Working Capital to Sales (x) -0.20 -0.40 -0.32

Working Capital Days (days gross sales) -78.90 -155.60 -117.68

Receivables (days gross sales) 39.70 29.70 18.40

Creditors (days cost of sales) 61.90 271.10 144.96

FG Inventory (days cost of sales) -- -- --

As on 31-Mar-09 31-Mar-08 31-Mar-07

Cash Flow Indicator

Operating Cash Flow/Sales (%) 13.80 22.20 71.68

3.1.2 Interpretation Of Ratios

Return Related Ratios:

TCISL’s RONW shrank heavily in 2008 after it was separated from Tata
Communications. The company’s share capital amounted to a mere Rs500

And the company incurred huge operating and administrative expenses.

However, the company’s raised funds through share capital in the next year and
also its revenue improved thereby improving the Return on Net worth

Return On Total Assets:

The company’s ROTA is very low during the period. Company’s negative working
capital indicates that it is making used of borrowed funds and creditors deposits
to finance its day to day activities. It is a cause of concern if it persists for a
longer period of time/

TCISL’s interest and tax situations are not a major factor here but main problem
is its operating costs - they eat up all and more of its operating profit. We need
to keep an eye on this too because they can't sustain this situation for too many
years.

Common Size Statement (P&L Statement)-(2008,09)

2009 %OI 2008 %OI

INCOME:    
Revenues from telecommunication 2,795,371, 100.00% 2,513,479, 100.00%
services 622 478

Other income 151,753,8 5.43% 66,500,7 2.65%

99 30
TOTAL INCOME [ 1+2] 2,947,125,5 105.43% 2,579,980,2 102.65%
21 09
EXPENDITURE:    
Salaries and related costs 447,438,3 16.01% 454,366,2 18.08%
29 53
Network costs 623,214,6 22.29% 611,697,7 24.34%
45 86
Operating and other expenses 1,853,782, 66.32% 1,708,333, 67.97%
446 366
Interest 43,838,3 1.57% -
72
Depreciation 1,068,456, 38.22% 1,136,409, 45.21%
791 484
TOTAL EXPENDITURE 4,036,730,5 144.41% 3,910,806,8 155.59%
83 89

PROFIT BEFORE TAXES (1,089,605,0 -38.98% (1,330,826,6 -52.95%

62) 80)
TAXES    
(a) Current Tax    
(b) Fringe Benefit Tax 9,038,3 0.32% 1,342,0 0.05%
38 45
(c) Prior period Tax Adjustments 5,0
- 56
(d)Deferred tax expense/(benefit) 41,084,3
- 39
AMOUNT AVAILABLE FOR (2,481,087,8 -88.76% (1,382,444,4 -55.00%
APPROPRIATIONS 31) 31)

BALANCE CARRIED TO (2,481,087,8 -88.76% (1,382,444,4 -55.00%

BALANCE SHEET 31) 31)

Common Size P& L Statement (2007)

2007 %OI
INCOME:  
Revenues from telecommunication
services 516,601,812 100.00%
Other income 5,309,607 1.03%
TOTAL INCOME [ 1+2] 521,911,419 101.03%
EXPENDITURE:  
Salaries and related costs 454
,366,253 87.95%
Network costs   0.00%
Operating and other expenses 246,219,125 47.66%
Interest 246,949
Depreciation 52,585,785 10.18%
TOTAL EXPENDITURE
417,656,643 80.85%
PROFIT BEFORE TAXES 104,254,776 20.18%
TAXES  
(a) Current Tax 11,190,000 2.17%
(b) Fringe Benefit Tax 1,144,055 0.22%
(c) Prior period Tax Adjustments (5
6,543)
(d)Deferred tax expense/(benefit) (5,912
,053)
BALANCE CARRIED TO BALANCE
SHEET 97,889,317 18.95%
 CHAPTER- V

FINDINGS AND SUGGESTIONS

Contents:
5.1 Finding
5.2 Suggestions
 5.1 FINDINGS

 The current ratio is more than 2% in all the first four

years. But in 2006-2007 the current ratio is slightly
lower than the normal. This shows that the company is
enjoying credit worthiness.

 The liquid ratio during the study period except in the

year 2007-08 is more than the normal (i.e.) 1:1. Hence
the firm is controlling its stock position because there is
linear relationship between current ratio and liquid
ratio.

 There is fluctuation in the absolute ratio for all the

years.

 In all the years the debt equity is more, when

compared with borrowings. Hence the company is
maintaining its debt position.
 The proprietary ratio during the study period to the
total assets is more than the 2/3. During 2004-05 it is
more than 50%

 During the year 2004-05 it is 66.17% which shows

higher position of cost of goods sold .But at the same
time during 2007-08 it is only 6.95.

 The sale is 4 times more than the fixed assets 2003-04

and 2005-06. It is more than 3 times during 2004-05
and 2006-2007. It is more than 2 times during 2007-
08.

 During all the years of study period the sales is 2 to 7

times more than the working capital.

 During all the study period years the relationship

between sales to total assets is high.

 The sales are in between 1.5 and 3.5 times more than
the proprietor's funds. It shows the firms is maintaining
the better utilization of own funds.
 The Net profit from the year 2005-06 is very less and in
the year 2007-08 the company made a loss.

 During 2007-08 the gross profit position is 6.70%. But

in 2003-04 it was 12.9 %.and it was fluctuating more
than the base year in all other years of the study
period.

 During 2003-04 it was 6.32% on sales and in 2004-05

it was 5.45. But in all other 3 years it is less than 1%
and even negative in the year 2007-08. This means
that either there is any defect in pricing the product or
excess non-value added expenditures which reduces
the net profit of the company. The sales of the
organization are also decreasing and hence
management must take care of the quality and market
situations into consideration to resolve the issue so that
it may bring good profits to the organization.

 The administration and selling expenses during 2007-

08 is very high when compared to previous year's
%age as they were in between 13-20% of sales. This
may also be one of the reasons to a net loss in that
year.
 The sales figure increasing year after year. It increased
about Rs.48,40,665. Administrative and other expenses
were fluctuating. The other income of the company was
increased year by year.

 Net profit has been reduced from 100% to (0.25) %.

 During the period of study the total income was less

than the total expenditure which is not good for the
company.

 Share capital has been increased in 2004-05 and after

that it remained constant.

 A sundry debtor has been fluctuating over the years. It

increased during the first four years of the study period
from 100% to 158.22% i.e. from 2003-04 to 2006-07
and then from there it decreased to 96.62% in the year
2007-08
 5.2 SUGGESTION

 The company's profit over the years has been decreasing

when compared to previous years and even it incurred
loss in the last year. The company must increase the
profit in future. The company must take steps to increase
the profit level.

 The Gross Profit ratio can be improved by increasing the

gross profit and the factors decreasing the gross profit
ratio should be thoroughly checked timely whither they
are operating factors or any misleading factors.

 A Non-operating expense of the company is high. So the

management should take necessary steps to reduce the
non-operating expenses. The management should take
steps to reduce the borrowed capital.

 Net fixed asset of the company has increased and even

though they are not utilizing the enhanced technology to
increase sales. So the management should take initiative
steps for the proper utilization of the resources.
 The liquidity position of the company is quite satisfactory.
And this must be improved further for the purpose of
proper utilization of the liquid assets of the company.

 The cash ratio position of the company is not satisfactory

for the last five years. It is fluctuating over the years and
there is no standard ration maintained. So the
management should take steps to improving the cash
position of the company.

 Debt equity ratio has not satisfactory for the past two
years. So the company has enough scope for the more
long-term borrowings from the outsiders as its current
ratio is also good and has a sufficient amount of current
assets..

 The sales of the organization can be further increased by

improving the quality through optimum utilization of
company's resources (i.e. assets, raw materials, credit
system, etc.) and that in turn will increase the overall
profits of the organization.

 The Management must find out the reasons for the

decrease in sales and must take appropriate measures.
 The Management must also study the market position and
it also find the demand prevailing in the market for the
products and thus this will guide them to enhance their
sales volume.