Case:Airtel in Africa

Last June, both Sunil Mittal and Bharti Airtel were the toast of the town. The $9-billion
acquisition of Zain Africa transformed the 53-year-old Mittal into a global entrepreneur.
And it made Airtel the fifth largest mobile operator in the world, with a footprint in 19
countries.

Exactly a year later, things look drastically different. Airtel's profits have fallen for five
quarters in a row, unprecedented for a company that set benchmarks for record growth
and profits in the past. It is losing revenue and market share in India. And the latest, as
reported by ET on June 25, is that Airtel India is undertaking a major operational
restructuring — a move that could affect almost 2,000 jobs. The company responded on
Saturday saying the restructuring won't affect many jobs.

And the thing for Mittal is that the news from Africa is not cheery either. Airtel's Africa
operations have missed most internal targets that it first set out for the first year — from
revenues, subscriber base to profitability. Most of its operations are still making losses.
Airtel had initially hoped to turn them around in 12-15 months. Outsourcing non-core
operations — a practice Airtel pioneered in India — have taken longer than it was
expected to in Africa. The company underestimated the cost of turning around Africa
operations.

And now, to meet the growth targets there, Airtel has had to increase its Africa capex by
50% in 2011-12. "Africa with 16 countries is far more complex than India. One size fits
all will not work here. They took a simplistic approach," says Federico Membrillera,
managing partner, Delta Partners.

That Airtel's India operations are facing headwinds is not news. With growth peaking,
especially in meatier markets like cities, average revenues per user (ARPUs) have been
falling. It dropped 12% in the fourth quarter of 2010-11. The competitive intensity in the
Indian market has risen with as many as nine operators in each telecom circle fighting
for customers on the back of tariff cuts. Airtel India's big bet on next-generation 3G
services, for which it took `13,400 crore debt for buying spectrum, is yet to pay off
significantly.

The bad news from Africa — both on costs and timelines — has come as a bigger
surprise. Africa-based experts point to three things. One, the company underestimated
the level of complexity and set unrealistically aggressive targets. Two, Zain had made
little investment in infrastructure in the African operations.

So, Airtel had to invest more than it had budgeted. Three, Airtel is great at centralisation
and squeezing inefficiencies out, something that they have done well in India. But
Africa, with 16 different countries, different rules and regulators, markets, languages
and culture, is difficult to centralise like India.
Analysts in India partly blame Africa for dragging down the company's financial
performance. A few weeks ago, credit ratings agency Fitch reduced Bharti Airtel's
outlook to 'negative' from 'stable' citing risks involved in its African operations. Faced
with high-cost debt, Airtel has had to pre-pay about $900 million of its debt. Its recent
plan to raise funds via a global bond issue has seen little progress.

Many Countries, Many Problems

Africa's challenges make for a sobering read for all who had bet on Airtel replicating its
India model there. "The vendor ecosystem in Africa is poor. We have had to build it
almost from scratch," says Inder Walia, director (HR), Bharti Group. Airtel has had to
take all its vendor partners like IBM, Spanco, Mahindra Tech from India who are
building their operations, entailing more time and costs.

The company is now trying to replicate its India strategy of sharing infrastructure with
its competitors in Africa. Airtel has sent invites to telcos — like Etisalat, Vodacom,
Millicom and Orange — to set up a pan-African tower company. So far the response has
been lacklustre. Experts say such collaboration is logistically difficult in Africa because
the footprint of telcos often does not overlap across so many countries. Barring MTN,
which has almost similar footprint like Zain, there aren't comparable multi-country
operators. Perhaps, the most complex and niggling problems come from the fragmented
African market, with many governments and many rules as well as a different African
work culture.

For example, Airtel is facing constraints in importing telecom equipment into some
countries that have a forex neutrality clause in place, which ensures that the value of
goods it imports cannot be more than its exports from the country. Duty exemptions
don't come easy. In Kenya, duty exemptions took almost three months to process. Most
of the 16 countries where Airtel operates have not signed double taxation avoidance
treaties. This has cost and logistical implications. If one of Airtel's Kenya-based vendors
were to set up central billing for all the 16 operations, Airtel will lose lot of money in
taxes.

Given the landlocked nature of most African countries, equipment often have to be
transported by roads leading to cost and time overruns. "Often we cannot correctly
estimate the timeline," says Durga Kota, MD, Bharti Integrated Account, IBM, Airtel's
partner. Dealing with local regulators in the protected economies of Africa has also not
been easy. In Kenya, where Airtel dropped tariffs, the government intervened as its
competitors lobbied hard. "They need to devote more time, effort and capital lobbying
with the government," says Membrillera.

The African work culture is also something that Airtel is coming to terms with. African
employees typically start their day at 8 am and close at 4.30 pm. Driving back after 6:30
pm is not the safest thing to do. Moreover, Africa's relatively laidback work culture in
the continent has meant that Airtel's deadline-driven work culture from India cannot be
easily transplanted.

"The fact that they [Airtel] have been slow does not surprise me," says Guy Zibi, MD of
AfricaNext Investment Research. But he adds, "If there is one company that can deal
with the odds in Africa, it is Airtel," he adds.

Bharti Gets On With It

The basis for such optimism is Airtel's very visible determination to change ways
business is done in Africa. Despite delays, Airtel has outsourced key operations —
telecom network, IT and call centres — to IBM, Ericsson, Nokia, Siemens, Spanco,
Mahindra Tech and others. About 3,000 of ex-Zain Africa staff has been moved to the
rolls of new partners.

Distribution and marketing networks are being overhauled. Over 100 people in the
African operations were trained in six weeks for this. There were issues with dealers and
retailers in Africa. Unlike India, the distribution in Africa is led by a few wholesalers
whose discounting game had pushed many retailers into losses. In May, after detailed
discussions, Airtel launched a new channel partner programme. "We have already begun
to see better [30-50%] pick up of stocks," says Rajan Swaroop, managing director, Airtel
Nigeria.

Airtel's customer initiatives are doing well, says a May 2011 Goldman Sachs report. It
has rationalised tariff rates in almost all its markets in Africa. This sustained tariff
differential has led to shift in minute usage to Bharti in multiple-SIM markets like
Nigeria and Ghana. It has also launched customised packages in different markets,
taking into account the traffic patterns and network quality.

Congested network and call drops have been a recurring problem in Africa. Bharti's
strategy to first scale up network capacity and then grow subscribers through tariff cuts
has helped offer better service, says the report.

Congestion in Airtel's Africa call centres has dropped from 90% to 20-30%. Africans
frequently lose their handsets to theft and the issuing of a new SIM card typically takes
7-14 days. Airtel's SIM swap scheme means a new SIM can be issued in an hour. E-
recharge, which helped save 3-4% of operational expenditure in India, was introduced in
Nigeria in December. By the end of 2011, Airtel hopes e-recharge will cover 80% of the
African markets.

When in Africa...

Zain was a revolving door of sorts — five brand changes since 2001, frequent board level
changes and almost zero investment in infrastructure, HQ in another continent and
little co-ordination between the 16 countries in Africa. "It was like each MD led a semi-
retired life doing his own thing," recalls a senior Africa-based consultant who has
interacted with some senior Zain executives.
Airtel changed all that. It moved its Africa headquarters to Nairobi (Kenya) from
Bahrain. "With all key stakeholders in Nairobi, decisions have become faster. Things are
easy to explain," says Tiemoco Coulibaly, CEO (Francophone), Airtel Africa. Recently,
Coulibaly wanted to set up a cell site in a remote area on the border of Chad and Sudan.
The decision was taken in a day. The area was covered in three months. Airtel has
committed $1.5 billion in network rollout in the next 18 months. "All this was almost
impossible earlier. Bharti's DNA is speed, speed, speed," he says. As a result, senior level
attrition — a good indicator of problems in any big M&A deal — has been negligible.
This is despite the fact that the centralisation thrust and outsourcing of functions like
networks, IT, customer care have clipped powers of country MDs significantly.

Airtel has also created a new zonal structure that empowers the second rung leaders in
Africa. It has created positions for 40 new zonal managers who are like zone CEOs with
profit and loss responsibilities. "This delegation of power has energised the system —
subscriber addition has moved up well," says Jayant Khosla, CEO, Airtel Africa
(Anglophone). An elaborate employee exchange programme has been launched.

Topline, Bottom Line

Airtel's expansion in Africa has also been good for Africans. In Africa, ARPUs are very
high — because call rates are high. But that keeps minute usage very low. In India, call
rates are about a cent a minute (about 40-45 paise) as compared to 6-12 cents in Africa.
While some players like MTN and Vodacom are making money in Africa, at least a third
of African operators today do not make money. Somebody has to figure out a better
viable model to bring down costs, lower tariffs and grow subscribers while maintaining
profitability in Africa.

Airtel is showing the way. With its outsourcing model and its projected revenue growth,
some experts reckon Airtel could bring down the operating costs in Africa by as much as
70%. "Airtel will have profound impact on the business models in telecom industry in
Africa," Zibi says.

For many years, the Kenyan government has been talking about building a BPO
business. Nothing happened. The largest BPO there had 400 people. Spanco, an Airtel
vendor, has employed 1,000-plus people within a year. IBM has assembled a top-notch
global team to manage Airtel's business and is now figuring out ways to build talent
supply through training and tapping the African diaspora.

At the Airtel headquarters in Delhi though, it is the bottom line and topline issue that
must be consuming the top management. Manoj Kohli, CEO, Bharti Airtel International,
is confident about Airtel's prospects in the continent. "We are well on course to touch
100 million customers, $5 billion revenue, $2 billion Ebitda [at 40%] by 2013 [from 45
million subscriber and 26% Ebitda today]," he says. Revenues and customers yes but
most experts — from Fitch to Goldman Sachs — consider profitability or Ebitda margins
of 40% by 2013 to be ambitious. Airtel Africa needs to succeed even more now than
when it started — because Airtel India now needs that success much more than ever
before.
Bharti rejigs ops for better synergy

Airtel has started its introspection. Effective 1.8.11 it has restructure its operations in
India and South Asia so as to streamline its businesses and reduce the cost structure.
The company had posted 31 per cent fall in its consolidated net income at Rs 1,400.7
crore for the quarter ended March 31 against Rs 2,044.4 crore in the same quarter last
year, due to acquisitions and rebranding costs and higher interest outgo. Airtel's
interest costs are also increasing after it paid a huge amount to acquire 3G (third
generation) and BWA (broadband wireless access) spectrum in the auction last year,
besides buying out Zain’s African operations. The move, however, comes at a time when
the telecom industry is reeling under pressure due to low tariffs and intense
competition.

CHANGING CHARACTER
* Two customer business units — business to customer and business to business
* Market operations to be divided in three regions each headed by an operations director
* North and east India, and Bangladesh operations to be headed by Ajai Puri
* South India and Sri Lanka operations will be under Vineet Taneja
* West will come under Raghunath Mandava (along with national distribution portfolio)
* K Srinivas, the joint president of Telemedia business, will lead the consumer business vertical

The operations, which were earlier divided into four segments – mobile, enterprise,
digital and telemedia — will now focus on two sides – consumer and enterprise. These
will be structured under two customer business units (CBU) with focus on B2C
(business to customer) and B2B (business to business) segments. The mobile, telemedia,
digital TV and other emerging businesses such as M-commerce, M-health, M-
advertising will now be combined under the B2C unit and serve the retail consumers,
homes and small offices. The B2C unit will again be divided into two — consumer
business and market operations.

The restructuring will enable the company to create synergies across various business
segments. However, it will have minimal impact on the employees, company officials
said. The major movement among employees is likely to happen in the marketing and
sales segment of each business unit. According to people close to the development, the
impacted employees will be given options to shift to the the group’s other ventures such
as retail, agriculture, value-added services as well as international businesses. Apart
from India and Africa, Bharti Airtel offer telecom services in Sri Lanka and Bangladesh.

K Srinivas, the joint president of the telemedia business, will now lead the consumer
business vertical as the president. This group will lead the overall B2C strategy and
focus on customer experience, product and service innovation (including data, VAS, new
products/services) and build an ecosystem around the B2C services. The second
segment of B2C — market operations group will lead the ‘go-to-market’ strategy and
complement the consumer business segment.

The market operations in India and South Asia will be divided in three regions, each
headed by an operations director. The north and east India, and Bangladesh operations
will be headed by Ajai Puri, south India and Sri Lanka operations will be headed by
Vineet Taneja and operations in the west will be headed by Raghunath Mandava (along
with national distribution portfolio). The B2B business unit will continue its focus on
serving large corporate and carriers through Bharti Airtel’s wide portfolio of
telecommunication solutions. Also, it will remain under Drew Kelton.

The new segment head will report to Sanjay Kapoor, CEO – India & South Asia. Atul
Bindal, who was leading the mobility business for two years, will now move into a role
within the group.

“Bharti Airtel has always adopted transformational business models that have set the
industry benchmark. As we move into the next phase of our growth journey, the new
organisation structure will mark a major step towards building an organisation of the
future. Customers are at the core of our business and with this new structure we are
proactively creating an integrated customer centric organisation,” said Sunil Bharti
Mittal, chairman and managing director, Bharti Airtel.

(Sources: http://articles.economictimes.indiatimes.com/2011-06-26/news/29703278_1_airtel-s-africa-
africa-operations-bharti-airtel/
http://www.business-standard.com/india/news/bharti-rejigs-ops-for-better-synergy/442003)

Airtel Africa starts paying off, but Group profits dip 22%

Third Quarter Report from Bharti Airtel indicates revenues from the company’s 16
Africa operations, including Ghana, rose 16.1 per cent, year-on-year, to US$1.06billion.
This contributed to Bharti’s total revenues from all 19 operations rising by 17 per cent to
$3.76bn. But the 16.1% increase in revenue from Africa was not enough to stop a
whopping 22% dip in Bharti’s net profits for the quarter compared to the same period a
year ago.

The company’s net profits declined to $205.8m during the quarter ending in December,
down from $265.4m during the same period a year earlier. Meanwhile, Airtel Africa also
showed a net profit loss of $52.8million for the quarter, down more than half from
$106.8million during the same period a year prior. This indicates Airtel Africa is
showing positive prospects after just 18 months after it changed hands from Zain Africa.

Bharti bought Zain Africa for US$10.7 billion in June 2010, and that investment first
started to pay dividends when revenues from Africa crossed the one billion dollar per
quarter mark for the first time in the quarter ending in September, 2011, an increase of
23 per cent over the previous year. That compares favourably with revenues of $248m
from the continent in the quarter ending June 2010, its first full quarter in Africa.
Bharti’s revenues from Africa had risen to $924m by the quarter ending December
2010.
The company also reported over 2.5 million new customers in Africa in the third quarter
of the current financial year and plans to introduce 3G services in six more African
nations soon. Airtel recently launched 3.75G in Ghana, and same in Uganda and Sierra-
Leone. The report said by September 2011, Bharti had invested $575m in Africa, up
from just $84m a year earlier.

Industry watchers say Bharti is investing heavily in Africa because, at an estimated 97%
mobile penetration, the Indian market is near saturation, and makes it difficult to expect
much from India so Bharti is now looking for solace in Africa. Bharti’s Chief Executive
for International Operations, Manoj Kohli was reported to have told journalists the
company was “moving steadily” towards its fiscal 2013 goals of achieving $5billion in
revenue and $2bilion in EBITDA from Africa. Kohli also said the company was past
peak capital expenditure in its operations in Africa and that it is seeing benefits of last
year’s increase in call prices in India.

“In the near-term, the company will face some pressure due to high loan repayments
costs and competitive pressure in the Indian market, but turn around in Africa business
will drive its performance in the medium to long-term,” a senior staff of corporate
shareholder in Bharti, Taurus Mutual Fund was quoted as saying. While the company’s
margins are up 7.6 percent in Africa on a year-on-year basis, Airtel expects its Africa
capital expenditure (capex) at $1.4 to 1.5 billion.

Bharti Airtel is the world’s fifth-biggest mobile phone carrier by subscribers, and
currently operates in 19 countries across Asia and Africa, with India being the
company’s biggest market where it had more than 175 million mobile customers as of
December 2011. In Ghana, Airtel is the fourth biggest operator by subscriber, chalking
some 2.6 million subscribers in December last year and also boasting of being the fastest
growing network by subscribers in Ghana.But analysts say Airtel Ghana, like the other
operation in Africa, are not making profit yet, even though they may be cutting down on
losses.

(Source: http://business.myjoyonline.com/pages/news/201202/81332.php)
 Financials of Bharti Airtel & Industry
Financial Performance (2006-2013) All data in Rs million
Particulars 2013 2012 2011 2010 2009 2008 2007 2006

Gross Sales 45350.9 41603.8 38015.8 35609.5 34014.3 25703.5 17794.4 11229
Less: Excise Duty 0 0 0
Net Sales 45350.9 41603.8 38015.8 35609.5 34014.3 25703.5 17794.4 11229
Other operating income 0
Net Sales & Other
Operating Income 45350.9 41603.8 38015.8 35609.5 34014.3 25703.5 17794.4 11229
Total Expenditure 31880.2 27960.1 25078.4 21965.6 21023.2 15202.5 10677.5 7346.9
(Increase) / Decrease In
Stocks 0 0 0 0 0 0
Raw Material Cost 0 0 0 0 0 0 0
Purchase of Finished
goods 1.9 18.3 0 0 0 0 0
Food Beverages Cost 0 0 0
Software Development
Cost 0 0 0
Purchase Of Shares &
Debentures 0 0 0
Purchase &
Developmenyt Cost Of
Land & Buidings 0 0 0
Excise Duty 0 0 0 0 0 0
Manufacturing Expenses 16693.1 14112 14021.4 12035.1 11678.8 7524.16 5159.93 3481.2
Electricity , Power & Fuel
Cost 3569.9 2972.7 0 0 0 0 0
Employees Cost 1511.3 1391.5 1451.2 1530.55 1498.34 1366.64 1148.98 788.16
General Administration
Expenses 10104 9465.6 6425.6 5995.02 5669.71 4526.77 3299.4 2276.1
Selling & Distribution
Expenses 0 3180.2 2404.91 2176.4 1784.91 1069.17 801.36
Loss on Foreign Exchange 0 0 0
Loss on Foreign
Exchnange Loan 0 0 0
Misc Expenses 0 0 0 0 0 0
PBIDT (Excl OI) 13470.7 13643.7 12937.4 13644 12991.1 10501 7116.95 3881.8
Other Income 1463.1 624.7 112.9 89.73 140.74 235.86 93.56 61.9
Dividend Income 0
Export Incentives 0
Foreign Exchange Gain 0
Profit On Sale Of
Investments 0
Interest Income 0
Lease / Rental Income 0
Profit On Sale Of Share 0
Provision Written Back 0
Profit On Sale Of Asset 0
Other Income 1463.1 624.7 112.9 89.73 140.74 235.86 93.56 61.9
Operating Profit 14933.8 14268.4 13050.3 13733.7 13131.8 10736.9 7210.51 3943.7
Interest 1652.3 1396.2 130.8 -855.65 1763.98 483.71 255.84 225.6
Exceptional Items 0 0 0 0 0
PBDT 13281.5 12872.2 12919.5 14589.3 11367.8 10253.2 6954.67 3718.1
Depreciation 6826.7 5916 4193.7 3890.08 3206.28 3280.63 2353.3 1432.4
Proft / Loss from
ordinary activities before
tax 6454.8 6956.2 8725.8 10699.3 8161.54 6972.55 4601.37 2285.8
Tax 1358.5 1226.2 1008.9 1273.09 417.7 728.35 568.15 273.71
Current Tax 1358.5 1226.2 1008.9 942.73 777.73 859.36 513.74 166.52
Deferred Tax 0 330.36 -395.9 -168.24 47.62 88.14
Fringe Benefit Tax 0 0 0 35.87 37.23 25.5 19.05
Prior Period / Year Tax 0 0 0 0 0 0
Mat Credit 0 0 0 0 0 -18.71
Other Tax 0 0 0 0 0 0
PAT 5096.3 5730 7716.9 9426.16 7743.84 6244.2 4033.22 2012.1
Extraordinary Items 0 0 0 0 0 0 0
Prior Period Expenses 0 0 0 0
Other Adjustments 0 0 0
Net Profit 5096.3 5730 7716.9 9426.16 7743.84 6244.2 4033.22 2012.1

Equity Capital 1898.8 1898.8 1898.8 1898.77 1898.24 1897.91 1895.93 1893.9
Face Value (IN RS) 5 5 5 5 10 10 10 10
Reserves 52245.3 47528.7 42210.7 34836.3 26187.5 18340.2 9545.21 5449.6
Calculated EPS (Unit.
Curr.) 13.42 15.09 20.32 24.82 40.79 32.9 21.27 10.62
Calculated EPS Unit
Curr.(Annualised) 13.42 15.09 20.32 24.82 40.79 32.9 21.27 10.62
Adj Calculated EPS
(Unit.Curr.) 13.42 15.09 20.32 24.82 20.4 16.45 10.64 5.31
Adj Calculated EPS
Annualised (Unit.Curr.) 13.42 15.09 20.32 24.82 20.4 16.45 10.64 5.31

No of Public Share
Holdings 1.2E+09 1.2E+09 1.2E+09 1.2E+09 6.2E+08 6.5E+08 7.4E+08 1E+09
% of Public Share
Holdings 31.45 31.5 31.71 32.17 32.85 34.12 39.04 54.52

PBIDTM% (Excl Other

Income) 29.7 32.79 34.03 38.32 38.19 40.85 40 34.57
PBIDTM% 32.93 34.3 34.33 38.57 38.61 41.77 40.52 35.12
PBDTM% 29.29 30.94 33.98 40.97 33.42 39.89 39.08 33.11
PBTM% 14.23 16.72 22.95 30.05 23.99 27.13 25.86 20.36
PATM% 11.24 13.77 20.3 26.47 22.77 24.29 22.67 17.92
 Airtel Vs Industry
Compan Industry % to Compa Industry % to Compa Industry % to
y India ny Ind Agg ny Ind
Agg Agg

Mar-12 Mar-11 Mar-10

No of Companies 12 46 82
Financials
1525802.5 1517890.4 1502503.7
Net Sales 416038 8 27.27 380177 2 25.05 356095 3 23.7
1582504.4 1611126.5
Total Income 422285 6 26.68 385077 1 23.9 359868 1635567 22
1327669.1 1288298.7
Total Expenditure 279601 3 21.06 248462 1376032.6 18.06 218510 7 16.96
PBIDT 142684 254835.33 55.99 136615 235093.9 58.11 141358 347268.23 40.71
PBIT 83524 -33563.35 -248.85 90499 -64959.92 -139.32 101313 85254.94 118.84
PBT 69562 -156536.8 -44.44 87258 -157218.01 -55.5 106993 30027.8 356.31
-
PAT 57300 178339.43 -32.13 77169 -172208.49 -44.81 94262 13788.49 683.63
Cash Profit 116460 99090.87 117.53 123285 111301.54 110.77 134307 277604.41 48.38
1467602.2 64063675. 1158884.8
Total Debt 153014 1 10.43 118975 41 0.19 50389 7 4.35
4604260.7 4507724.8 3917764.1
Gross Block 669068 3 14.53 614374 5 13.63 442125 3 11.29
18980554.
Net Current Assets -51211 -312962.9 -115508 51 -0.61 10060 396667.19 2.54
4741918.7 5261609.9 5215742.4
Total Assets 880541 7 18.57 779163 7 14.81 594173 5 11.39
Key Ratios

Margin Ratios
Core EBITDA
Margin(%) 32.79 24.3 9.35 34.65 14.56 9 38.64 14.25 9.41
EBIT Margin(%) 20.08 12.04 5.47 23.8 5.09 5.96 28.45 5.67 6.74
Pre Tax Margin(%) 16.72 4.89 4.56 22.95 -0.67 5.75 30.05 2 7.12
PAT Margin (%) 13.77 2.97 3.76 20.3 -1.66 5.08 26.47 0.92 6.27
Performance
Ratios
ROA(%) 6.9 1.48 11.24 -0.77 17 0.38
ROE(%) 12.33 2.24 19.2 -1.29 29.42 0.59
ROCE(%) 13.84 6 18.51 2.35 26.27 2.37
Asset Turnover(x) 0.5 0.5 0.55 0.46 0.64 0.42
Sales/Fixed
Asset(x) 0.65 0.5 0.72 0.55 0.87 0.43
Working
Capital/Sales(x) -8.12 -4.92 -3.29 -2.76 35.4 5.23

Efficiency Ratios
Fixed
Capital/Sales(x) 1.54 2.01 1.39 1.82 1.14 2.35
Receivable days 15.78 25.83 17.12 30.24 23.86 43.67
Inventory Days 0.29 3.48 0.3 3.39 0.46 14.59
Payable days 62.68 69.86 97.4 120.42 144.41 136.17

Growth Ratio
Net Sales
Growth(%) 9.43 7.81 6.76 12.46 4.69 5.64
Core EBITDA
Growth(%) 4.44 9.76 -3.36 -15.76 3.22 -17.32
EBIT Growth(%) -7.71 -0.65 -10.67 -56.6 -1.73 -63.81
PAT Growth(%) -25.75 -58.24 -18.13 -123.2 21.73 -87.76

Financial Stability
Ratios
Total
Debt/Equity(%) 0.31 0.51 0.27 0.6 0.14 0.48
Current Ratio(x) 0.81 0.9 0.5 0.71 1.06 1.51
Quick Ratio(x) 0.81 0.88 0.5 0.7 1.06 1.47
Interest Cover(x) 5.98 1.68 27.92 0.88 -17.84 1.54

Financial Ratios
Year End 2012 2011 2010 2009 2008 2007 2006
Operational & Financial
Ratios
Earnings Per Share (Rs) 15.09 20.32 24.82 40.79 32.9 21.27 10.62
CEPS(Rs) 30.67 32.46 35.37 29.31 25.49 17.21 9.4
Adjusted EPS (Rs.) 15.09 20.32 24.82 20.4 16.45 10.64 5.31
DPS(Rs) 1 1 1 2 0 0 0
Adjusted DPS(Rs) 1 1 1 1 0 0 0
Book NAV/Share(Rs) 129.38 115.42 96.24 145.01 106.34 60.17 38.67
Adjusted Book Value (Rs) 129.38 115.42 96.24 72.5 53.17 30.09 19.33
Tax Rate(%) 17.63 11.56 11.9 5.12 10.45 12.35 11.97
Dividend Pay Out Ratio(%) 6.63 4.92 4.03 4.9 0 0 0
Margin Ratios
Core EBITDA Margin(%) 32.79 34.65 38.64 38.72 41.45 40.77 35.41
EBIT Margin(%) 20.08 23.8 28.45 30.31 29.49 27.6 22.47
Pre Tax Margin(%) 16.72 22.95 30.05 23.99 27.13 25.86 20.36
PAT Margin (%) 13.77 20.3 26.47 22.77 24.29 22.67 17.92
Cash Profit Margin (%) 27.99 32.43 37.72 32.72 37.65 36.67 31.7
Performance Ratios
ROA (%) 6.9 11.24 17 16.79 18.25 17.16 12.04
ROE (%) 12.33 19.2 29.42 32.46 39.53 43.06 34.12
ROCE (%) 13.84 18.51 26.27 33.17 34.8 34.02 23.36
Asset Turnover(x) 0.5 0.55 0.64 0.74 0.75 0.76 0.67
Inventory Turnover(x) 1251.24 1234.34 797.07 571.61 491.11 542.85 455.26
Debtors Turnover(x) 23.14 21.32 15.3 12.77 11.06 12.07 12.53
Sales/Fixed Asset(x) 0.65 0.72 0.87 1.04 0.94 0.8 0.72
Working Capital/Sales(x) -8.12 -3.29 35.4 -14.97 -6 -3.37 -3.21
Efficiency Ratios
Fixed Capital/Sales(x) 1.54 1.39 1.14 0.96 1.06 1.25 1.39
Receivable days 15.78 17.12 23.86 28.58 33.01 30.25 29.12
Inventory Days 0.29 0.3 0.46 0.64 0.74 0.67 0.8
 Payable days 62.68 97.4 144.41 153.58 166.58 183.71 180.69
Growth Ratio
Net Sales Growth(%) 9.43 6.76 4.69 32.33 44.45 58.47 42.08
Core EBITDA Growth(%) 4.44 -3.36 3.22 24.35 48.76 81.91 35.13
EBIT Growth(%) -7.71 -10.67 -1.73 36.01 54.32 94.73 34.09
PAT Growth(%) -25.75 -18.13 21.73 24.02 54.82 100.45 66.19
EPS Growth(%) -25.75 -18.13 -39.16 23.99 54.66 100.23 62.64
Financial Stability Ratios
Total Debt/Equity(x) 0.31 0.27 0.14 0.28 0.33 0.47 0.65
Current Ratio(x) 0.81 0.5 1.06 0.86 0.69 0.51 0.5
Quick Ratio(x) 0.81 0.5 1.06 0.86 0.69 0.5 0.5
Interest Cover(x) 5.98 27.92 -17.84 4.8 12.47 15.81 10.65

Source: Compiled from CMIE, Prowess

Annexure I
Telecom tariff war shifts to data as smartphones surge
The price war among Indian phone operators has shifted from voice to data.
Bharti Airtel Ltd, Idea Cellular Ltd and Vodafone Group Plc have slashed fees for
sending data by as much as 90% as mobile social networking and gaming surge. They
are betting on cheaper rates to help add users in a market where smartphone sales, led
bySamsung Electronics Co.’s handsets, almost tripled in the quarter through March.
“Data is the future and we have to lay out the best options for consumers so they become
broadband users for life,” Sashi Shankar, chief marketing officer at Idea, said in an
interview. “We have users who don’t have data plans but own phones that are capable of
such services. They are in tier II and tier III cities and that’s where we are investing.”
“The carriers are attempting to replicate a strategy that got them almost a billion
subscribers for voice traffic while hurting profitability as call rates fell to as low as `0.5 a
minute. For an industry grappling with more than $25 billion of debt, declining profit
and mounting expenditure, affordable data services may help boost net income by 10%
by 2015,” said Nitin Soni an analyst at Fitch Ratings in Singapore.

Stimulate demand
“Revenue from data usage for Indian mobile phone companies as a share of total sales is
about 3%, among the least in the Asia-Pacific region. That may climb more than sixfold
to 20% by 2017,” according to Soni. “They know they’ve spent huge amounts of money,
and now they have to stimulate demand which isn’t there yet in India,” Soni said. “There
will be huge growth. We’ve seen this in other emerging markets.”

“After struggling to utilize their third-generation, or 3G, capacity, for which nine bidders
paid a combined $11.4 billion since 2010, operators are dropping data costs on their 2G
network six months after ending a price war in voice,” he said. “The number of mobile
subscribers peaked at 929 million last year after call rates dropped from as high as `16 a
minute in 1997.” The local unit of Vodafone on 18 June said it cut mobile data rates in
four 2G circles by 80%, while Idea Cellular, controlled by billionaire Kumar
Mangalam Birla, announced two days later a 90% reduction in eight zones for three
months starting 1 July. Bharti, the nation’s biggest carrier, reduced rates by 80% in
secondary markets.

Not bad
“These could work as a good hook to attract new users to data services, which are still
relatively low in India,” said Sachin Gupta, an analyst with Nomura Holdings
Inc. in Singapore. “If this turns into price wars, the offset could be much higher
volumes, which probably isn’t a bad thing.” Operators have ended their price wars over
call rates during the last six months by scaling back discounts on pre-paid services,
effectively giving them less call time. Carriers have increased rates by as much as 30% to
boost margins from their 867 million subscribers. “Data usage accounted for 5% of total
revenue at Bharti, controlled by billionaire Sunil Bharti Mittal, compared with 32%
at China Mobile Ltd, the largest operator in the world’s most populous country. Data
revenue in India grew 25% in the quarter ended 31 March from a year earlier,” according
to Soni.

‘New China’
Rising sales of smartphones may help the South Asian country catch up with other
emerging markets, including China, Brazil and Indonesia, where growth has touched as
much as 60%, according to Fitch’s Soni. India is the world’s fourth-largest smartphone
market after the US, China and Japan in the quarter ended March, with 6.6 million
handsets, according to data provided by CyberMedia Research. Of those, Samsung
accounted for 42%. Shipments grew four-times faster than the global average, at a rate
of 164% from a year ago, according to researcher IDC. “India is the new China,”
said Neil Mawston, executive director at Strategy Analytics. “India is a low-
penetration, high-growth market that no smartphone vendor, component maker or
application developer can afford to ignore.”

Chance for margins

“While smartphone sales are encouraging, not all these handsets guarantee data usage
as the tariffs, even after the reductions, may not be cheap enough in a country where the
World Bank estimates about 800 million people live on less than $2 a day,” said Urmil
Shah, an analyst at Kim Eng Securities Pvt. The carriers may also be reluctant to
offer data at par with voice as that would erode margins at a time when operators need
to raise finances to renew their licenses next year, according to him. “Price wars in data
can’t be as aggressive as we saw in voice, because this is the only area where operators
have a chance of margin expansion,” Shah said in an interview.

Bharti’s group earnings as a percentage of sales before interest, depreciation, taxes and
amortization narrowed to 31% in the financial year ended 31 March, from as high as
42% five years ago. The similar gauge of profitability at Idea shrank to 27% from 34%.
Net profit at Bharti slid to `2,280 crore ($379 million) from a record `8,980 crore in the
year ended 31 March 2010, according to data compiled by Bloomberg. Shares of the
New Delhi-based company have declined almost 0.3% in the past year, compared with a
16% gain in the benchmark S&P BSE Sensex index.

‘Pocket friendly’
While data services haven’t fully taken off in the country, some operators aren’t waiting.
Billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd is spending `18,000
crore to roll out 4G services starting March 2014. “For now, most operators are using
their 2G networks to deliver data services. Vodafone in India is offering pocket friendly
plans and educating potential users about the benefits of Internet access,” Vivek
Mathur, the local unit’s chief commercial officer, said in an interview. “India had 138
million online users in 2012 and that number will more than double by 2017 to about
350 million,” according to a forecast from Cisco Systems Inc. We expect the growth
momentum to only accelerate, providing immense opportunity, he said. Overall Internet
penetration in India is low while mobile penetration is several times higher. Most
consumers will discover the power of the Internet via their handsets.
(source: http://www.livemint.com/Consumer/1nrqfjE9qecR2LJYz6UqYO/Smartphone-surge-spurs-
data-war-as-tariffs-slashed.html)