IRV Assgnmnt Final

IRV: COC

Project: Company Name: Bharti Airtel Ltd.

1. What is the rating, if any, of your company's bonds?

Company Name Rating outstanding

Bharti Airtel Ltd.

CRISIL AA+/Stable/CRISIL

A1+

Source: http://crisil.com/Ratings/Brochureware/News/18.02.pdf?cn=null

2. What is the cost of debt of your company? How did you arrive at this figure?

Total debt as on 31st Dec 2013 = 129798, Interest expenses for 2012-13 FY = 14885, Tax rate = 33.99%

Cost of debt= (Interest expenses/Long term debt)= 11.47%

After tax cost of debt = 7.57%

Source: http://www.airtel.in/wps/wcm/connect/2b436a9b-2d3d-4b4b-bfac-399691fb4e3d/Bharti-Airtel-Full-

Annual-Report-2012-13_for-Web-new.pdf?MOD=AJPERES

3. How much debt does your company have?

(i)Total long term debt as on = 98408

(ii)Total short term debt as on = 31390

Source: http://www.airtel.in/wps/wcm/connect/2b436a9b-2d3d-4b4b-bfac-399691fb4e3d/Bharti-Airtel-

Full-Annual-Report-2012-13_for-Web-new.pdf?MOD=AJPERES

Total debt = (i) + (ii) =1, 29,798.00

4. What is the market-value of equity of your company?

Market price as on 31st Dec 2013 = 330.45

Total market value as on 31st Dec 2013= 330.45 * 3797530096 = ₹ 1254893.82 million



5. What is the Debt/Equity percentage (ratio) of your company?

Share capital = 18988 million , Reserves and surplus = 522474 Million, Long term debt = 98408₹ ₹ ₹

Million Short term debt = 31,390 million₹

Column1 debt to equity percentage Ratio

Debt to equity(LTD+STD/Equity) 23.97% 1/4



http://www.airtel.in/wps/wcm/connect/2b436a9b-2d3d-4b4b-bfac-399691fb4e3d/Bharti-Airtel-Full-Annual-Report-2012-13_for-Web-new.pdf?MOD=AJPERES








http://crisil.com/Ratings/Brochureware/News/18.02.pdf?cn=null

6. What is the Debt/Equity percentage of your company's competitors?

Bharti Airtel’s Major Competitors Debt/Equity

Percentage

Idea Cellular

(http://www.moneycontrol.com/financials/ideacellular/ratios/IC8)

80 %

Reliance Communications

(http://www.moneycontrol.com/financials/reliancecommunications/ratios/RC13)

92%

Tata Communications

(http://money.livemint.com/IID64/F100483/Financial/Ratios/Company.aspx)

10 %

7. How does your company's Return on Assets compare with those of its competitors?

Company Name Return on Asset

Bharti Airtel

(http://www.moneycontrol.com/financials/bhartiairtel/ratios/BA08)

142.58

Idea Cellular


42.30



160.57

Tata Communications


2.91

8. How does your company's Interest Coverage compare with those of its competitors?

Company Name Interest Coverage

Ratio

Bharti Airtel

(http://www.moneycontrol.com/financials/bhartiairtel/ratios/BA08)

4.91

Idea Cellular


2.58



1.32

Tata Communications


6.49

http://money.livemint.com/IID64/F100483/Financial/Ratios/Company.aspx

http://www.moneycontrol.com/financials/reliancecommunications/ratios/RC13

http://www.moneycontrol.com/financials/ideacellular/ratios/IC8

http://www.moneycontrol.com/financials/bhartiairtel/ratios/BA08




http://www.moneycontrol.com/financials/bhartiairtel/ratios/BA08




9. Would your company's bonds be rated better or worse than an average competitor? Why?

Airtel idea Reliance MTNL

Interest coverage 4.91 2.58 1.32 -3.49

debt equity 24% 80% 92% 0%

EBIT Margin 14.19 9.32 8.16 -118.65

Bond rating is primarily dependent upon the Credit history, previous track records, Interest coverage

capacity, liquidity and profit margins of the company. Bharti Airtel Being the Largest telecom operator of

India and the 5th largest in the world has a very good track record and has very good credit history. It also

has good interest coverage, liquidity, moderate leverage and better EBIT margin than its competitors. So

Bharti Airtel’s Bonds should be rated better than its competitors.

10. What is the company's P/E Ratio? Is it higher or lower than that of its competitors? Why?

Share Price Values Taken from: http://www.moneycontrol.com & http://money.rediff.com/

EPS taken from the Annual Reports of the Company

Company Name EPS(₹) Share Price(₹) P/E Ratio

Bharti Airtel 13.42 330.45 24.6

Idea Cellular 2.47 166.85 67.6

Reliance Communications 3.02 129.8 43.0

Tata Communications 11.12 309.05 27.8

Bharti Airtel has a low P/E ratio and Idea Cellular has a high P/E ratio. The higher P/E ratio indicates that

the market is expecting more growth out of the stocks of Idea Cellular. However higher P/E ratio might

sometimes also indicate that the stock is overpriced. But a lower P/E ratio on the other hand can indicate

that the stock is safe for investment as one would get better Earnings out of the money invested in the

stock.

11. What has been the dividend-yield of your company's shares?

Last year’s dividend (for 2013) = ₹ 1

http://economictimes.indiatimes.com/bharti-airtel-ltd/infocompanydividends/companyid-2718.cms

Price of share as on 31st dec 2013 = ₹ 330.45

http://www.moneycontrol.com/stock-charts/bhartiairtel/charts/BA08#BA08

Dividend yield = (annual dividend per share/ price per share) * 100 = 0.3026%



http://money.rediff.com/companies/Tata-Communications-Ltd/15140032/ratio

http://www.moneycontrol.com/

12. What has been the capital-gains-yield on your company's shares?

Price of share as on 31st Dec 2013 = ₹ 330.45, Price of share as on 31st Dec 2012 = ₹ 316.8


Capital gains yield: ((P2013-P2012)/P2012)*100 = ((330.45-316.8)/ 336.75)*100 = 4.31%

13. What has been the average growth in annual dividends during the last five years or so?

The dividend has remained constant (20% of the par value, i.e. Re1 for every Rs5) for the past five

years. So there has been no growth in dividend. Hence average growth in dividend is zero.


14. What has been the average growth in annual EPS during the last five years or so?

Year Earnings Per Share (₹) Growth in EPS Average growth CAGR

2012-13 13.42 -11.07%

-14.02% -19.94%

2011-12 15.09 -25.74%

2010-11 20.32 -18.13%

2009-10 24.82 -39.15%

2008-09 40.79 23.98%

2007-08 32.9

http://www.moneycontrol.com/stocks/company_info/print_main.php

15. What has been the company's average Payout Ratio during the last five years or so?

Payout ratio= (Dividend per share/ Earning per share)*100

YearEarnings Per

Share (Rs)

Dividend per share

(Rs)Payout ratio Average

2012-13 13.42 1 7.45%

5.10%

2011-12 15.09 1 6.63%

2010-11 20.32 1 4.92%

2009-10 24.82 1 4.03%

2008-09 40.79 1 2.45%






16. What has been the company's reported book Return on Equity (ROE)?

Return on Equity = Net Income after Tax / Share Holder’s Equity

As per Balance Sheet (2012-2013) of Bharti Airtel –> Net Income after tax = 50963 Million rupees and

Share Holder’s Equity = Share Capital + Reserves & surplus = (18988+522474) = 541462 Million rupees

So ROE = 0.094

17. What is the company's cost-of-equity (COE) as per the DDM (dividend discount model)?

Dividend paid in 2013 =1

Price as on 31st Dec 2013 = 330.45

Growth in dividend = 0%

Then Dividend expected to be paid= 1

DDM COE= (Dividend2014/Price2013) +Growth in dividend= (1/330.45) +0%=0.3026%

18. Is the DDM-COE obtained above higher or lower than earnings-yield (inverse of the P/E ratio)? Why?

Earnings yield ratio with the price of 31st Dec 2013 = 4.06%

DDM COE calculated = 0.3026%

Earnings yield higher as the growth in dividend is 0%.

19. Is the DDM-COE obtained above same as the reported (book) ROE? Should it be?

DDM COE calculated = 0.3026%

Reported ROE as calculated = 9.4%

They are not same in this case and they are not supposed to be equal always. A company should have

higher ROE

20. What is the s of your company?

Beta of Bharti Airtel is 0.8

Source: http://in.reuters.com/finance/stocks/overview?symbol=BRTI.NS

http://in.reuters.com/finance/stocks/overview?symbol=BRTI.NS


21. Is the company's s higher or lower than that of its competitors? Why so?

Company Beta

Bharti airtel 0.8

Idea cellular 0.97

Reliance communications 1.94

MTNL 1.34


Beta of Bharti Airtel is lower than that of all of its listed competitors. It shows that Bharti Airtel stocks are

less volatile than that of Idea, Reliance and MTNL with respect to market and a beta of 0.8 also shows

that Bharti Airtel’s share is more stable than the overall stock market.

22. Based on your company's s, what is your company's CAPM-COE?

Risk free rate (avg return on 10 year govt. of India bond) =7.16%

Source:http://www.macquariesbi.com/dafiles/Internet/co/mglsbi/macroeconomic-snapshot/snapshot.html

Beta of Bharti airtel = 0.8


Equity market risk premium=9.58%

Source:source- http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html

CAPM COE= Risk free rate Beta*(Equity market risk premium) =14.82%

23. How does your estimate of the CAPM-COE compare with your estimate of the DDM-COE?

Calculated DDM COE for Bharti Airtel = 0.343%

Calculated CAPM COE for Bharti Airtel= 14.82%

The DDM COE is far lesser than CAPM COE, because of zero growth in dividend in last 5 years.

24. What is the WACC of your company? Which cash flows do you discount at this rate?

Cost of debt of Bharti Airtel (Kd) = 11.47%

CAPM Cost of equity of Bharti Airtel (ke) = 14.82%

Market value of total equity (E) = ₹ 1254893.82 million

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html


http://www.macquariesbi.com/dafiles/Internet/co/mglsbi/macroeconomic-snapshot/snapshot.html


Market value of total debt (D) = ₹ 129798 million

Capital Base(C) =1254893.82 millionn+129798 million= ₹ 1384691.82million

WACC= (E/C)* ke + (D/C)*Kd=14.51%

WACC is used to discount unlevered cash flows.

25. What is the Adjusted COC of your company? When do you use this?

Cost of debt of Bharti Airtel (Kd) = 11.47%

CAPM Cost of equity of Bharti Airtel (ke) = 14.82%

Tax rate = 34%

Market value of total equity (E) = ₹ 1254893.82 million

Market value of total debt (D) = ₹ 129798 million

Capital Base(C) = 1254893.82 million+129798 million= 1384691.82 million

Adjusted COC = (E/C)*ke + (D/C)*Kd*(1-t) = 14.14%

Adjusted COC is used to discount unlevered cash flows.

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IRV Assgnmnt Final

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