Term Paper Sandeep Anurag Gautam

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/


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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.

Term Paper Sandeep Anurag Gautam

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