Bharti Airtel Equity Research

Date of Research – 13 January 2016

Price – Rs. 306.35

About the Company

Founded in 1995, Bharti Airtel Limited (“Bharti Airtel” or the “Company” is an integrated telecommunications company with operations in 20 countries across Asia and Africa. Headquartered in New Delhi, India, the Company ranks amongst the top 5 mobile service providers globally in terms of subscribers.

In India, the Company’s product offerings include 2G, 3G and 4G services, fixed line, high speed broadband through DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G mobile services. All these services are rendered under a unified brand “airtel”. The Company also manages passive infrastructure pertaining to telecom operations through its subsidiary and joint venture entity.

Bharti Airtel had over 262 million customers across its operations at the end of March 2014. The operations of Bharti Airtel in India and South Asia are divided into two distinct customer business units with clear focus on B2C (Business to Customer) and B2B (Business to Business) segments. B2C services includes mobile services; telemedia services; and digital TV services. B2B services includes airtel business; and passive infrastructure services.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016 FY 2017
Total Income from Operations80,359.0085,863.5092,135.1096,619.20 95,468.30 
Expenses55,488.6058,086.5060,746.8062,525.90  57,376.30  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)24,870.4027,777.0031,388.3034,093.30  38,092.00  
Depreciation15,496.4015,649.6015,531.1017,449.80  19,773.00
Finance Costs4,384.404,838.005,013.306,023.50  9,546.60  
Other income– 120.60  
Exceptional items(53.80)853.20(1,450.50) 1,169.70
PBT4,989.607,343.209,990.7012,070.50  7,723.30  
Tax2,715.104,844.905,404.705,936.80  3,481.90  
PAT (before Minority Interest and share of Associates)2,274.502,498.304,586.006,133.70  4,241.40  
Profit/ (loss) attributable to Minority Interest(8.80)246.70124.80649.50  – 
Share of profit / (loss) of Associates7.60(521.10)(722.30)– – 
Consolidated Profit / (Loss) for the year2,275.702,772.705,183.505,484.20  4,241.40

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016 FY 2017
Operating Profit Margin Ratio30.9532.3534.0735.29  39.90
Net Profit Margin Ratio2.832.914.986.35  4.44

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital1,898.801,898.801,998.701,998.701,998.70
Treasury shares(28.20)(34.20)(11.40)
Share premium5,649.9012,345.6012,345.60
Foreign currency translation reserve(602.60)(1,677.70)
Other components of equity4,125.203,406.90321.00
Reserves & Surplus39,568.2048,422.9043,716.7047,302.5040,298.90
Deferred revenue289.201,401.001,791.70
Net worth (shareholders funds)50,611.3050,321.7061,157.0063,748.1042,297.60
Minority Interest2,769.504,088.604,210.204,852.507,446.50
Long term borrowings49,715.4072,960.8054,991.9045,228.3089,774.50
Derivative financial liabilities40.10431.3016.40
Current liabilities48,887.3039,952.1056,805.0062,899.0059,428.60
Other long term liabilities and provisions3,586.703,896.8017,526.506,393.80
Deferred Tax Liabilities1,162.101,685.001,511.004,602.80
Total Liabilities1,57,061.601,27,371.101,83,177.201,95,781.802,09,943.80


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets1,33,582.101,36,923.801,46,284.701,50,144.001,67,819.90
Investments in associates2.406,769.303,634.104,625.702,432.50
Derivative financial assets275.60730.30
Current assets14,808.408,483.4022,385.7022,201.0020,806.50
Long term advances and other noncurrent assets3,265.4015,146.704,610.0012,130.6018,120.60
Deferred Tax Assets5,127.706,262.705,950.20764.30
Total assets1,57,061.601,27,371.101,83,177.201,95,781.802,09,943.80

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW8.428.054.538.1314.50

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)80,359.0085,863.5092,135.1096,619.20 95,468.30 
Growth (%)12.38 %6.85 %7.30 %4.87 % (1.19 %) 
PAT (Rs. Cr.)2,274.502,498.304,586.006,133.70  4,241.40  
Growth (%)(46.68 %)9.84 %83.56 %33.75 % (30.85 %) 
Earnings Per Share – Basic (Rs. )6.007.0212.9713.72 9.51 
Earning Per Share – Diluted (Rs. )6.007.0112.9713.72 9.51 
Price to Earnings48.6346.7430.3428.39 38.72 

Dividend History

The Company has maintained an average dividend yield of 0.49 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook.

Bharti Airtel’s average current ratio over the last 5 financial years has been 0.31 times which indicates that the Company has been facing liquidity problems to meet its short term obligations.

Long term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Bharti Airtel’s average long term debt to equity ratio over the last 5 financial years has been 0.96 times which indicates that the Company is comfortably placed to meet its obligations.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Bharti Airtel’s average interest coverage ratio over the last 5 financial years has been 6.61 times which indicates that the company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Bharti Airtel reported a promoter holding of 67.14 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 25.60 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.