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

6. What is the Debt/Equity percentage of your company's competitors?
Bharti Airtels 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
(http://www.moneycontrol.com/financials/ideacellular/ratios/IC8)
42.30
Reliance Communications
(http://www.moneycontrol.com/financials/reliancecommunications/ratios/RC13)
160.57
Tata Communications
(http://money.livemint.com/IID64/F100483/Financial/Ratios/Company.aspx)
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
(http://www.moneycontrol.com/financials/ideacellular/ratios/IC8)
2.58
Reliance Communications
(http://www.moneycontrol.com/financials/reliancecommunications/ratios/RC13)
1.32
Tata Communications
(http://money.livemint.com/IID64/F100483/Financial/Ratios/Company.aspx)
6.49


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 5
th
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 Airtels 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 years dividend (for 2013) = 1
http://economictimes.indiatimes.com/bharti-airtel-ltd/infocompanydividends/companyid-2718.cms
Price of share as on 31
st
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%

12. What has been the capital-gains-yield on your company's shares?
Price of share as on 31
st
Dec 2013 = 330.45, Price of share as on 31
st
Dec 2012 = 316.8
http://www.moneycontrol.com/stock-charts/bhartiairtel/charts/BA08#BA08
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.
http://economictimes.indiatimes.com/bharti-airtel-ltd/infocompanydividends/companyid-2718.cms
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
Year
Earnings 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%
http://economictimes.indiatimes.com/bharti-airtel-ltd/infocompanydividends/companyid-2718.cms
http://www.moneycontrol.com/stocks/company_info/print_main.php
16. What has been the company's reported book Return on Equity (ROE)?
Return on Equity = Net Income after Tax / Share Holders Equity
As per Balance Sheet (2012-2013) of Bharti Airtel > Net Income after tax = 50963 Million rupees and
Share Holders 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 31
st
Dec 2013 = 330.45
Growth in dividend = 0%
Then Dividend expected to be paid= 1
DDM COE= (Dividend
2014
/Price
2013
) +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 31
st
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
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
Source: http://in.reuters.com/finance/stocks/overview?symbol=BRTI.NS
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 Airtels 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
Source: http://in.reuters.com/finance/stocks/overview?symbol=BRTI.NS
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 (K
d
) = 11.47%
CAPM Cost of equity of Bharti Airtel (k
e
) = 14.82%
Market value of total equity (E) = 1254893.82 million
Market value of total debt (D) = 129798 million
Capital Base(C) =1254893.82 millionn+129798 million= 1384691.82million
WACC= (E/C)* k
e
+ (D/C)*K
d
=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 (K
d
) = 11.47%
CAPM Cost of equity of Bharti Airtel (k
e
) = 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)*k
e
+ (D/C)*K
d
*(1-t)
=
14.14%
Adjusted COC is used to discount unlevered cash flows.


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