Analysis Of Financial Statement Of Telecom Sector

Our analysis as a part of management accounting course in MDI, aims at financial analysis of two distinct companies of Telecom sector of India. Telecom sector is one of the fastest growing sectors and has shown the growth of 9.1% in Q2 of financial year 2009-2010 whereas GDP growth of India has been 5.8%.

We have done a comparative analysis of the balance sheet, income & cash flow statements of “Bharti Airtel” & “MTNL”. Key ratios are generated and analysed for short-term and long-term investing, short-term and long-term lending and suggesting a comprehensive strategy.

Accordingly, we have included balance sheet, income & cash flow statements of “Bharti Airtel” & “MTNL” over a period of 5-years in appendix used for data analysis.

Telecom Sector: An Introduction

Telecommunication is the assisted transmission over a distance for the purpose of communication.

The broad segmentation of Indian Telecom Sector can be done on the following basis:

Telecommunication Services

Basic service

Internet Service Provider (ISP)

Value added services

3G

Telecommunication Equipment

Current Scenario

Indian telecom industry a shinning knight in the armour of Indian industries continued to register a significant growth in 2008-09. Indian telecom network, with subscriber base crossing 479 mn in July 2009, is the third largest in the world, while it is the second largest wireless network

At the current pace, the target of 500 million connections by 2010 is well within reach.

The wire-line segment has been declining gradually but the wireless subscriber base grew at a compound annual growth rate (CAGR) of 75.9 per cent per annum since 2003. The share of wireless phones increased from 24.3 per cent in March 2003 to 90.88 per cent in February 2009. Universal access objective feasibility has improved affordability of wireless phone. Several steps are undertaken by Government for reduction in entry barriers, creation of a level-playing field between incumbents and new entrants and forward looking regulation. Consequently, there has been an increase in share of private sector in total telephone connections to more than 79 per cent in February 2009 against a meagre 5 per cent in 1999.

The market share of top 12 telecommunication operators and their devision based on type of services provided (GSM & CDMA) are shown below:

Market share of top 12 operators

Market share of top GSM operators

Market share of top CDMA operators

Criteria: For Selection of Companies

In the telecom sector, we have chosen Bharti Airtel Ltd and MTNL as two companies for financial analysis and strategical suggestions.

The criteria to choose these two companies are:

MTNL is government owned and Bharti Airtel Ltd. is a private sector company, this would give a clear picture from both directions.

MTNL and Bharti Airtel Ltd. both offer similar kinds of products/services in the market. For e.g. both are in fixed and mobile communication.

They deal extensively in Value added services and also provide broadband facilities to its consumers.

Their respective asset holding is quite near to each other.

Both the companies are holding companies in other companies.

MTNL has launched 3G services and Airtel would do so from 2010.