Chapter - 1 INTRODUCTION

1.1 INTRODUCTION India is today one of the largest telecom markets in the world, with an addition of more than 18 million subscribers every month. India's teledensity has

improved from under 4% in March 2001 to around 73.07 % by the end of January 2013. The mobile subscriber base (GSM and CDMA combined) has grown from under 41 million at the end of March 2000 to touch 893.15 million at the end of January 2013. Telecom sector has continued to emerge as the prime engine of economic growth, contributing to nearly 2.3 % of the Indian GDP. Various policy initiatives and policy reforms the Indian telecom sector has achieved a phenomenal growth during the last few years. Today India has the world's second-largest mobile phone users with over 893.15 million as of January 2013. This project work is titled Risk-Return Analysis of Five Companies in Telecom Service Sector A Study Conducted At Hedge Equities Ltd, Kochi. This project speaks from an investors perspective; keeping the Risk-Return Analysis and Financial Analysis as the criteria the project analysis as to whether an industry like the telecom service sector is suitable for investment. There are different motives for investment. The most prominent among all is to earn a return on investment. All investments are characterized by the expectation of a return. In fact, investments are made with the primary objective of deriving a return. The return may be received in the form of yield plus capital appreciation. However, selecting investment on the basis of return is not enough. Risk in inherent in any investment. This risk may relate to loss of capital, delay in repayment of capital,

non-payment of interest, or variability of returns. Risk in investment is associated with return. Risk of an investment cannot be measured without reference to return. The return, in turn, depends on the cash inflows to be received from the investments. The investors not only like return but also dislike risk. So, what is required is: i. ii. Clear understanding of risks and returns, and How can they be measured?

Five companies are selected from telecom service sector for this study. They are: Bharti Airtel Ltd, Idea Cellular Ltd, Reliance Communications Ltd, Tata Teleservices Ltd and Mahanagar Telephone Nigam Ltd. these companies are selected based on BSE, listed top five companies in telecom service sector. The study is conducted at with special reference to Hedge Equities Ltd. Hedge Equities Ltd is one of the leading wealth management companies in India. The company started its operations in 2008. Hedge Equities are offering a wide range of financial products, tailor made to suit individual needs, It offers services in the areas of equity & commodity, currency futures, mutual funds, wealth management and IPO.

1.2 STATEMENT OF THE PROBLEM The Indian telecom sector has achieved a phenomenal growth during the last few years, Telecom sector has continued to emerge as the prime engine of economic growth, contributing to nearly 2.3 % of the Indian GDP. India's teledensity has improved from under 4% in March 2001 to around 73.07 % by the end of January 2013. The mobile subscriber base has grown from under 41 million at the end of March 2000 to touch 893.15 million at the end of January 2013. In this situation, this study aims to analyze risk-return and financial performance of five selected companies in telecom service sector is suitable for investment, and provide suggestions based on this analysis.

1.3 OBJECTIVES 1. To describe what is risk-return relationship and analyzing the risk-return of five selected companies in telecom service sector. 2. To make a financial analysis of these companies by using selected financial ratios. 3. Based on the above analysis to find out whether these companies are suitable for investment. 4. To find out best companies from telecom service sector. 5. To make suggestions and recommendations based on the analyzed data.

1.4 METHODOLOGY The study is based on both primary and secondary data. Primary data is intended to be directly collected from within the organization and outside the organization, by interviewing, through phone calls and applying calculations using statistical tools. Secondary data for the study is intended to be collected from organizations database, websites, and other necessary official records, books & magazines. Tables & Charts used to present and analyze data. Ratios & Percentages are applied for analysis and the main ones are as under: Tools intended to be used for analysis 1. Standard deviation: - Standard deviation is a statistical term that measures the amount of variability or dispersion or volatility around an average return. It is a popular risk measurement tool. 2. Alpha: - Alpha is the risk-adjusted return on an investment. It is a measure of an investment's performance compared to a benchmark. 3. Correlation: - The degree of relationship between stock return and market return. 4. Beta: - Describes the relationship between stock return and market return. (systematic risk) 5. Sharpe Ratio: - The ratio describes how much excess return you are receiving for the extra volatility that you endure for holding a riskier asset. 6. R-Squared: - Percent of variations in stocks return are explained by the variation in the index return. 7. Financial Ratios: For financial performance analysis.

1.5. CHAPTERISATION SCHEMA The project will be present chapterised as under: Chapter 1: Introduction This chapter contains the details regarding the topic, Introduction, Statement of problem, objectives of the study, methodology, chapterization schema and limitation of the study. Chapter 2: Literature review A theoretical frame work of this study; along with a brief summary of other studies on similar topics. Chapter 3 - Profile of the industry This chapter specifies the industry details. Chapter 4: Profile of the organization This chapter focuses on the brief history of the organization, History and growth, product profile, mission and vision of the company. Chapter 4: Analysis and Interpretation This chapter includes the analysis and interpretation made after the study of the project and gives the result of analysis. Chapter 6: Findings, conclusion and suggestions This chapter includes the findings, conclusion and suggestions made after the study.

1.6 LIMITATIONS OF THE STUDY 1. The study is on past performance of stocks, and the data, since secondary suffers from the limitations of secondary data. 2. Risk-Return is calculated by using statistical tools, it may not be accurate. 3. Risk-Return calculated are based on half yearly closing price of stocks, which again is a secondary data. 4. Risk and Return is affected by various factors, and a study of all these factors in depth is difficult due to time constraint. 5. Some of the factors are out of controllability and so measuring them was impossible.

Chapter - 2 LITERATURE REVIEW

2.1. EVOLUTION OF THE CONCEPT Concept of Return and Risk: There are different motives for investment. The most prominent among all is to earn a return on investment. However, selecting investments on the basis of return in not enough. The fact is that most investors who invest their funds in more than one security suggest that there are other factors, besides return, and they must be considered. The investors not only like return but also dislike risk. So, what is required is: iii. iv. Clear understanding of what risk and return are ? How can they be measured ?

Return: Return is the basic motivating force and the principal reward in the investment process. The return may be defined in terms of (i) realized return, i.e., the return which has been earned, and (ii) expected return, i.e., the return which the investor anticipates to earn over some future investment period. The expected return is a predicted or estimated return and may or may not occur. The realized returns in the past allow an investor to estimate cash inflows in terms of dividends, interest, bonus, capital gains, etc, available to the holder of the investment. The return can be measured as the total gain or loss to the holder over a given period of time and may be defined as a percentage return on the initial amount invested. With reference to investment in equity shares, return is consisting of the dividends and the capital gain or loss at the time of sale of these shares.

Risk: Risk in investment analysis means that future returns from an investment are unpredictable. The concept of risk may be defined as the possibility that the actual return may not be same as expected. In other words, risk refers to the chance that the actual outcome (return) from an investment will differ from an expected outcome. With reference to a firm, risk may be defined as the possibility that the actual outcome of a financial decision may not be same as estimated. The risk may also be considered as a chance of variation in return. Investments having greater chances of variations are considered more risky than those with lesser chances of variations. Between equity shares and corporate bonds, the former is riskier than latter. If the corporate bonds are held till maturity, then the annual interest inflows and maturity repayment are fixed. However, in case of equity investment, neither the dividend inflow nor the terminal price is fixed.

What is the relationship between Risk and Return? Risk and Return are directly related. The greater the risk of the investment, the greater the potential return from that investment. Conversely, with very safe, low-risk investments, the return will likely to be low. The basic principle is this: To be willing to accept the risk that an investment could do poorly, investors must be compensated with the potential for greater return.

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Types of Risk 1. Systematic Risk It refers to that portion of variability in return which is caused by the factors affecting all the firms. It refers to fluctuation in return due to general factors in the market such as money supply, inflation, economic recessions, interest rate policy of the government, political factors, credit policy, tax reforms, etc. These are the factors which affect almost all firms. The effect of these factors is to cause the prices of all securities to move together. This part of risk arises because every security has a built in tendency to move in line with fluctuations in the market. No investor can avoid or eliminate this risk, whatever precautions or diversification may be resorted to. The systematic risk is also called the nondiversifiable risk or general risk.

Types of Systematic Risk: i. Market Risk

Market prices of investments, particularly equity shares may fluctuate widely within a short span of time even though the earnings of the company are not changing. The reasons for this change in prices may be varied. Due to one factor or the other, investors attitude may change towards equities resulting in the change in market price. Change in market price causes the return from investment to vary. This is known as market risk. The market risk refers to variability in return due to change in market price of investment. Market risk appears because of reaction of investors to different events. There are different

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social, economic, political and firm specific events which affect the market price of equity shares. Market psychology is another factor affecting market prices. In bull phases, market prices of all shares tend to increase while in bear phases, the prices tend to decline. In such situations, the market prices are pushed beyond far out of line with the fundamental value. ii. Interest-rate Risk

Interest rates on risk free securities and general interest rate level are related to each other. If the risk free rate rises or falls, the rate of interest on the other bond securities also rises or falls. The interest rate risk refers to the variability in return caused by the change in level of interest rates. Such interest rate risk usually appears through the change in market price of fixed income securities, i.e., bonds and debentures. Security (bond and debentures) prices have an inverse relationship with the level of interest rates. When the interest rate rises, the prices of existing securities fall and vice-versa. iii. Purchasing power or Inflation Risk

The inflation risk refers to the uncertainty of purchasing power of cash flows to be received out of investment. It shows the impact of inflation or deflation on the investment. The inflation risk is related to interest rate risk because as inflation increases, the interest rates also tend to increase. The reason being that the investor wants an additional premium for inflation risk (resulting from decrease in purchasing power). Thus, there is an increase in interest rate. Investment involves a postponement in present consumption. If an investor makes an investment, he forgoes the opportunity to buy some goods or services during the investment period. If, during this period, the prices of goods and services go up, the investor loses in terms of purchasing power. The inflation

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risk arises because of uncertainty of purchasing power of the amount to be received from investment in future. 2. Unsystematic Risk The unsystematic risk represents the fluctuation in return from an investment due to factors which are specific to the particular firm and not the market as a whole. These factors are largely independent of the factors affecting market in general. Since these factors are unique to a particular firm, these must be examined separately for each firm and for each industry. These factors may also be called firm-specific as these affect one firm without affecting the other firms. For example, a fluctuation in price of crude oil will affect the fortune of petroleum companies but not the textile manufacturing companies. As the unsystematic risk results from random events that tend to be unique to an industry or a firm, this risk is random in nature. Unsystematic risk is also called specific risk or diversifiable risk. Types of Unsystematic Risk: i. Business Risk

Business risk refers to the variability in incomes of the firms and expected dividend there from, resulting from the operating condition in which the firms have to operate. For example, if the earning or dividends from a company are expected to increase say, by 6%, however, the actual increase is 10% or 12 %. The variation in actual earnings than the expected earnings refers to business risk.

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Some industries have higher business risk than others. So, the securities of higher business risk firms are more risky than the securities of other firms which have lesser business risk.

ii.

Financial Risk

It refers to the degree of leverage or degree of debt financing used by a firm in the capital structure. Higher the degree of debt financing, the greater is the degree of financial risk. The presence of interest payment brings more variability in the earning available for equity shares. This is also known as financial leverage. A firm having lesser or no risk financing has lesser or no financial risk. Measurement of Risk and Return No investor can predict with certainty whether the income from an investment increase or decrease or by how much. Statistical measures can be used to make precise measurement of risk about the estimated returns, to gauge the extent to which the expected return and actual return are likely to differ. 1. Stock Return The return an investment provides over a period of time is expressed as a percentage. Sources of returns can include dividends, returns of capital and capital appreciation. The rate of annual return is measured against the initial amount of the investment.

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2. Alpha () An alpha score is a measure of the return on an investment in excess of the compensation for the risk borne. For example, if an investor is considering a particular stock that is fairly risky, he might determine that he will need a 10 percent return to be compensated for the risk he is taking. If that stock generates a return of 12 percent, the alpha for that stock is 2 percent. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. If the comparison period is 5 years, there are 60 monthly excess returns for each the investment and the benchmark. To calculate the alpha, these 60 data points are plotted with the benchmark excess returns along the X axis, and the investment excess returns along the Y axis. The Y-axis intercept of a best-fit line through these data points is the Alpha. Alpha =Actual Return Benchmark Return 3. Beta () A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and one can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

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<0

Asset generally moves in the opposite direction as compared to the index

=0

Movement of the asset is uncorrelated with the movement of the benchmark

0<<1

Movement of the asset is generally in the same direction as, but less than the movement of the benchmark

=1

Movement of the asset is generally in the same direction as, and about the same amount as the movement of the benchmark

>1

Movement of the asset is generally in the same direction as, but more than the movement of the benchmark

4. Standard Deviation () A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance. In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Standard deviation is a statistical measurement that sheds light on historical volatility. A low standard deviation indicates that the data points tend to be very close to the mean; high standard deviation indicates that the data points are spread out over a large range of values.

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5. Correlation (r) In statistics, dependence refers to any statistical relationship between

two random variables or two sets of data. Correlation refers to any of a broad class of statistical relationships involving dependence. The correlation between any two variables (or sets of variables) summarizes a relationship, whether or not there is any real-world connection between the two variables. The correlation coefficient will always be between -1 and +1. These two extremes are considered perfect correlations. A negative coefficient means that the two variables, or sets of variables, will move in opposite directions (if one variable increases, the other will decrease); a positive coefficient will mean that the two will move in the same direction. Correlation can be used to analyze the relation between stock and market index. (as one increases, the other will increase). 6. R-Squared (r2) A statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index. R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index. A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100 but has a beta below 1, it is

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most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta. General Range for R-Squared: 70-100% = good correlation between the portfolio's returns and the benchmark's returns 40-70% = average correlation between the portfolio's returns and the benchmark's returns 1-40% = low correlation between the portfolio's returns and the benchmark's returns. 7. Sharpe Ratio

A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance. The Sharpe ratio is calculated by subtracting the risk-free rate such as that of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. Investopedia explains 'Sharpe Ratio': The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less asset would perform better than the security being analyzed. A variation of the Sharpe ratio is the Sortino ratio,

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which removes the effects of upward price movements on standard deviation to measure only return against downward price volatility.

FINANCIAL ANALYSIS The process of evaluating businesses, projects, budgets and other financerelated entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance. Ratios are used to evaluate the performance of your business and identify potential problems. Each ratio informs you about factors such as the earning power, solvency, efficiency, and debt load of your business. The performance of the business should also be compared to that of competitors or other businesses of comparable size and activity. If your business experiences a downturn in its Net Profit Margin by 6% but the competitors experience an average downturn of 21%, this indicates that your business is performing better than the industry as a whole. Nonetheless, it is still necessary to analyze the underlying data to establish the cause of the downturn in the Net Profit Margin and to take effective measures.

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Some important financial ratios for analyzing the performance of the company are: 1. Sales growth The amount a company derives from sales compared to a previous, corresponding period of time in which the latter sales exceed the former. For example, a company has experienced sales growth when its sales were $1 million in Q1 2009 and are $1.2 million in Q1 2010. Sales growth is considered positive for a company's survival and profitability. It may result in increased dividends for shareholders and/or higher stock prices. 2. PAT Growth The net amount earned by a business after all taxation related expenses have been deducted. The profit after tax is often a better assessment of what a business is really earning and hence can use in its operations than its total revenues. PAT growth means percentage of growth in profit by comparing the previous year. It shows the growth of the company. Investors prefer growing company.

3. Debt/Equity Ratio

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders'

equity and debt used to finance a company's assets. The two components are often taken from the firm's balance sheet or statement of financial position (socalled book value), but the ratio may also be calculated using market values for
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both, if the company's debt and equity are publicly traded, or using a combination of book value for debt and market value for equity financially. 4. Interest Coverage Ratio

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the same period. The formula for the interest coverage ratio is used to measure a company's earnings relative to the amount of interest that it pays. The interest coverage ratio is considered to be a financial leverage ratio in that it analyzes one aspect of a company's financial viability regarding its debt. One consideration of the interest coverage ratio is that earnings can fluctuate more than interest expense. It is important to look at prior trends of a particular company as the interest coverage ratio does not consider future projected earnings. In addition, as with any financial formula, no one ratio or formula should be used in isolation.

5. P/E Ratio

A valuation ratio of a company's current share price compared to its per-share earnings. For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95). EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two

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quarters. Also sometimes known as "price multiple" or "earnings multiple.

6. EBITDA Margin

A measurement of a company's operating profitability. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with a cleaner view of a company's core profitability.

7. PAT Margin A financial performance ratio, calculated by dividing net income after taxes by net sales. A company's after-tax profit margin is important because it tells investors the percentage of money a company actually earns per dollar of sales. This ratio is interpreted in the same way as profit margin - the after-tax profit margin is simply more stringent because it takes taxes into account. 8. ROE The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares. Also known as "return on net worth" (RONW).

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2.2.CONTRIBUTORIES 1. CNBC explains: Alpha and Beta are important tools for many investors when it comes to figuring out if their investments are doing well. Technically speaking, they are both risk ratios used as statistical measurements for calculating returns. Translation: Both are designed to help investors determine the risk-reward profileprofits or lossesof an investment portfolio, from individual stocks to mutual funds. There are differences between the twoeven as they sometimes intertwineas we'll see. Simply put, Alpha is a measure of an investment's performance compared to a benchmark, such as the S&P 500. It's a mathematical estimate of the return, based usually on the growth of earnings per share. Beta, on the other hand, is based on the volatilityextreme ups and downs in prices or tradingof the stock or fund, something not measured by alpha. But beta, too, is compared to a benchmark, like the S&P 500. You can think of beta as the tendency of a security's returns to respond to swings in the market. A positive alpha of 1.0 means the fund or stock has outperformed its benchmark index by 1 percent. A similar negative alpha of 1.0 would indicate an underperformance of 1 percent. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20 percent more volatilesubject to big swings in prices or salesthan the market. Investors can use both alpha and beta to judge a manager'sor individual stock's performance. Investors would most likely prefer a high alpha and a low beta. But other investors might like the

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higher beta, trying to cash in on the stock or fund's volatility in price and shares sold. However, if a fund manager or stock has had a high alpha, but also a high beta, conservative investors might not be so happy. That's because the beta might make them withdraw their money when the investment is doing poorlydue to the increased volatility and possible risk of losses indicated by the high beta. 2. ET Now Explains: Sharpe Ratio is one of the tools used to measure the risk-adjusted return, which calculates the excess return a fund has earned for every unit of the risk it is exposed to. The excess return is the one earned over the risk-free rate. For example, if the long-term government bond yield is 7% (a proxy for risk-free rate) and the fund return is 11%, the excess return will be 4% (11 - 7). As for the risk, it is statistically measured using the standard deviation. It is a measure of the total risk (external and internal) and the square root of variance. The risk-adjusted Sharpe ratio has excess return in the numerator and standard deviation in the denominator. 3. Investopedia explains 'Standard Deviation': Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns. A low standard deviation indicates that the data points tend to be very close to the mean; high standard deviation indicates that the data points are spread out over a large range of values.

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4. Farlex Financial Dictionary Explains R Squared: In statistics, the percentage of a portfolio's performance explainable by the performance of a benchmark index. The R square is measured on a scale of 0 to 100, with a measurement of 100 indicating that the portfolio's performance is entirely determined by the benchmark index, perhaps by containing securities only from that index. A low R square indicates that there is no significant relationship between the portfolio and the index. An R Square is also called the coefficient of determination.

5.

David L. Scott (Houghton Mifflin Company) Explain Correlation: The relationship between two variables during a period of time, especially one that shows a close match between the variables' movements. For example, all utility stocks tend to have a high degree of correlation because their share prices are influenced by the same forces. Conversely, gold stock price movements are not closely correlated with utility stock price movements because the two are influenced by very different factors. The concept of correlation is frequently used in portfolio analysis.

6. Investopedia explains 'Stock Return' Consider an investor that purchases a stock on January 1, 2000, for $20. The investor then sells it on January 1, 2005, for $35 a $15 profit. The investor also received a total of $2 in dividends over the five-year holding period. In this example, the investor's total return over five years would be $17, or (17/20) 85% of the initial investment.

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7. Athena Hessong, eHow Contributor: Sales growth shows you how well a business improved over a given time. Calculating this rate reveals an increase or a decrease in the business activity of a given company. This number proves handy when trying to decide if you want to invest in a business. For business owners, it indicates whether the current sales team is effectively doing its job.

8. Investopedia explains 'Debt/Equity Ratio' A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders.

9. Investopedia explains 'Interest Coverage Ratio'; The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.

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10. Investopedia explains 'Price-Earnings Ratio - P/E Ratio' In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.

11. Investopedia explains 'EBITDA Margin' A firm with revenue totalling $125,000 and EBITDA of $15,000 would have an EBITDA margin of $15,000/$125,000 = 12%. The higher the EBITDA margin, the less operating expenses eat into a company's bottom line, leading to a more profitable operation.

12. Investopedia explains 'After-Tax Profit Margin' Often, a company's earnings don't tell the entire story. The amount of profit can increase, but that doesn't mean the company's profit margin is improving. For example, a company's sales could increase, but if costs also rise, that leads to a lower profit margin than what the company had when it had lower profits. This is an indication that the company needs to better control its costs.

13. Investopedia explains 'Return On Equity - ROE': The ROE is useful for comparing the profitability of a company to that of other firms in the same industry. Investors wishing to see the return on common equity may modify
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the formula above by subtracting preferred dividends from net income and subtracting preferred equity from shareholders' equity, giving the following: Return on common equity (ROCE) = Net income - Preferred dividends/ common equity.

A Hatch References: 1. CNBC: Alpha and Beta 2. ET Now: Sharpe Ratio 3. Investopedia: Standard Deviation 4. Farlex Financial Dictionary: R Squared 5. David L. Scott (Houghton Mifflin Company): Correlation 6. Investopedia: Stock Return 7. Athena Hessong: Sales Growth 8. Investopedia: Debt/Equity Ratio 9. Investopedia: Interest Coverage Ratio 10. Investopedia: Price-Earnings Ratio - P/E Ratio 11. Investopedia: EBITDA Margin 12. Investopedia: After-Tax Profit Margin 13. Investopedia: Return on Equity ROE

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Chapter - 3 PROFILE OF THE INDUSTRY

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3.1. EVOLUTION OF THE CONCEPT Stock exchanges to some extent play an important role as indicators, reflecting the performance of the countrys economic state of health. Stock market is a place where securities are bought and sold. It is exposed to a high degree of volatility, prices fluctuate within minutes and are determined by the demand and supply of stocks at a given time. Stock brokers are the ones who buys and sells securities on behalf of individuals and institutions for some commission. The Securities and Exchange Board of India (SEBI) is the authorized body, which regulates the operations of stock exchanges, banks and other financial institutions. Broking Industry The Indian retail broking industry consists of companies that primarily act as agents for the buying and selling of securities (e.g. stocks, shares, and similar financial instruments) on a commission or transaction fee basis. It has two main interdependent segments: Primary market and the Secondary market. Now this market is extended to fields like currency, commodity, mutual fund, insurance etc. The Indian equity brokerage industry thrived on the back of equity markets' sustained Bull Run during 2003-07. Although high competitive pressure meant continuous compression of brokerage commissions and low electronic penetration kept operating costs high, industry revenue was growing. Furthermore, the industry attracted domestic and foreign investment interest at high valuations. During this time, many of the key players started expanding their portfolio of services to include wealth management and advisory services, sale of insurance and mutual fund products, consumer financing and so on.

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However, post-2008, the economic downturn - muted trading turnover, relentless competitive pressure and decreasing margins, continued high operating costs and high margin requirements - has put the industry under pressure. Profitability is muted and the major players are under pressure to build scale. Expansion of scale and investments into technological systems has the potential to lead the top brokerage firms into paths of higher growth, but the current economic climate is clearly against heavy investments. The basic function of a brokerage firm is to execute buy and sell orders for clients. Traditionally these firms have offered the investigation of the quality and the possibilities of investing in a variety of investment products. It is still accustomed for brokerage firms to offer information about possible investments free of charge. This activity of bringing free of charge stock investment reports is one of the main tools that are utilized by brokerage houses to compete against other firms and to investors it continues to be an important service.

History of the stock broking industry Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago. The earliest records of security dealings in India are meager and obscure.

By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840 and 1850. The 1850's witnessed a rapid development of commercial enterprise and brokerage business attracted many men into the field and by 1860 the number of brokers increased into 60.
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In 1860-61 the American Civil War broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could only be sold at Rs. 87). At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business.

In 1887, they formally established in Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as "The Stock Exchange"). In 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.

Thus in the same way, gradually with the passage of time number of exchanges were increased and at currently it reached to the figure of 24 stock exchanges.

Development An important early event in the development of the stock market in India was the formation of the Native Share and Stock Brokers Association at Bombay in 1875, the precursor of the present-day Bombay Stock Exchange. This was followed by the formation of associations /exchanges in Ahmedabad (1894), Calcutta (1908), and Madras (1937). The central government introduced a legislation called the Securities Contracts (Regulation) Act, 1956. Under this legislation, it is mandatory on the part of a stock exchanges to seek government recognition. As of January 2002 there were
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23 stock exchanges recognized by the central Government. They are located at Ahemdabad, Bangalore, Baroda, Bhubaneshwar, Calcutta, Chenni,(the Madras stock Exchanges ), Cochin, Coimbatore, Delhi, Guwahati, Hyderbad, Indore, Jaipur, Kanpur, Ludhiana, Mangalore, Mumbai(the National Stock Exchange or NSE), Mumbai (The Stock Exchange), popularly called the Bombay Stock Exchange, Mumbai (OTC Exchange of India), Mumbai (The Inter-connected Stock Exchange of India), Patna, Pune, and Rajkot. Of course, the principle bourses are the National Stock Exchange and The Bombay Stock Exchange, accounting for the bulk of the business done on the Indian stock market. BSE - Bombay Stock Exchange The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member-brokers.

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NSE - National Stock Exchange NSE was incorporated in 1992 and was given recognition as a stock exchange in April 1993. It started operations in June 1994, with trading on the Wholesale Debt Market Segment. Subsequently it launched the Capital Market Segment in November 1994 as a trading platform for equities and the Futures and Options Segment in June 2000 for various derivative instruments. NSE has been able to take the stock market to the doorsteps of the investors. The technology has been harnessed to deliver the services to the investors across the country at the cheapest possible cost. It provides a nation-wide, screen-based, automated trading system, with a high degree of transparency and equal access to investors irrespective of geographical location. The high level of information dissemination through on-line system has helped in integrating retail investors on a nation-wide basis.

3.2. FEATURES Suppliers NSDL & CSDL are the regulatory bodies for Depository Participants like SSKI, SHCIL, ICICIdirect.com, etc. Also these regulatory bodies have got an upper hand as the bargaining power stock broking houses like SSKI, etc. would be less. NSE & BSE are playgrounds where common investor trade through stock broking houses, for which they have to take permission from NSE/BSE.

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 MCX & NCDEX are stock exchanges which trade in commodities and derivatives. Buyers There are various types of investors who trade through stock broking houses like SSKI, which includes investors like small investors, medium net worth investors, business partners, institutional investors and mutual fund companies. Here the bargaining power of stock broking houses depends on how big the investor is. So here we can say that bargaining power of stock broking houses is high in case of small investors & HUF. While the bargaining power is moderate in case of HNI (High New Worth Investors)/ MNIs (Medium Net Worth Investors) and business partners. But in case of mutual fund companies and institutional investors bargaining power is less. There is competitive buzz in stock broking industry; competitors are offering low brokerage and best services with added feature. So switching cost is pretty much less. So the buyer can easily switch over to competitors product.

Traditional Broking Traditionally In stock Market, the investors invest their money in shares under the guidance of the Brokers of any stock broking company. This is convenient to those investors who are not familiar with the computer and the

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use of internet. But it requires more dealers to the share broking companies to give guidance related to investment. There was a chance of inaccuracy of price because it is a time consuming process. The cost of the company also increases due to more paperwork. From the investor point of view, there was a problem of privacy. The information of investor may be leaked by the broker. So, to remove these limitations of traditional broking, there was an emergence of new concept e-Broking. E- Broking Today is the world of technology. So, the person who adopt it, get success. So, E-Broking means broking through electronic means. E-Broking is the broking in which the investors who are familiar with the use of computer and Internet directly trade in stock market. They trade any time at any place when the stock market is open. The cost of transaction is also reducing with time. The investors have a large range of option for trading. It is a paperless transaction so it reduces the cost of company. There was a facility of live streaming quotes, which give exact price of share which prevailing in the market at that time. Internet trading in India In the past, investors had no option but to contact their broker to get real time access to market data. The Net brings data to the investor on line and net broking enables him to trade on a click. Now information has become easily accessible to both retail as well as big investors. The development of broking in India can be categorized in 3 phases:

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i.

Stock brokers offering on their sites features such as live portfolio manager, live quotes, market research and news to attract more investors.

ii.

Brokers offering on line broking and relationship management by providing and offering analysis and information to investors during broking and non-broking hours based on their profile and needs, that is, customized services.

iii.

Brokers (now e-brokers) will offer value management or services such as initial public offerings on line, asset allocation, portfolio management, financial planning, tax planning, insurance services and enable the investors to take better and well-considered decisions.

3.3. PROSPECTS The Indian retail brokerage market is showing phenomenal growth. The total trading volume of brokerage companies has increased from US$1239.1 billion in 2004 to US$1492.1 billion in 2005, and is expected to reach US$6535.7 billion by 2015. Some of the main characteristics of the brokerage industry include growth in e-broking; growing derivatives market, decline in brokerage fees etc. Today, as per NSDL statistics, we have only 2.4 million investors with demat accounts in the country. Considering various investor combinations that are holding accounts, we can presume the country has roughly 5-7.5 lakh active investors now. This figure is unbelievably small compared to the potential number of investors, which is anything between 200 million and 250 million. When we take into consideration the way transaction risk and cost in the Indian capital market is coming down, there will be a massive surge in the number of investors and also in volumes. The only way to
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manage this kind of potential growth is to adopt state-of-the-art trading techniques. The growth of Internet-based trading as a mass trading technique in the country is unstoppable, going by the indicators available and the signals for the future. When it ultimately gathers momentum, the biggest beneficiary will be the investor, who will be able to trade with greater speed and transparency, and at lower costs.

Major players in Indian share broking industry are follows: ICICI Securities Ltd Kotak Securities Ltd Indiabulls Financial Services Limited IL&FS investmart Limited SSKI Ltd. Motilal Oswal Securities Fortis Securities (Religare) Karvy securities Geojit BNP paribas HDFC Securities Hedge equities JRG securities India Infoline

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INDUSTRY ANALYSIS USING PORTERS 5 FORCES MODEL

POTENTIAL ENTERANT Investmart Various Banks Geojit UTI Securities Ltd. Refco Group Ltd. IDBI Capital Mkt. Services
SUPPLIERS COMPETITORS Geojit BNP JRG Securities ICICI Web Trade Ltd Kotak Securities HDFC Securities

BUYERS Small Investors Business Partners MF Companies Institutional Investors

NSCL CSDL NSE BSE

MCX, NCDEX

SUBSTITUTES Chit Fund Bank Fixed deposit Real-estate Bonds

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3.4. SWOT ANALYSIS STRENGTHS Multiples engines of growthan integrated financial services platform

WEAKNESSES Lack of visible goodwill among minor players Lack of trust on companies by customers mind of people in India is converging Companies are still running on selling concept Compliance with strict rules and norms set by govt.

Adoption of technology screen-based trading, electronic matching, and paperless securities

Centralized operations, effective risk management, and control on large interconnected operations spanning multiple locations, which is enabled by telecom connectivity and low costs

Accessibility of capital increases and margin finance increases OPPORTUNITIES THREATS High degree competition Fluctuations in government policies Political framework

Structure of the industry, market size, and growth rateshuge potential in Indian market

Government is continuously

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liberalizing the market Proactive and progressive nature of Indian brokerage industry(India ranks amongst top five globally in this segment) Economy is still growing at healthy rate leading to investment / capital requirement Huge market opportunity for wealth management service providers as Indian wealth management business is transforming from mere wealth safeguarding to growing wealth.

Developing Indian economy Corporate spying

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Chapter - 4 PROFILE OF THE ORGANISATION

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4.1. BRIEF HISTORY Hedge Equities Ltd is one of the leading wealth management companies in India. The company started its operations in 2008. Hedge Equities offering a wide range of financial products, tailor made to suit individual needs, it offers services in the areas of equity & commodity, currency futures, mutual funds, wealth management and IPO. Hedge Equities also provides research services in the field of economic research, result expectations, IPO, mutual fund, derivative and other special reports. The company is a member in the cash and derivative market segments of NSE and only a cash segment in BSE. It is also registered as a DP with CDSL. Hedge Equities provides commodity broking through its associate company, Hedge Commodities Ltd which is a member of MCX. The company has an extensive and growing network of 180 offices. The company had adopted a conservative approach in all matters especially in the matter of client registration, pay-in, pay-out of clients, and delivery in and out as regards securities belonging to clients. It is, however, thought wise to spell out the policies clearly so as to enable proper monitoring and review from time to time. The firm has an online trading and investment site www.hedgeequities.com. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon- free, investor friendly language and high quality research, the site has a registered base of over thousands of customers. The content rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information. The objective has been to let customers make informed decision and to simplify the

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process of investing in stocks. Hedge equities have always believed in investing in technology to build its business.

Management Alex K Babu - Managing Director

Alex K Babu is the Founder, Chairman, and Managing Director of the Hedge Group of Companies. Recognized for his youthful zeal, creativity and business intelligence, Alex believes his role as a business leader is to lead his organization and society through change. Bhuvanendran CEO

His rich experience spanning 20 years with the leading names in the Indian financial services industry, is often camouflaged by his youthful appearance, till Mr.Bhuvanendran opens up his favourite subject-Money matters. Bhuvanendran is a talented and introspective writer whose creativity has been capitalized by various financial journals. Bobby J Arakunnel COO

Mr. Bobby has been responsible for the entire operations of Hedge Equities ever since its inception. He has proved his versatility by showcasing excellent ManManagement and Marketing Activities and is well versed in all aspects of Indian Financial Markets.

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Mr. Joy Arrackal Director

Mr. Joy Arrackal is a successful natural born entrepreneur with varied business interests in Dubai and India spread across Petrochemicals, Oil Trading, Telecom, Agriculture, Hospitality, and Construction. He also owns and operates Oil Tankers in Dubai. Dr. Samuel George Director

Dr. Samuel George is a doctor and an entrepreneur and runs the successful and well reputed "City Clinic" in Abudhabi since the 1970's. Having completed his Bachelors in Medicine from the Calcultta Medical College, Dr. George commenced his career in government service and then subsequently moved to Abu Dhabi in the 1970s. Today, their clinic offers specialized services in General Medicine and Pediatrics. Pradeep Kumar C Director

A leading Textile exporter of Kerala whose 20 years of experience in this field has made him a veteran we all look up to. His vision, augmented by his hard work and commitment has helped him to be a strong player in the field of Exporting. Starting from a root level, he has travelled the hard way to reach this phenomenal position in Garment Industry which has supplemented him to expand his domain to foreign locations as well. Mr. Raj Krishnan Director

In his 15+ year career in Finance & Operations, Raj Krishnan has served in varied roles such as CEO, COO, Investor, and Entrepreneur. At Hedge Equities, he works with a team that employs both top-down macroeconomic and
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industrial research, as well as a bottom-up equity valuation process to identify and analyze great businesses selling well below their intrinsic values. Padmashree Bharat Mohanlal Director

This Honorary Lieutenant Colonel's brand image and brimming popularity has helped Hedge Equities to create awareness amongst small investors in retail segment to invest in stocks. Versatility and a natural flair for donning complex characters have won him numerous accolades not to speak of some unforgettable films contributed by him. A Multifaceted personality, whose inspiring attitude, has helped him to take up Business world with a storm. Mr. Krishnadas Director

Managed by a team of ex-bankers, Fedex is a SEBI registered category 1 merchant banker. Mr.Krishnadas with his 20 Years experience in commercial and investment banking is concentrating on non fund based activities like structuring; tie up of project financing, financial restructuring, investment banking, corporate and advisory services through Fedex Securities.

Corporate Social Responsibility Hedge School of Applied Economics

In its efforts to promote financial education in the country, Hedge Equities has launched the Hedge School of Applied Economics in the year 2010 with the objective of creating professionals for the financial markets. The focus is to groom students in share trading, banking, insurance or wealth management, by

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implementing innovative solutions. The tailor-made syllabus is interspersed with live class rooms, where live share trading is shown and explained. The packed academic schedules are conducted in sessions led by experienced faculty, market players from the trading and financial industry, and experts from BSE, NSE and SEBI. The Hedge School will complement the motivating cause of attracting the largely untapped segment. Hedge Yuva

Hedge Equities has also initiated a non-profit movement called Hedge Yuva, an ambitious programme aimed at propagating the virtues of stock market. The movement seeks to trickle down to the micro level and educate the masses, especially the youth, with the intention of converting liquid money to an investment in shares. It is as part of this programme that the Hedge School of Applied Economics was started. This movement believes in creating a financially strong young India and this initiative is to enlighten the youth into making educated investment decisions. To accelerate its objectives, it started to become member of many social networking sites like Facebook, Orkut, etc. and as a result, they are getting faster response. Hedge Dhruva

The company rolled out a mobile service outlet called Hedge Dhruva a new concept aimed at imparting investment awareness programs throughout Kerala. The vehicle has investment advisors and conduct investment awareness programs throughout the state. The idea is being carried out through a mobile van which will have investment advisors for providing proper financial education thereby, improving the market participation. The focus will be more
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on the rural side of the State where the company feels that there is lot of potential.

4.2. MISSION OF THE COMPANY

To create an ethical and sustainable financial services platform for our customers and partner them to build business, to provide employees with meaningful work, self-development and progression, and to achieve a consistent and competitive growth in profit and earnings for our shareholders and staff

4.3. VISION OF THE COMPANY

Evolving into a financial supermarket which will be a one stop shop for all financial solutions

4.4. DEPARTMENTAL PROFILE 1. Client Relation Department The client relation department assists the client or customer top open an account in HEDGE EQUITIES (P) Ltd securities. This department is also known as the front office. A client has to open two types of accounts to trade and own securities in the NSE & BSE.

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2. Finance Department Finance is the lifeblood and nerve centre of a business, just as circulation of blood is essential in the human body for maintaining life, finance is a very essential to smooth running of the business. Thus a department, to organize financial activities may be created under the direct control of the board of directors. Finance manager will decide the major financial policy methods. Lower levels can delegate the other routine activities.

3. Marketing Department The major functions of marketing department are: a) Business associate development: The company takes up the marketing activities of the various branches. It ensures an efficient marketing arena at its various branches. The company encourages better relations in its branches and promotes for the development of various marketing strategies. b) Brand promotion: An important function of marketing department is to promote the name of the company. HEDGE EQUITIES (P) LTD does it through the different promotional activities. The name of HEDGE EQUITIES (P) LTD as a stock broking firm is made known to the outside world. c) Investment promotion: The main clients of HEDGE EQUITIES (P) LTD were its investors. Hence the marketing department tries to capture as many investors as possible to encourage them to invest.

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d) Delivery promotion: Intraday trading is not always profitable and might involve a lot of risk hence HEDGE EQUITIES (P) LTD promotes for delivery were the shares are kept to be sold for a later date analyzing the profitability factors.

4. Systems Department The systems department is playing a vital role in the day operations of the company. It is through the systems department that the clients can avail the facilities of Internet trading. Optic fibre cables and high bandwidth connections from the Hedge Equities Ltd office to the ISP, a dedicated server and back-up ISDN connections were maintained directly by the systems department. For the purpose of trading they have made use of two software namely ODIN (Open Dealers Integrated Network).

5. Human Resources Department Human resource is often considered as the back bone of an organization even in this age of advanced automation and mechanization. Since virtual organizations are not very much popular in our part of the world, it is very important to any organization to have a HR department. The presence of an excellent HR department increases the efficiency of an organization considerably. Human resource management is defined as asset of practices, policies and programmes designed to maximize both personal and organizational goals.

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a) Training and induction The selected employees will undergo three days continuous induction. During this period, he will undergo training with all the department of HEDGE EQUITIES (P) LTD Securities (India) Pvt. Ltd. b) Wages and Salary Administration The wages and salaries of the employees were fixed and granted by the HR department with consent of the finance department. c) Performance Appraisal It was human resources department which gives the promotion to all employees, making transfers and taking disciplinary actions if needed. d) Grievance Handling The grievance of employees were received only through proper channels i.e., through the particular department heads. The HR department will make solutions to th complaints as per the rules and regulations of the company. 6. Trading Department The department deals with the trading related activities of the company. The trading refers to the buying and selling of shares. This department is the most important part of the organization. There are two types of trading. They are a) Online Trading: These are the trading terminal of the organization. The each computer of the department is termed as the trading terminal. The each terminal is assigned with

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NCFM certified dealers, who is in charge of each portal will do the trade according to the client request. The terminal is managed by either NEAT (National Exchange for Automated Trading) software or ODIN (Open Dealers Integrated Network) software. The client can also place his through written request or through the telephone, in this the order will be place d by the dealer. b) Internet Trading:

The internet trading is a facility provides by the company in order to trade the securities from his convenient place like his office, home etc. the order will be placed by the client itself, and he can make changes before the trade is done for changing the price, cancellation of the order.

7. Delivery And Depository Department Delivery refers to the share that bought on particular day are not sold on that day itself and holding of the share for an appreciation in the value of the security and to trade it on a future date. Deliver Instruction Slip: it is a slip the client should fill and gave to the dealer regarding the purchase of the share. There are two procedures to move the share namely: a. Power of attorney This is which the client signs at the time of opening a trading account and depository participant account. If the client has given the power of attorney, HEDGE EQUITIES (P) LTD will have the power to transact the clients stock without pay in slips.

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b. Easiest It is secured internet enabled service which means Electronic Access to Securities information and Execution of Secured Transaction. This is facility wherein the clients can give delivery instructions via internet. Easiest is a facility provided by CDSL. The activities related with the depository department a. Depository function b. Dematerialization c. Pledging

8. Equity Research Department The function of the department is to study the details regarding the share or securities and to make prediction regarding the future performance of the company. The research department is broadly divided into two divisionsFundamental Analysis Group and Technical Analysis Group. There are five analysts in this department. The fundamental analysts are continuously scanning the entire economy for discovering what they call the hidden gems in stock market terminology and present it to the clients for profitable investments. Timing the market has always been the most difficult task for all analysts and their Technical Analysis Group has emerged to predict the market movements well in advance using complex Analytical methods. They are equipped with cutting edge technologies for technical charting which assist the technical analysts to predict both upside and downside movements efficiently for the benefit of clients.
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Research Department Structure and Functions (Head Research & Strategies) Controlling the Department (Sr. (Fundamental Fundamental Analyst) Analyst) Fundamental analysis and report Company Morning results & news report - video tracking tracking (prep/updates) calls Fundamental Research Data mining presentations reports report customer Company portfolio snippets reviews on (prep/updates) request Investor Mentoring Marketing of team reports members (prep/updates) report visits Attending management meetings MIS Marketing of performance of reports calls and report for query news track system Economic chat snippets economic Branch Company Daily meets & presentations presentations report Research Research technical Daily Derivative analysis and calls Positional results & news snippets futures Fundamental analysis and report Company Analyst) Company Intraday results & stock calls news tracking Company Intraday Analyst) Fundamental Technical (Economic & (Sr.

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handling Presentations Daily to groups, investor circles Articles in Ohari magazine Articles and data input to Daily medias ( TV commodity Channels , report News papers , Magazines ) Tracking Investor International meets & commodity Branch visits markets Preparing Special commodity reports Investor meets & Branch visits Tracking international markets Auto monthly sales report Daily report currency (oversight) report

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4.4. REVIEW OF PRESENT PERFORMANCE The company had 16 branches in the first phase and now they have 59 branches in Kerala, 5 in Karnataka, 7 in Maharashtra and 1 each in Tamil Nadu, Hyderabad and Sharjah and 65 franchises in Kerala within completion of its 4 years... Now, the company is having a Global Outlook blended with a Local Flavor and backed with a growing network of over 120 service outlets, 450 qualified employees, and over 200 support associates. It is the trust and goodwill of over 20,000 satisfied customers. The main focus of the firm is South India. The company targeted about 500-700 clients and a business of Rs 300 Crore of assets under management from Kerala in the first year of operations. At present it is having almost 20,000 clients and is further looking forward at a customer base of 40,000 by chalking out an aggressive marketing strategy. The total branch network will also be increased by the end of the current fiscal year. As a first step to make their presence global, Hedge Equities have initiated operations in Middle East to cater to the vast Non Resident Indian (NRI) population in that region. Ever since their inception, they have spanned their presence all over India through their meticulous research, high brand awareness, and intellectual management and extensive industry knowledge. People at hedge believe in creating a new breed of investors who take judicious decisions through them.

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Product and services of Hedge Equities 1. Equity Trading

Equity gives you the opportunity to have a partnership with all the leading Business tycoons around the globe. Total capital contribution for a company comprises of investments through equity share holdings by small and big investors. The investors who have a stake in a company are referred to as shareholders.

Power of Equity shareholders lies in the optimum selection of the Industry, have a strong belief in the Company's fundamentals and also having a confidence in the profit making capability of the company.

Equity Market, at present, is a rewarding field for the investors and investing in Indian stocks are profitable for not only the long and medium-term investors, but also the position traders, short-term swing traders and also very short term intra-day traders. Fundamentally, stock market is an avenue for business people to meet shareholders. Other than bank loans, they now have another option to finance their businesses. They did it by offering their company's equities in exchange of shareholders cash. The company is never required to repay the capital, but the new shareholders have a right to future profits distributed by the company. For shareholders, they have alternatives to where they should put their money into. In the same time, they get the opportunity to participate in capital intensive businesses at an affordable price. Equity is an investment area which you can capitalize on with proper assistance regardless of the market circumstances. Hedge Equities opens the door to this highly lucrative

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investment opportunity that could provide a feasible solution to all your financial queries.

2. Commodities Trading

Commodity "futures" are contracts to buy or sell certain goods at set prices at a predetermined time in the future. Futures trading plays a key role in the marketing of a number of important agricultural and nonagricultural commodities as it provides the industrial and farming communities with a transparent price discovery platform, which also enables them to hedge their price risk and price volatility. The growth of Indian commodities futures trading towards an efficient, transparent and well-organized market has thrown open a window of benefits and opportunities to Indian producers and traders. Besides the primary benefits of its twin economic functions of price discovery and price risk management, commodity futures trading has also played an instrumental role in integrating various fragmented components of the commodity ecosystem, thus developing the overall infrastructure of agricultural commodities marketing in the country.

At present, 24 commodity futures exchanges are operational in India, which include 21 regional bourses and the three national-level players, with another three proposed exchanges on the cards. With the state-of the-art technologypowered secure and efficient operational infrastructure, these national exchanges are creating a near-perfect market situation with a much wider participation from the ecosystem stakeholders in a large number of domestic and global commodities during local and international timings.

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While the trade in non-agricultural commodities, especially bullion and crude, has increased in the past two financial years, the same in agricultural commodities has declined. The share of agricultural commodities almost

halved during 2008-09, due to the continued ban on several commodities. The clients can trade in commodity futures like gold,silver,crude oil,rubber etc. And take advantage of the extended trading hours (10 am to 11pm) in commodities trading. 3. Currency Trading

Investments in Currency Derivatives can help you to diversify your portfolio from traditional asset classes. Currency derivatives can be described as contracts between the sellers and buyers, whose values are to be derived from the underlying assets, the currency amounts. These are basically risk management tools in force and money markets used for hedging risks and act as insurance against unforeseen and unpredictable currency and interest rate movements. Any individual or corporate expecting to receive or pay certain amounts in foreign currencies at future date can use these products to opt for a fixed rate - at which the currencies can be exchanged now itself. Currency derivative serve the purpose of financial risk management encompassing various market risks. An upfront premium is payable for buying a derivative. Currency Futures will bring in more transparency and efficiency in price discovery, eliminate counterparty credit risk, provide access to all types of market participants, offer standardized products and provide transparent trading platform.

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4. Mutual Funds

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holder. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Mutual fund is also called unit trust or open ended trust a company that invests the funds of its clients in diversified securities and in turn represent those holdings. They make continuous offering of new shares at NAV (Net Asset Value) determined daily by the market values of the securities they hold. In Hedge Equities the clients can select from a wide range of Mutual Funds and Bonds available in the markets today. 5. Online trading Hedge Equities has a large network of branches with online terminals of NSE and BSE in the Capital market and derivative segments. The clients are assured of prompt order execution through dedicated phones and expert dealers at our offices.

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6. Internet trading Hedge Equities offers Internet trading through this site. You can trade through the Internet from the comforts of your office or home, anywhere in the world. The dedicated IT systems ensure service up time and speed, making Internet broking through Hedge Equities hassle-free. Using the easiest facility provided by NSDL, the clients can transfer the shares sold by them online without delivery instruction slips. Additionally, digitally signed contract notes can be sent to clients through E-mail. 7. Depository services Hedge Equities is a member of the National Securities Depository Limited (NSDL), offer depository services with minimum Annual Maintenance Charges and transaction charges. Account holders can view their holding position through the Internet. They also offer the easiest facility provided by NSDL (electronic access to securities information and execution of secured transaction) through which clients can give delivery instructions via the Internet. 8. Derivative trading Hedge offer trading in the futures and options segment of the National Stock Exchange (NSE).Through the present derivative trading an investor can take a short-term view on the market for up to a three months perspective by paying a small margin on the futures segment and a small premium in the options segment. In the case of options, if the trade goes in the opposite direction the maximum loss will be limited to the premium paid.

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9. Knowledge Centre Knowledge Centre activities are intended to provide systematic and structured services mainly to new investors and also to young aspirant aiming for a career in financial markets. The centre has three functional areas: the Publication Division, the Training Centre, and Wealth Management Advisory Service which provides complete investment solutions to investors through knowledge based personalized service. 10. Equity Research Hedge Equities constantly strive to deliver insightful research to enable proactive investment decisions.The research department is broadly divided into two divisions-Fundamental Analysis Group (FAG) and Technical Analysis Group (TAG). The fundamental analysts are continuously scanning the entire economy for discovering what they call the hidden gems in stock market terminology and present it to the clients for profitable investments.Timing the market has always been the most difficult task for all analysts and their Technical Analysis Group has emerged to predict the market movements well in advance using complex Analytical methods including Eliot Wave Theory.They are equipped with cutting edge technologies for technical charting which assist the technical analysts to predict both upside and downside movements efficiently for the benefit of clients. 11. Portfolio Management Service Hedge Equities is a SEBI-approved portfolio manager offering discretionary and non-discretionary schemes to its clients. Hedge Equities portfolio

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management team keeps track of the markets on a daily basis and is exposed to a lot of information and analytic tools which an investor would not normally have access to. Other technicalities pertaining to shares like dividends, rights, bonus, buy-back, mergers and acquisitions are also taken care of by them. 12. Wealth Management Services As a part of national wise service development, Hedge Equities launched its wealth management service (WMS) during December 2010. The services include portfolio management services, portfolio advisory services and Mutual Fund Advisory services. This service offering will have tailor-made investment solutions for each client-based on their risk appetite. The main objective of this WMS is to make a customer into a successful investor. In order to understand the customers behavior and their risk bearing capacity, hedge equities appointed certain wealth management service teams. They will collect details regarding customers through questionnaires. After studying consumers expectations and goals they will prepare special investment policies and teach them its merits and demerits. Its the one of the main duties of WMS teams.

Main Competitors Geojit BNP Paribas JRG Securities Religare Muthoot Securities
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Sharewealth Motilal Oswal Anandrathi

4.6. SWOT ANALYSIS Strengths: Top leading and Keralas second largest broking firm. Effective marketing. Hedge Equities offering a wide range of financial products, tailor made to suit individual needs. Well-maintained infrastructure. Dedicated, Intelligent and Loyal staff. On-line trading products. Lowest brokerage charges. The best investment advice correct up to 70-90 % through dedicated research and reports. Wide product range to enable the clients to choose the best alternative. Member of BSE, NSE, MCX, MCXSX, NMCE, NCDEX and Depository Participant in CDSL Rated as the top brand by the investor community of Asianet channel. SEBI Registered Portfolio Manager with a dedicated Wealth Management Services A positive image in the existing clients. The company has an extensive and growing network of 180 offices.
64

Strong Research Team backed with best of breed data mining and analysis.

A Global Outlook blended with a Local Flavor and backed with a growing network of over 120 service outlets., 450 qualified employees, and over 200 support associates.

Weaknesses: Less penetration in some regions of the country Time consuming process for account opening, resolving the problems of the customers, etc. Service quality is not maintained accordingly how they are promoted. No canteen facility for staffs. Salary package of the company is not attractive to its employees.

Opportunities: Slope of stock market towards delivery based transaction. Growing rural market through customized and cheaper services Investments by Earning Urban Youth Large potential market for delivery and intra-day transactions. Open interest of the people to enter in stock market for investing. Attract the customers who are dissatisfied with other broker & DPs. An indirect opportunity generated by the market from its bullishness.

65

Threats: Decreasing rates of brokerage in the market. Increasing competition against other brokers & DPs. A threat of losing clients for any kind of weakness of the company. Losing the untapped market with the entry of the competitors. Stringent Economic measures by Government and RBI. Entry of foreign finance firms in Indian Market.

66

Chapter 5 ANALYSIS AND INTERPRETATION

67

Introduction Today India has the world's second-largest telecom markets in the world, with an addition of more than 18 million subscribers every month. India's teledensity has improved from under 4% in March 2001 to around 73.07 % by the end of January 2013. The mobile subscriber base (GSM and CDMA combined) has grown from under 41 million at the end of March 2000 to touch 893.15 million at the end of January 2013. Various policy initiatives and policy reforms the Indian telecom sector has achieved a phenomenal growth during the last few years. In the last FY-2011-12 industrial revenue was 88707.29 crore. In this growing situation of the industry, this study analyzes the stocks of the companies in telecom service sector, for how much risk and return involved based on past performance of the stocks, also analyzing the financial performance of the companys in telecom service sector. Risk-Return analysis done based on half yearly return of the stocks. The analysis classified into two parts: Risk-Return Analysis and Financial Analysis. For analyzing, the researcher has selected BSE listed top five companies in telecom service sector which are: I. Bharti Airtel Limited

BSE: 532454, NSE: BHARTIARTL, Face Value: Rs.5 Airtel is an Indian multinational telecommunications Services Company headquartered at New Delhi, India. It operates in 20 countries across South Asia, Africa and the Channel Islands. Airtel has GSM network in all countries in which it operates, providing 2G, 3G and 4G services depending upon the

68

country

of

operation.

Airtel

is

the

world's third

largest

mobile

telecommunications company with over 261 million subscribers across 20 countries as of August 2012. It is the largest cellular service provider in India, with 183.61 million subscribers as of November 2012.

II.

Idea Cellular Ltd.

BSE: 532822, NSE: IDEA, Face Value: Rs.10

Idea cellular, a part of Aditya Birla group, is one of India's leading GSM mobile services operator. This telecom company has licenses to operate in all 22 service areas. Through merger and acquisitions, Idea Cellular has received established service areas for mobile operations. In January 2001 it merged with Tata Cellular, which had service area in Andhra Pradesh. In June 2001, through its acquisition of RPG Cellcom, it received Madhya Pradesh service area. In January 2004 it received service areas of Haryana, Uttar Pradesh and Kerala through its acquisition of Escotel Mobile Communication (Escotel). In 2006 it became part of Aditya Birla Group. Idea Cellular has acquired 40.8% stake in Spice Communication.

III.

Mahanagar Telephone Nigam Limited

BSE: 500108, NSE: MTNL, Face Value: Rs.10 MTNL is a state-owned telecommunications service provider in the metro cities of Mumbai and New Delhi in India and in the island nation

of Mauritius in Africa. The company had a monopoly in Mumbai and Delhi until 1992, when the telecom sector was opened to other service providers.

69

"Transparency makes us different" is the motto of the company. The Government of India currently holds 56.25% stake in the company. In recent years, MTNL has been losing revenue and market share heavily due immense competition in the Indian telecom sector. MTNL was set up on 1 April 1986 by the Government of India with the aim of upgrading the quality of telecom services, expanding the telecom network, introducing new services and raising revenue for the telecom development needs of India's key metros Delhi and Mumbai. IV. Reliance Communications Ltd

BSE: 532712, NSE: RCOM, Face Value: Rs.5 RCOM is an Indian broadband and telecommunications company headquartered in Mumbai, India. RCOM is the world's15th largest mobile phone operator with over 150 million subscribers and India's one of the largest telecom operator after Bharti Airtel and Vodafone India. Established in 2004, as a subsidiary of the Reliance Group, the company has five segments: Wireless segment that includes wireless operations of the company; broadband segment includes broadband operations of the company; Global segment that include national long distance and international long distance operations of the company and the wholesale operations of its subsidiaries; Investment segment that includes investment activities of the Group companies, and Other segment consists of the customer care activities and direct-to-home (DTH) activities.

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V.

Tata Communications Ltd

BSE: 500483, NSE: TATACOMM, Face Value: Rs.10

Tata Communication, incorporated in 1986 is part of the Tata Group. The company, formerly Videsh Sanchar Nigam, was acquired from the Government of India. It is leading global provider of a new world of communications. It provides a range of services that includes transmission, IP, converged voice, mobility, managed network connectivity, hosting and storage, managed security, managed collaboration and business transformation for global enterprises and service providers, as well as Internet, retail broadband and content services for Indian consumers. Tata Communications has most advanced & largest submarine cable networks. It is number one global wholesale voice operator and number one provider of international long distance, enterprise data and internet services in India.

71

5.1.

Risk-Return Analysis

5.1.1. Bharti Airtel Ltd Table No. 5.1.1 Five years half yearly stock return and index return Date 31-Dec-12 29-Jun-12 30-Dec-11 30-Jun-11 31-Dec-10 30-Jun-10 31-Dec-09 30-Jun-09 31-Dec-08 30-Jun-08 31-Dec-07 AVERAGE Stock 317.1 305.05 343.5 394.9 358.8 262.8 329.75 802.15 715.5 721.25 994.55 455.08 Sensex 19426.71 17429.98 15454.92 18845.87 20509.09 17700.9 17464.81 14493.84 9647.31 13461.6 20286.99 Stock Return 3.96 (-) 11.2 (-) 13.02 10.07 36.53 (-) 20.31 (-) 58.9 12.12 (-) 0.8 (-) 27.48 (-) 6.90 Index Return 11.46 12.78 (-) 18 (-) 8.11 15.87 1.36 20.5 50.24 (-) 28.34 (-) 33.65 2.41

Source: Facts and figures from www.bseindia.com and own calculations

72

Chart No. 5.1.1 - Showing half yearly stock return and index returns

60 40 20

Stock Return

Index Return

Return

-20 -40 -60 -80

Period -2008-2012

Source: Table no. 5.1.1

Chart No. 5.1.2 Showing five years stock movements

900 800 700

Closing Price

Closing Price

600 500 400 300 200 100 0

Period - 2008 -2012 Source: Table no. 5.1.1

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Performance Measurements Beta () - (+) 0.19 Standard Deviation () - 25.93 Correlation (r) (+) 0.18 R-Squared (r2) - 0.04 Alpha () - (-) 7.37 Sharpe Ratio - (-) 0.57

Interpretations Beta: It describes the relationship between stock return and index return, in the above case, Beta of Bharti Airtel Ltd is 0.19, which means that Bharti Airtel share is very less sensitive than the market index. Investing in this share will have low risk and the return may also be likely to be very low.

Alpha: Alpha is the risk-adjusted return on an investment. It is a measure of an investment's performance compared to a benchmark. If a stock is outperformed beyond the benchmark, that means more reward for a given amount of risk. If an investment is underperformed from the benchmark; that means the investment has earned too little for its risk. In above case Bharti Airtel Ltd Alpha was negative (-) 7.37, it means the stock was underperformed on its benchmark index. Stock performance was very poor. Last five years average return of the stock also negative.

74

Standard Deviation: Standard deviation is a statistical term that measures the amount of variability or dispersion or volatility around an average return. It is a popular risk measurement tool. Generally speaking, dispersion is the difference between the actual value and the average value. In the case of Bharti Airtel Standard deviation was 25.93, which means there is some variation from the average return during the past 5 years. Risk of the stock is higher. Generally speaking Higher the standard deviation higher the risk, lower the standard deviation lower the risk. Investing in this share will have risk.

Sharpe Ratio: The ratio describes how much excess return you are receiving for the extra volatility that you endure for holding a riskier asset. The higher the Sharpe Ratio is better its risk-adjusted performance has been. In the case of Bharti Airtel Ltd Sharpe ratio was negative (-) 0.57 it indicates that a risk-less asset was performed better than the security analyzed. Last Five years half yearly average return was negative (-) 6.90 percent, it was very poor performance.

Correlation: : The relationship between half yearly BSE index return and stock return for the period of last five year is (+) 0.18 it indicates that there is a very low degree of positive correlation between stock market index return and stock return.

75

R-Squared: The R-Squared value from five years half yearly stock return and BSE index return of Bharti Airtel is 0.04, which means 4 percent of variations in stocks return are explained by the variation in the BSE index return. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. But in the above case stock performance pattern was not in line with the index.

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5.1.2

Idea Cellular Ltd Table No. 5.1.2 Five years half yearly stock return and index return Date Stock 103.7 75.85 82 79.75 69.4 59.2 58.2 71.3 52.65 93.1 138.7 74.51 Sensex 19426.71 17429.98 15454.92 18845.87 20509.09 17700.9 17464.81 14493.84 9647.31 13461.6 20286.99 0.66 2.41 Stock Return Index Return 36.72 (-) 7.51 2.83 14.92 17.23 1.72 (-) 18.38 35.43 (-) 43.45 (-) 32.88 11.46 12.78 (-) 18 (-) 8.11 15.87 1.36 20.5 50.24 (-) 28.34 (-) 33.65

31-Dec-12 29-Jun-12 30-Dec-11 30-Jun-11 31-Dec-10 30-Jun-10 31-Dec-09 30-Jun-09 31-Dec-08 30-Jun-08 31-Dec-07 AVERAGE

Source: Facts and figures from www.bseindia.com and own calculations

77

Chart No. 5.1.3 - Showing half yearly stock return and index returns

60

Stock Return Index Return

40

20

Return

-20

-40

-60

Period 2008-2012

Source: Table no. 5.1.2

Chart No. 5.1.4 Showing five years stock movements

160 140 120

Closing price

Closing price

100 80 60 40 20 0

Period

Source: Table no. 5.1.2

78

Performance Measurements Beta () - (+) 0.72 Standard Deviation () - 26.86 Correlation (r) - (+) 0.68 R-Squared (r2) - 0.46 Alpha () - (-) 1.07 Sharpe Ratio - (-) 0.27

Interpretations Beta: in the above case, Beta of Idea Cellular Ltd is 0.72, which means return pattern was similar to the market index. But it is less sensitive than the market index. Investing in this share will have risk and the return may also be likely to be moderate. Alpha: In above case Idea Cellular Ltd Alpha was negative (-) 1.07, it means the stock was on its benchmark index. Negative alpha indicates poor performance; the return does not justify the risk. So, statistical analyses is find; the stock was not able to generate excess return over its benchmark.

Standard Deviation: In the case of Idea Cellular Ltd Standard deviation was 26.86, which means there is some variation from the average return during the past 5 years. Risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher.

79

Sharpe Ratio: In the case of Idea cellular Ltd Sharpe ratio was negative (-) 0.27. It indicates that a risk-less asset perform better than the security analyzed. Risk free rate is 8 percent, but five years half yearly average return was only 0.66 percent, so risk-less asset has performed better.

Correlation: : The relationship between half yearly index return and stock return for the period of last five year is (+) 0.68 It indicates, there is a medium degree of positive correlation between stock market index return and stock return.

R-Squared: The R-Squared value of idea cellular ltd is 0.46, which means 46 percent of variations in stocks return are explained by the variation in the BSE index return. In the case of idea cellular stock performance pattern was not in line with the index.

80

5.1.3

Mahanagar Telephone Nigam Ltd (MTNL) Table No. 5.1.3 Five years half yearly stock return and index return Date Stock 26.4 23.55 22.7 43.05 54.85 66.25 73.75 97.3 79.05 90.2 192.3 57.71 Sensex 19426.71 17429.98 15454.92 18845.87 20509.09 17700.9 17464.81 14493.84 9647.31 13461.6 20286.99 (-) 14.69 2.41 Stock Return 12.11 3.75 (-) 47.28 (-) 21.52 (-) 17.21 (-) 10.17 (-) 24.21 23.09 (-) 12.37 (-) 53.1 Index Return 11.46 12.78 (-) 18 (-) 8.11 15.87 1.36 20.5 50.24 (-) 28.34 (-) 33.65

31-Dec-12 29-Jun-12 30-Dec-11 30-Jun-11 31-Dec-10 30-Jun-10 31-Dec-09 30-Jun-09 31-Dec-08 30-Jun-08 31-Dec-07 AVERAGE

Source: Facts and figures from www.bseindia.com and own calculations

81

Chart No. 5.1.5 - Showing half yearly stock return and index returns

60

Stock Return Index Return

40

20

Return

-20

-40

-60

Period - 2008-2012

Source: Table no. 5.1.3

Chart No. 5.1.6 Showing five years stock movements

120

Closing Price
100

Closing Price

80 60 40 20 0

Period-2008-2012

Source: Table no. 5.1.3

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Performance Measurements Beta () - (+) 0.70 Standard Deviation () - 24.02 Correlation (r) - (+) 0.75 R-Squared (r2) - 0.56 Alpha () - (-) 16.40 Sharpe Ratio - (-) 0.94

Interpretations Beta: in the above case, Beta of MTNL is 0.70, which means that MTNL share return pattern was similar to the market index. But it is less sensitive than the market index. Alpha: MTNL stock alpha was negative (-) 16.40, which means that stock was underperformed on its benchmark index; its performance was very poor. Last five years average return of the stock negative. So the stock was making losses.

Standard Deviation: In the case of MTNL Standard deviation was 24.02, which means there is some variation from the average return during the past 5 years. Risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher.

83

Sharpe Ratio: In the case of MTNL, Sharpe ratio was negative (-) 0.94, it indicates that a risk-less asset performed better than the security analyzed. Five half yearly average return was negative (-) 14.69 percent, which was a very poor performance. So, risk-less asset has performed better.

Correlation: : The relationship between half yearly index return and stock return for the period of last five year is (+) 0.75 it indicates there is a high degree of positive correlation between stock market index return and stock return.

R-Squared: The R-Squared value of MTNL is 0.56, which means 56 percent of variations in stocks return are explained by the variation in the BSE index return. In the case of MTNL stock performance pattern was medium in line with the BSE index return.

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5.1.4

Reliance Communications Ltd Table No. 5.1.4 Five years half yearly stock return and index return

Date 31-Dec-12 29-Jun-12 30-Dec-11 30-Jun-11 31-Dec-10 30-Jun-10 31-Dec-09 30-Jun-09 31-Dec-08 30-Jun-08 31-Dec-07 AVERAGE

Stock 73.8 63.45 69.85 95.7 145.1 198.3 172.9 289.9 227.25 442.4 746.5 177.865

Sensex 19426.71 17429.98 15454.92 18845.87 20509.09 17700.9 17464.81 14493.84 9647.31 13461.6 20286.99

Stock Return 16.32 (-) 9.17 (-) 27.02 (-) 34.05 (-) 26.83 14.7 (-) 40.36 27.57 (-) 48.64 (-) 40.74

Index Return 11.46 12.78 (-) 18 (-) 8.11 15.87 1.36 20.5 50.24 (-) 28.34 (-) 33.65

(-) 16.822

2.411

Source: Facts and figures from www.bseindia.com and own calculations

85

Chart No. 5.1.7 - Showing half yearly stock return and index returns

60

Stock Return
40

Index Return

20

Return

-20

-40

-60

Period - 2008-2012

Source: Table no. 5.1.4

Chart No. 5.1.8 Showing five years stock movements

800 700 600

Closing Price

Closing price

500 400 300 200 100 0

Period - 2008-2012

Source: Table no. 5.1.4

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Performance Measurements Beta () - (+) 0.71 Standard Deviation () - 27.41 Correlation (r) - (+) 0.66 R-Squared (r2) - 0.44 Alpha () - (-) 18.55 Sharpe Ratio - (-) 0.90

Interpretations Beta: In the above case, beta of Reliance Communications Ltd is 0.71, which means return pattern was similar to the market index. But it is less sensitive than the market index. Investing in this share will have risk and the return may also be likely to be moderate.

Alpha: in the above case RCOM stock, alpha was negative (-) 18.55, it means that stock was underperformed on its benchmark index, performance was very poor. Last five years average return of the stock is negative (-) 16.82. So the stock was making losses.

Standard Deviation: In the case of RCOM, Standard deviation was 27.41, which means there is some variation from the average return during the past 5 years. Risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher.
87

Sharpe Ratio: In the case of RCOM Sharpe ratio was negative (-) 0.90 it indicates that a risk-less asset is performed better than the security analyzed. Five half yearly average return was negative (-) 16.82 percent, it was very poor performance. So, it indicates, risk-less asset is performed much better.

Correlation: : The relationship between half yearly index return and stock return for the period of last five year is (+) 0.66 it indicates there is a medium degree of positive correlation between stock market index return and stock return.

R-Squared: The R-Squared value of RCOM is 0.44, which means 44 percent of variations in stocks return are explained by the variation in the BSE index return. Stock performance pattern was below the average when compared with the BSE index return.

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5.1.5

Tata Communications Ltd Table No. 5.1.5 Five years half yearly stock return and index return

Date 31-Dec-12 29-Jun-12 30-Dec-11 30-Jun-11 31-Dec-10 30-Jun-10 31-Dec-09 30-Jun-09 31-Dec-08 30-Jun-08 31-Dec-07 AVERAGE

Stock 235.5 232.35 212.35 197.1 255.6 262.15 336.05 475.1 500.85 373.2 763.6 308.02

Sensex 19426.71 17429.98 15454.92 18845.87 20509.09 17700.9 17464.81 14493.84 9647.31 13461.6 20286.99

Stock Return 1.36 9.42 7.74 (-) 22.89 (-) 2.5 (-) 22 (-) 29.27 (-) 5.15 34.21 (-) 51.13

Index Return 11.46 12.78 (-) 18 (-) 8.11 15.87 1.36 20.5 50.24 (-) 28.34 (-) 33.65

(-) 8.02

2.41

Source: Facts and figures from www.bseindia.com and own calculations

89

Chart No. 5.1.9 - Showing half yearly stock return and index returns

60

Stock Return
40

Index Return

20

Return

-20

-40

-60

Period - 2008-2012

Source: Table no. 5.1.5

Chart No. 5.1.10 Showing five years stock movements

900 800 700

Closing

Closing Price

600 500 400 300 200 100 0

Period - 2008-2012

Source: Table no. 5.1.5

90

Performance Measurements Beta () - (+) 0.034 Standard Deviation () - 24.01 Correlation (r) - (+) 0.036 R-Squared (r2) - 0.0013 Alpha () - (-) 8.10 Sharpe Ratio - (-) 0.67

Interpretations Beta: in the above case, Beta of Tata communications Ltd is 0.034, which means that Movement of the stock return is uncorrelated with the movement of the index return. Alpha: In above case Tata Communications Ltd, Alpha was negative (-) 8.10, it means that stock was underperformed on its benchmark index. Negative alpha indicates poor performance; the return does not justify the risk. So, the statistical analysis find; the stock was not able to generate excess return over its benchmark. Standard Deviation: In the case of Tata communications Ltd Standard deviation was 24.01, which means there is some variation from the average return during the past 5 years. Risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher.

91

Sharpe Ratio: In the case of RCOM, Sharpe ratio was negative (-) 0.67, it indicates that a risk-less asset performed better than the security analyzed. Five half yearly average return was negative (-) 8.02 percent, it was very poor performance. So, risk-less asset performed better.

Correlation: : The relationship between half yearly index return and stock return for the period of last five year is (+) 0.036 Which indicates there is no correlation between stock market index return and stock return.

R-Squared: The R-Squared value of Tata communications ltd is 0.0013, which means point 13 percent of variations in stocks return are explained by the variation in the BSE index return. It means, stock performance pattern was not in the line with the BSE index return.

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5.2 Financial Analysis

5.2.1. Bharti Airtel Ltd Table No. 5.2.6. Five Years Financial Ratios

2007-08 Net Sales Growth (%) PAT Growth (%) Debt/Equity Ratio (x) Interest Cover Ratio (x) PE Ratio (x) EBITM (%) PATM (%) ROE (%) 44.45

2008-09 32.34

2009-10 2010-11 2011-12 4.69 6.77 (-) 18.14 0.28 27.93 17.6 23.81 20.3 19.21 9.44 (-) 25.75 0.32 5.99 22.32 20.08 13.78 12.33

54.82 0.33 12.48 25.11 29.5 24.3 39.54

24.02 0.29 4.8 15.35 30.32 22.77 32.47

21.73 0.14 (-)17.84 12.57 28.46 26.48 29.43

Source: Financial statements of the company

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Chart No. 5.2.11 Net sales growth and PAT growth (%)
60 50 40 30 20 10 0 -10 -20 -30
4.69 6.77 9.44 54.82 44.45 32.34 24.02 21.73

Net Sales Growth(%) PAT Growth(%)

2007-08

2008-09

2009-10

2010-11
-18.14

2011-12

-25.75

Source: Table no. 5.2.6 Interpretation Sales of the company show an increasing trend in last five years. Sales growth of the company shows a highly fluctuating trend. In the FY-2009-2010 sales growth of the company was highly decreased because of high competition in the market. During that period new players were entered into the market, one of the new competitor Tata Docomo launches the pay per second plan and have won a place in the mindset of customers. This was found as the main reason for decreasing the sales growth of the company. But in the last three years sales growth of the company shows increasing trend, the average sales growth of the company was 6.96. On a whole, during last five years sales growth of the company shows decreasing trend. In the past two years PAT growth was negative. High Operating expenses, Interest payment and depreciation were found to be the main reasons for decreasing PAT of the company.

94

Chart 5.2.12 Total Debt/Equity Ratio (x)

Total Debt/Equity(x)

0.35 0.3 0.25 0.2 0.15 0.1 0.05 0

0.33 0.29 0.28

0.32

0.14

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.6

Interpretation Debt equity ratio shows an increasing trend in last two years, it indicates the total debt of the company was increased, and also equity fund were increased. An increase of the Debt Fund affects the profitability of the company because of interest payment on debts. Debt fund is more risky because interest payment should be on time.

95

Chart 5.2.13 Interest Coverage Ratio (x)

40 30 20
12.48

Interest coverage ratio (x)

27.93

10 0

4.8

5.99

2007-08
-10 -20 -30

2008-09

2009-10

2010-11

2011-12

-17.84

Source: Table no. 5.2.6

Interpretation During the year 2011 interest coverage ratio is high (27.9%); it means that interest payment on loan of the company is low comparing with past few years. But in the last FY-2012 the interest coverage ratio is decreased (5.9%) is because of higher the interest payment. During 2010 interest coverage ratio was negative because during the FY-2009 the company has paid advance interest payments, and the excess amount is refunded in the year 2011, is the reason for negative interest coverage ratio.

96

Chart No. 5.2.14 Five years PE Ratio (x)

30 25.11 25 20 15.35 15 10 5 0 12.57 17.6 22.32

PE Ratio (x)

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.6

Interpretation P/E Ratio of the company shows an increasing trend in last two years, which means that stock is now over priced in the market, EPS were decreased is the reason. In the year 2009-10 PE ratio was low. But compared to 2007-08, P/E is reduced in other years.

97

Chart No. 5.2.15 Five years EBITM and PATM (%)

35 30 25 20 15 10 5 0 2007-08 2008-09 29.5 24.3 30.32

EBITM (%) 28.46 26.48 23.81 20.3

PATM (%)

22.77

20.08 13.78

2009-10

2010-11

2011-12

Source: Table no. 5.2.6

Interpretation EBIT Margin of the company shows a decreasing trend in past three years which indicates the operating expenses of the company was increasing; it is one of the main reasons for PAT decrease of the company. PAT Margin of the company shows decreasing trend in last three years, which indicates net income of each sale is decreasing which means company have no better control over its costs.

98

Chart No. 5.2.16 Five years ROE (%)

45 40 35 30 25 20 15 10 5 0
19.21 39.54 32.47 29.43

ROE (%)

12.33

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.6

Interpretation Return on equity shows a decreasing trend, because net income the company was decreasing, and equity fund of the company were increased.

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5.2.2. Idea Cellular Ltd

Table No. 5.2.7 Five Years Financial Ratios

2007-08 Net Sales Growth (%) PAT Growth (%) Debt/Equity Ratio (x) Interest Cover Ratio(x) PE Ratio (x) EBITM (%) PATM (%) ROE (%) 53.91 108.02 1.84 3.39 25.93 23.6 15.55 36.51

2008-09 2009-10 46.69 (-) 4.14 0.68 2.27 15.53 19.76 10.16 13.52 20.23 5.24 0.58 3.08 20.5 14.62 8.9 9.29

2010-11 29.39 (-) 19.85 0.65 3.48 26.41 8.3 5.51 7.13

2011-12 25.72 (-) 31.74 0.94 1.89 56.74 9.3 3 4.58

Source: Financial statements of the company

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Chart No. 5.2.17 Net sales growth and PAT growth (%)

120 100 80 60 40

108.02

Net Sales Growth(%)

PAT Growth(%)

53.91

46.69 29.39 20.23 5.24 25.72

20 0 -20 -40

2007-08

2008-09 -4.14

2009-10

2010-11
-19.85

2011-12
-31.74

Source: Table No. 5.2.7

Interpretation Sales of the company show an increasing trend, but sales growth of the company shows decreasing trend. Last three years, the average sales growth of the company was 25 percent. Last two years PAT growth was negative, which means profit of the company was decreased while comparing the previous years. But net sales and operating profit of the company shows an increasing trend. Higher operating expenses & interest payment was the main reason for decreasing PAT of the company.

101

Chart No. 5.2.18 Debt/Equity Ratio and Interest Coverage Ratio (x)
4 3.5 3 2.5 2 1.5 1 0.5 0
0.94 0.68 0.58 0.65 1.84 2.27 1.89 3.39 3.08

Debt-Equity(x)

3.48

Interest Coverage(x)

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table No. 5.2.7

Interpretation In the FY-2007-08 debt-equity ratio shows that debts of the company was 1.8 times more than equity fund. Lenders and investors usually prefer low debt-toequity ratios because their interests are better protected in the event of a business decline. The ideal debt-equity ratio is 2:1, but in the case of idea cellular, debt-equity ratio is low because equity fund were increased. In the last FY-2011-12 interest coverage ratio was on decrease, because total debt of the company increases and also interest payment of the company increased. Interest payment of the company increased 160 percent while comparing with FY-2010-11.
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Chart No. 5.2.19 P/E Ratio (x)

60

56.74

PE Ratio (x)
50 40 30 20 10 0
26.41 20.5 15.53

25.93

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table No. 5.2.7

Interpretation PE ratio is high in 2011-12 and on an average it showing an increasing trend except in the 2nd and 3rd year; which indicate stock is over priced in the market, the reason for increasing PE ratio is decreasing of Earnings per share (EPS).

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Chart No. 5.2.20 EBIT Margin & PAT Margin

25

EBITM (%)
20

PATM (%)

15

10

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table No. 5.2.7

Interpretation EBITM of the company shows a decreasing trend in past five years which indicates the operating expenses of the company was increased; it was one of the main reasons for PAT decrease of the company.

PAT Margin of the company shows a decreasing trend, which indicate net income of each sale is decreasing which means company have no better control over its costs.

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Chart No. 5.2.21 Return on equity (%)

40 35 30 25 20 15 10 5 0
13.52 9.29 7.13 4.58

36.51

ROE (%)

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table No. 5.2.7

Interpretation Return on equity shows a decreasing trend in last five years, because of decreasing the net income of the company. The decrease in very much drastic i.e. from 36.51 % in 2007-08 to 4.58% in 2011-12, as evidenced in the chart also.

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5.2.3. Mahanagar Telephone Nigam Ltd

Table No. 5.2.8 Five years financial ratios

2007-08 Net Sales Growth (%) PAT Growth (%) Debt/Equity Ratio (x) Interest Coverage Ratio(x) PE Ratio (x) EBITM (%) PATM (%) ROE (%) 228.05 14.96 13.44 8.62 3.52 (-)3.81 (-)12.71 0

2008-09 (-)5.65 (-)47.96 0

2009-10 (-)17.96 (-)1333.2 0

2010-11 0.49 (-)7.32 2.03

2011-12 (-)8.19 (-)46.68 7.51

446.34 20.57 11.55 4.76 1.79

(-)2738 0 (-)94.44 (-)71.42 (-)24.39

(-)5.14 0 (-)63.1 (-)76.2 (-)34.8

(-)3.33 0 (-)93.69 (-)121.84 (-)89.51

Source: Financial statements of the company

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Chart No. 5.2.22 Net sales growth (%)

5

Net Sales
0.49

2007-08
-5
-3.81

2008-09

2009-10

2010-11

2011-12

-5.65

-10

-8.19

-15
-17.96

-20

Source: Table no. 5.2.8

Interpretation During last five years, net sales of the company show a decreasing trend, Sales growth of the company was also negative. High competition of private telecom companies was the main reason for decreasing the sales of the company.

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Chart No. 5.2.23 PAT Growth (%)

0 -200 -400 -600
-12.71 2007-08 -47.96 2008-09

2009-10

-7.32 2010-11

-46.68 2011-12

PAT Growth(%)
-800 -1000 -1200 -1400
-1333.24

Source: Table no. 5.2.8

Interpretation The company was suffering from huge loss during the last four financial years. Last FY-2012 Companys loss was 4109 Crore. In the financial year 2009-10 PAT decreased by -1333 percent. The main reason was sales of the company decreased due to high competition in the market.

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Chart No. 5.2.24 Debt/Equity Ratio (x)

8 7 6 5 4 3
2.03

Debt/Equity

7.51

2 1 0
0 0 0

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.8

Interpretation During last two years company have debt funds, and before two years company have no debt fund. High decrease in sales and huge loss was the main reason for making debts. So existence of the company in the market is very difficult in the highly competitive industry. The ideal ratio is 2:1, in the financial year 2011-12, the ratio is very high by comparing the ideal ratio.

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Chart No. 5.2.25 Interest Coverage Ratio (x)

1000 500 0 -500 -1000 -1500 -2000 -2500 -3000
-2738.15 446.34 228.05

Interest Coverage Ratio (x)

-5.14 2010-11 -3.33 2011-12

2007-08

2008-09

2009-10

Source: Table no. 5.2.8

Interpretation During the last three years interest coverage ratio of the company was showing a decreased, which means interest payment of the company is increasing as evidenced by increasing debt of the company.

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Chart No. 5.2.26 PE Ratio (x)

25

PE Ratio (x)
20 15 10 5 0

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.8

Interpretation During last three years company makes losses. There is no EPS. So, price earnings ratio of the company was zero.

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Chart No. 5.2.27 PAT Margin & EBIT Margin

40 20 0 -20 -40 -60 -80 -100 -120 -140

-71.42 -94.44 -63.19 13.44 8.62 11.55 4.76

EBITM (%) PATM (%) 2009-10 2010-11 2011-12

2007-08

2008-09

-76.27 -93.69 -121.84

Source: Table no. 5.2.8

Interpretation During the last three years EBIT Margin of the company was negative, which means operating expenses of the company was greater than income earned. During last three years PAT Margin of the company was negative, which means company have no net income of each sales, cost is more than sales.

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Chart No. 5.2.28 Return on equity (%)

20
3.52 1.79

ROE (%) 2009-10

-24.39

2007-08
-20 -40 -60 -80 -100

2008-09

2010-11

2011-12

-34.82

-89.51

Source: Table no. 5.2.8

Interpretation During the last three years ROE was negative. There is no return to equity capital employed, because the company is making losses.

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5.2.4. Reliance Communications Ltd

Table No. 5.2.9 Five years financial ratios

2007-08 Net Sales Growth (%) PAT Growth (%) Debt/Equity Ratio (x) Interest Coverage Ratio (x) PE Ratio (x) EBITM (%) PATM (%) ROE (%) 15.96 7.38 0.82 4 40.57 23.49 17.49 11.41

2008-09 2 85.69 0.6 5.65 7.51 38.79 31.84 12.56

2009-10 (-)10.16 (-)90.03 0.49 1.56 73.57 12.79 3.54 0.94

2010-11 (-)1.82 (-)258.2 0.66 (-)0.02 0 (-)0.11 (-)5.7 (-)1.54

2011-12 (-)8.83 120.59 0.68 1.13 111.21 11.71 1.29 0.34

Source: Financial statements of the company

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Chart No.5.2.29 Net sales growth & PAT growth (%) Net Sales Growth(%)
150 100 50 0 -50 -100 -150 -200 -250 -300
-258.27 15.967.38 2 85.69

PAT Growth(%)

120.59

2007-08

2008-09

-10.16

2009-10
-90.03

-1.82

2010-11

-8.83

2011-12

Source: Table no. 5.2.9

Interpretation During last four years net sales of the company shows a decreasing trend, because of high competition in the telecom industry. So, net sales growth of the company shows a negative figure. ARPU of the company was decreased. During 2011 and 2010 financial year companies PAT growth was negative. In the FY-2010-11, company makes Rs.758.Cr loss. But in the last financial year company make some profit.

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Chart No. 5.2.30 Debt/Equity Ratio & Interest coverage ratio (x) 6 5 4 3 2 1 0 2007-08 -1 2008-09 2009-10
-0.02 2010-11 0.82 0.6 0.49 1.56 1.13 0.66 0.68 4

5.65

Total Debt/Equity(x)

2011-12

Source: Table no. 5.2.9

Interpretation Debt-equity ratio of the company almost stable, there is no high degree of changes. But debt-equity ratio of the company is below the ideal ratio.

Interest coverage ratio of the company shows a decreasing trend, this indicates interest payment of the company increasing. Higher interest payment was the one of the reason for decreeing profitability of the company. In the FY-2010-11 interest coverage ratio was negative because EBIT was also negative.

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Chart No. 5.2.31 P/E Ratio (x)

PE Ratio (x)
120 100 80 60
40.57 73.57 111.21

40 20 0
7.51 0

2007-08 Source: Table no. 5.2.9

2008-09

2009-10

2010-11

2011-12

Interpretation P/E ratio of the company was very high in last FY 2011-12, it indicate the stock was over priced in the market, because net income of the company was highly decreased, also EPS of the company were decreased. In the FY-2010-11 P/E ratio was negative because company makes loses, so EPS is also zero.

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Chart No. 5.2.32 EBIT Margin & PAT Margin (%)

45 40 35 30 25 20 15 10 5 0 -5 -10
3.54 1.29 -0.11 2010-11 -5.7 23.49 17.49 12.79 11.71 38.79 31.84

EBITM (%) PATM (%)

2007-08

2008-09

2009-10

2011-12

Source: Table no. 5.2.9

Interpretation EBITM of the company shows a decreasing trend, because operating expenses of the company was highly increased. In the FY-2010-11 EBITM was negative, because expenses of the company were more than the gross income.

PAT Margin of the company shows a decreasing trend in last four years, which indicate net income of each sale is decreasing which means company does not have better control over its costs. In the FY-2010-11 PATM was negative because of the costs of the company was greater than its gross profit.

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Chart No. 5.2.33 Return on equity (%)

14 12 10 8 6 4 2 0 -2 -4
0.94 0.34 11.41

12.56

ROE (%)

2007-08

2008-09

2009-10

2010-11
-1.54

2011-12

Source: Table no. 5.2.9

Interpretation Return on equity has highly decreased in last three years, because of net income of the company was decreased. During the FY-2010-11 ROE was negative, because of the company make a net loss of Rs.758 crore. Last three years ROE of the company was very bad.

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5.2.5. Tata Communications Ltd

Table No. 5.2.10 Five years financial ratios

2007-08

2008-09

2009-10

2010-11

2011-12

Net Sales Growth (%) PAT Growth (%) Debt/Equity(x) Interest Coverage (x) PE (x) EBITM (%) PATM (%) ROE (%)

-12.36 -35.03 0.12 12.37 48.10 14.92 9.28 4.72

14.20 69.47 0.35 4.75 28.52 24.12 13.77 7.74

-14.18 -6.36 0.37 2.26 16.54 17.26 15.02 6.87

12.24 -66.36 0.32 1.73 41.89 10.14 4.51 2.28

13.29 5.41 0.2 2.37 37.44 11.25 4.19 2.43

Source: Financial statements of the company

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Chart No. 5.2.34 Net sales growth & PAT growth (%)
80 60 40 20 0 -20 -40 -60 -80
-66.36 14.2 12.24 13.29 5.41

69.47

Net Sales Growth(%) PAT Growth(%)

2007-08
-12.36 -35.03

2008-09

2009-10 -6.36 -14.18

2010-11

2011-12

Source: Table no. 5.2.10

Interpretation During last two years net sales of the company was increased comparing to 2009-10. In last year, sales growth of the company was 13 percent. In the FY2010-2011 PAT decreased by 66 percent. But in the last financial year PAT increased by 5 percent.

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Chart No. 5.2.35 Debt/Equity ratio (x)

Total Debt/Equity(x)
0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
0.12 0.2 0.35 0.37 0.32

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.10

Interpretation During last five years, debt-equity ratio of the company is very low by comparing the ideal ratio. In the FY-2007-08, the ratio is very low, and during the FY-2008-09 and 2009-10, the ratio increased. But in the last two financial year debt-equity ratio again decreased.

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Chart No. 5.2.36 Interest Coverage ratio (x)

14
12.37

12 10 8 6 4
2.26 4.75

Interest Coverage ratio(x)

2 0

1.73

2.37

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.10

Interpretation Up to 2010-11 financial year interest coverage ratio of the company shows a decreasing trend. It indicates interest payment of the company increased. But In the last year 2011-12, interest coverage ratio of the company was slightly increased. This means interest payment of the company is decreased, and also the debt of the company is decreased. By analyzing the financial statement of the company we can see that some decrease in debts of the company in the FY2011-12.

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Chart No. 5.2.37 P/E Ratio (x)

60 50 40 30 20 10 0
28.52 16.54 48.1 41.89 37.44

PE Ratio (x)

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.10

Interpretation In the FY-2007-08 P/E Ratio was high because of market price of the stock was high. Again in the FY-2010-11, 2011-12 P/E Ratio was high because of EPS of the company was very low, reason for decreasing EPS was net income of the company decreased.

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Chart No. 5.2.38 EBIT Margin & PAT Margin (%)

30

EBITM (%)
25 20 15 10 5 0
14.92 13.77 24.12

PATM (%)
17.26 15.02 10.14 11.25

9.28

4.51

4.19

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.10

Interpretation EBITM shows a decreasing trend during last few years, because of operating expenses of the company was increased. PAT Margin of the company shows a decreasing trend in last three years, which indicates net income of each sale is decreasing, which means that company does not have better control over its costs. In last financial year total income of the company was Rs.4091 crore, total expenditure was Rs.3103, and depreciation charged Rs.707 crore. PAT was Rs.171. These figures indicate the main reason foe decreasing profits of the company.

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Chart No. 5.2.39 Return on equity (%)

9 8 7 6 5 4 3 2 1 0
2.28 2.43 4.72 7.74 6.87

ROE (%)

2007-08

2008-09

2009-10

2010-11

2011-12

Source: Table no. 5.2.10

Interpretation Return on equity was decreased during the last the last two years, because net income of the company decreased. High operating expenditure and depreciation on fixed assets were the main reasons for decreasing net income of the company, as found while analyzing the financial statements of the company.

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Chapter - 6 FINDINGS, CONCLUSIONS AND SUGGESTIONS

127

6.1. Findings 6.1.1. Finding on Risk-Return Analysis 1. Beta describes the relationship between stock return and index return. In the past five years beta analysis of five telecom companies, it is that, stock volatility of Bharti Airtel Ltd was less (+ 0.19). This means that this share was less sensitive than the market index (BSE-Sensex). Beta of Tata communications Ltd was very less 0.034, which means that movement of the stock return is notcorrelated with the movement of the index return. But beta values of other companies are comparatively high (such as: MTNL (+) 0.70, Idea (+) 0.72, Rcom (+) 0.71). Which means return pattern was almost similar to the market index return. 2. Alpha is a measure of an investment's performance compared to a benchmark. In this analysis, its compared, five years average rate of return of shares with its benchmark return, the five telecom companies result (alpha) was negative. It means that stocks were underperformed than its benchmark index return. The biggest underperformer was Reliance communications. 3. Standard deviation is a popular risk measurement tool. In this analysis standard deviation of five telecom companies are similar, ranging from 24.01 to 27.41. Higher the standard deviation higher the risk. Investing in these shares will have risk. 4. Sharpe ratio describes how much excess return is received for holding a riskier asset. In this analysis, it is found that all telecom companys Sharpe ratio was negative; it indicates that risk-less asset performed better than the security analyzed.
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5.

In the correlation analysis, all companys correlation of stock return and index return are positive. Out of this Idea cellular, MTNL, and Rcom are those showing comparatively high positive correlation between stock return and index return.

6. Tata communications Ltd was the least correlated stock out of these five telecom companies. 7. R-squared value of past five years index return and stock return of Bharti Airtel Ltd and Tata communications Ltd shows very less value, it indicates stocks performance pattern was not in line with the stock index. 8. Five years half yearly average return of five telecom companies except idea cellular ltd was negative; these companies performance was very bad based on half yearly stock return. 6.1.2. Factors that have affected telecom stocks 1. The 2G spectrum scam brought around Rs 1,76,379 crore loss to government of India and this was a bad news for the telecom companies which were involved in this and finally huge fall was there in the stock market. All telecom companies stocks were thus fallen. 2. Due to 2G scam some new telecom companies entered in to the market. New telecom companies got 2G licenses at cheaper rate during 2G scam. These companies provided services at cheaper rate to customers; this led to high competition in the market. Existing companies also provided services at cheaper rate to customers; this was one of the main reasons for decreasing profitability of the telecom companies. This was one of the reasons for telecom companies stock fall.

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3. Due to 2G spectrum scam investors were having uncertainty, telecom companies stocks were having high selling pressure, and this decreased the price of telecom stocks. 4. Shares of telecom companies saw selling pressure in the light of uncertainty due to the reports that the government was demanding additional money for their permits and airwaves. 5. Profitability of all telecom companies were decreased due to high interest payment on debt and high operating expenses. 6. Every operator has to pay various kinds of high annual charges like spectrum usage charges, license fee which is based on their revenue earned from telecom services. 7. Almost all telecom companies debt was increased; the main reason found was that the operators acquired 3G spectrum licenses at huge amount. And high license fee, high operating expenses. Also increased interest payment on debt, reduced the profitability of the telecom companies. 8. Global financial crisis was the one of the reason for decreasing stock price telecom companies in 2008-09. But, impact was low.

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6.1.3. Findings on financial analysis 1. In this financial analysis it was found that only Bharti Airtel Ltd and Idea Cellular Ltd were having continuous sales growth during past five years. In FY-2008-09 all telecom companies sales growth was decreased, in the FY2009-10 every operators sales growth was highly decreased because of tight competition in the market, during these period new companies entered into the market. They provide services at cheaper rate to customers. 2. Bharti Airtel Ltd is the biggest operator in the case of sales, profit and number of customers 3. In the FY-2011-12 industry net sales was 86548.15 crore, Bharti Airtel Ltd net sales was 41603.8 crore. Bharti Airtels net sale was 51 percent of industrial sales. 4. MTNL sales were continuously decreased in past five years.

5. Net profit growth of every operator was highly decreased, MTNL made huge loss in last three years. In the case of profitability the biggest company was Bharti Airtel, last FY-2011-12 PAT was 5730 crore. 9. The main reason for decreasing profit was higher debt and interest payment, high operating expenses; every operator has to pay various kinds of high annual charges like spectrum usage charges, license fee which is based on their revenue earned from telecom services. Almost all telecom companies debt was increased; the main reason found that the operators acquired 3G spectrum licenses at huge amount and increasing operating expenses. Depreciation on fixed assets was also high. Also increased interest payment on debt reduced the profitability of the telecom companies. In the case of profitability and dividend, better company is Bharti Airtel Ltd.
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10. In the analysis it was found that all telecom companies except Tata communications Ltd, debt-equity ratio was increased, this means debts of these companies were increased. The main reason for increasing debt of these companies was that they acquired 3G spectrum licenses at huge amount and every operator has to pay various kinds of high annual charges like spectrum usage charges, license fee. 11. Interest coverage ratio of every company was very low; this means these companies were paying high interest on debts. 12. In the last FY-2011-12 reliance communications showed high P/E Ratio because of low EPS, so, the stock was over priced in the market. Bharti Airtel P/E ratio was comparatively low in the FY-2011-12. 13. EBIT Margin of almost all companies was showing decreasing trend for the past years, which indicates operating expenses of the companies were increased. 14. PAT Margin of every company was decreased, which indicate net income of each sale was decreased. 15. ROE of all telecom companies was decreased because of decreasing profitability. 16. In this analysis its found that overall performance of telecom companies was bad. Under these five years chosen for study.

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6.1.4. General findings 1. After 2007, Sensex crossed 20000 points during two cycles, in the year 2010 and 2013. 2. Bharti Airtel Ltd was the highest trading telecom stock, second was Idea cellular ltd. 3. Bharti Airtel is the highest priced stock in telecom service sector, second is Tata communications. 4. Last five years highest BSE Sensex was 21004.96 points in 05 November 2010. The lowest was 8160.4 points in 09 March 2009. NSE index NIFTY was highest at 7917.48 points in 05 November 2010, lowest at 3095.74 points in 27 October 2008. 5. Some operators have exited from some telecom circles.

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6.2. Conclusions
The Indian telecom sector has achieved a phenomenal growth during the last few years, Telecom sector has continued to emerge as the prime engine of economic growth, contributing to nearly 2.3 % of the Indian GDP. India's teledensity has improved from under 4% in March 2001 to around 73.07 % by the end of January 2013. The mobile subscriber base has grown from under 41 million at the end of March 2000 to touch 893.15 million at the end of January 2013. In this growing situation of the telecom sector, the researcher has undertaken a project aiming to analyze risk-return of the telecom companies and also analyze financial performance of the telecom companies. BSE listed top five companies are selected from telecom service sector, such as Bharti Airtel Ltd, Idea Cellular Ltd, Reliance Communications Ltd, Tata Communications Ltd and Mahanagar Telephone Nigam Ltd. For Risk-Return analysis, tools selected are: Alpha, Beta, Correlation, RSquared, Standard Deviation and Sharpe Ratio. Risk-Return analysis is done based on five years half yearly return of the stocks. Alpha of all telecom companies were negative, these companies were underperformed than its benchmark return. Sharpe ratio of all telecom companies were negative, these companies return was less than the risk-less return. Five years average return of all telecom companies was very bad. Almost all telecom companies average return was negative. By analyzing telecom stocks all companies stock value was highly decreased.

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In the case of dividend, comparatively better dividend paying company was Tata communications Ltd, but in the 2009-10 company were not paid dividend. Bharti Airtel paid consistent dividend. In the case of Idea cellular, they have not paid any dividend. MTNL have not paid dividend in last three years because of company make loses. In the case of Reliance communications their dividend payment was changing, in last two years their dividend payment is highly decreased. Standard deviation of the five telecom companies ranges from 24.01 to 27.41, so risk is very high. Also average return was very bad. Volatility (beta) of Bharti Airtel and tata communications was low and volatility of MTNL, RCOM and Idea cellular ltd was comparatively high. Only Idea cellular, MTNL, and Rcom are showing comparatively high positive correlation between stock return and index return. After Risk-Return analysis its found that, all telecom companies stock return were very bad, and risk was too high. Generally speaking, higher the risk higher the return. But a suggestion in this case is that average return is required to be kept at minimum level. The 2G spectrum was a bad news for the telecom companies which were involved in this and finally huge fall was there in the stock market. 2G spectrum scam investors were having uncertainty, telecom companies stocks were having high selling pressure, and this decreased the price of telecom stocks. Lot of regulation in the telecom sector was one of the main reasons for stock fall.

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For financial analysis, ratios used for the study are: Sales growth, PAT growth, EBIT Margin, PAT Margin, Debt-Equity ratio, Interest coverage ratio, P/E ratio and Return on equity. Past five years performances were analyzed. After the analysis it is found that only Bharti Airtel and Idea Cellular Ltd were have continues sales growth. Tata communications Ltds sales growth was increased in last two years. RCOM and MTNL sales were showing decreasing trend. In case of net income for all the telecom companies it was decreased. All telecom companies last two years net profits were highly decreased. Also decreased Return on equity. The main reason for decreasing profits of the telecom companies was higher debt and interest payment, high operating expenses; every operator has to pay various kinds of high annual charges like spectrum usage charges, license fee which is based on their revenue earned from telecom services. Almost all telecom companies debt were increased; the main reason that was found in that the operators acquired spectrum licenses at huge amount and increasing operating expenses. Depreciation on fixed assets was also high. Also increased interest payment on debt reduced the profitability of the telecom companies. Due to 2G scam some new telecom companies entered in to the market. New telecom companies got 2G licenses at cheaper rate during 2G scam. These companies provided services at cheaper rate to customers; this led to high competition in the market. Existing companies also provided services at cheaper rate to customers. Also ARPU were decreased (Average revenue per user). Based on the past five years, risk-return analysis and financial analysis of telecom companies, this study is not recommending to invest in telecom companies, because, of telecom stocks performance are not better. And
136

Telecom Companys profitability is decreasing due to high operating expenses and debts. In the case of sales and profitability, companies that are comparatively better is Bharti Airtel and Idea Cellular. Now telecom authority takes new regulation that is spectrum reframing. This will helps operators to reduce Capital expenditure and operating expenditure by 50 percent in future. So, telecom companies can make more profits in future.

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6.3. SUGGESTIONS 1. Beta of Bharti Airtel and Tata Communications is low. So, investing in these, based on past index return is not suggestible. RCOM, MTNL and Idea cellulars volatility is comparatively high; return pattern was almost similar to the market index return. So, investment can be made in these shares based on index return. 2. In the alpha analysis it was found that all telecom companies were underperformed on its benchmark, so investing in these shares is not suggestible based on benchmark return. Comparatively regarding Idea cellular Ltd, alpha is better, so, it can be considered for investing in shares for getting some return, but will have high risk. 3. Correlation of Bharti Airtel Ltd and Tata Communications Ltd was very low, so it is not suggestible to invest in these shares based on index performance. RCOM, MTNL and Idea Cellular correlation is comparatively high. So, can be investing in these shares based on index performance. 4. R-squared value of Bharti Airtel Ltd and Tata communications Ltd indicates stocks performance pattern was not in line with the stock index. So, investing in these based on past index performance is not suggestible. 5. Standard deviation of the five telecom companies ranges from 24.01 to 27.41. So, investing in these shares will have high risk. Also average return of all telecom stocks was very bad. So, investing in these shares is not recommended. 6. Sharpe ratios of all telecom stocks were negative. So, investing in these shares is not suggested, based on Sharpe ratio analysis.

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7. Bharti Airtel Ltd was the highly trading telecom stock, second was Idea Cellular Ltd. So, these stocks are suggestible for trading for short period. 8. Trading volume of MTNL is comparatively very low, so, this stock is not suggested for day trading. 9. MTNLs financial performance was very bad; companys sale was continually decreased. During the last three years company make huge losses, company has high debt. So, investing money in these companies shares is not suggestible. 10. In the case of sales growth and profitability, Bharti Airtel and Idea cellular is better. In stock market, stocks will move based on negative and positive news. In last few years, telecom industry was facing several negative news, telecom stocks price was fallen due to this. So, if any positive news comes, Bharti Airtel and Idea Cellular will be moving up. If investors have capacity to take high risk, they can invest money in these stocks. 11. Only Bharti Airtel is paying dividend continually. So, this stock is the only suggestible stock in telecom industry for investors who are expecting dividend. It is not suggestible in other stocks based on dividend expectation. 12. EBIT Margin and PAT Margin of all telecom companies are showing increasing trend, so, net income of these companies will decrease, also affect dividend payment of these companies. So, these companies not suggesting for investment based on EBIT Margin and PAT Margin analysis. 13. All telecom companies debt was high; they are paying a big amount as interest. This was the one of the main reason for decreasing net income. So, profit will increase only controlling these debts. So, investing in these shares is not suggestible under this condition.

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BIBLIOGRAPHY

140

Books 1. S.Kevin. (2011). Security Analysis and Portfolio Management. PHI Learning Private Limited, New Delhi. Page No: 54-73 89-93 30-33 and 158-174. 2. Prasanna Chandra. (2011). Financial Management. Tata McGraw Hill Education Private Limited, New Delhi. Page No: 72-87, and 204-225. 3. E.Gordon & Dr.K.Natarajan. (2011). Financial Markets and Services. Himalaya Publishing House, Mumbai. Page N: 105-106, and 118-121. 4. Kristina Levisauskait. (2010) Investment Analysis and Portfolio Management. Vytautas Magnus University. Page No: 32-42. 5. Dr.S.N. Maheshwari. (2012). Principles of Management Accounting. Sultan Chand & Sons, New Delhi, Page No: B.26-30, B34, and B.48B49.

Reports 1. Telecom Regulatory Authority of India. (2013). Press Release No. 18/2013. 2. Telecom Regulatory Authority of India. (15th March 2013). Highlights on Telecom Subscription Data as on 31st January 2013. Telecom Regulatory Authority of India, New Delhi. 3. Telecom Regulatory Authority of India. (2012). Annual Report 201112. TRAI New Delhi. 4. Unveiling India (2012). Telecom Growth Continues. 5. ASA & Associates. (2012). Telecom Sector in India.

141

Websites: 1. www.bseindia.com :- (Stock closing prices, index closing). 2. www.nseindia.com :- (Stock closing prices, index closing). 3. www.moneycontrol.com :- (company info, dividend history). 4. www.trai.gov.in :- (about telecom sector). 5. www.investropedia.com :- (details about beta, alpha, std,dev, correlation, r-squerd, sharpe ratio, sales growth, PAT growth, P/E ratio, EBITM, PATM, Debt equity ratio, Interest coverage ratio). 6. www.cnbc.com :- (about stock market, company details, past information about company and industry) 7. www.etnow.com :- (articles about telecom industry). 8. www.etindia.com :-(articles about telecom industry). 9. www.airtel.in :- (about the company). 10. www.ideacellular.com :- (about the company). 11. www.mtnl.com :- (about the company). 12. www.rcom.co.in :- (about the company). 13. www.tatacom.com :- (about the company). 14. www.hedgeequitys.com :- (about the company: products, services, management, history etc). 15. www.geojitbnbparibas.com :- (about the company) 16. www.thehindubusinessline.com :- (articles about telecom industry).

142

Annexure
Bharti Airtel Ltd. Profit And Loss - [INR-Crore] DESCRIPTION No of Months INCOME : Gross Sales Less: Inter divisional transfers Less: Sales Returns Less: Excise Duty Net Sales EXPENDITURE : Increase/Decrease in Stock Raw Material Consumed Power & Fuel Cost Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Less: Expenses Capitalised Total Expenditure Operating Profit (Excl OI) Other Income Operating Profit Interest PBDT Depreciation Profit Before Taxation & Exceptional Items Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Extra items Adjustments to PAT Profit Balance B/F Appropriations Equity Dividend % Earnings Per Share Adjusted EPS 33482.00 39212.00 20.00 15.09 15.09 26778.50 34495.40 20.00 20.32 20.32 18502.80 27929.00 20.00 24.82 24.82 5.50 11797.22 19546.56 20.00 40.79 20.40 32.90 16.45 -22.26 5533.93 11755.85 6956.20 1226.20 5730.00 8725.80 1008.90 7716.90 10699.30 1273.10 9426.20 8161.54 417.70 7743.84 6972.54 728.35 6244.19 27960.10 13643.70 624.70 14268.40 1396.20 12872.20 5916.00 6956.20 24846.20 13171.50 490.00 13661.50 324.10 13337.40 4611.60 8725.80 21851.00 13758.50 377.30 14135.80 -568.00 14703.80 4004.50 10699.30 20844.46 13169.83 525.13 13694.96 2148.32 11546.64 3385.10 8161.54 15050.46 10653.05 359.91 11012.95 607.76 10405.20 3432.65 6972.54 2.30 16.00 2972.70 1391.50 8814.10 10931.10 3210.40 622.00 -7.20 23.30 2523.30 1451.20 7402.40 9737.00 3180.30 535.90 -14.70 35.00 2265.00 1500.55 6740.60 8388.65 2404.90 531.00 -112.69 125.10 2173.29 1404.54 7308.58 7331.27 2176.40 437.97 -121.45 155.30 1045.17 1306.57 5981.27 4242.15 1813.53 627.93 41603.80 38017.70 35609.50 34014.29 25703.51 41603.80 38017.70 35609.50 34014.29 25703.51 Mar-12 12.00 Mar-11 12.00 Mar-10 12.00 Mar-09 12.00 Mar-08 12.00

143

Idea Cellular Ltd. Profit And Loss - [INR-Crore] DESCRIPTION No of Months INCOME : Gross Sales Less: Inter divisional transfers Less: Sales Returns Less: Excise Duty Net Sales EXPENDITURE : Increase/Decrease in Stock Raw Material Consumed Power & Fuel Cost Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Less: Expenses Capitalised Total Expenditure Operating Profit (Excl OI) Other Income Operating Profit Interest PBDT Depreciation Profit Before Taxation & Exceptional Items Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Extra items Adjustments to PAT Profit Balance B/F Appropriations Equity Dividend % Earnings Per Share Adjusted EPS 1.74 1.74 2.56 2.56 3.19 3.19 3.23 3.23 3.96 3.96 448.22 1024.76 -396.37 448.22 -405.28 648.37 -1406.49 -405.28 -2450.86 -1406.49 842.26 265.72 576.54 906.32 61.72 844.60 1168.73 115.08 1053.66 1086.86 85.65 1001.21 1116.86 72.50 1044.36 15005.42 4269.89 85.16 4355.06 950.03 3405.03 2562.77 842.26 12253.78 3079.02 166.26 3245.29 365.95 2879.33 1973.01 906.32 9153.98 2696.26 587.38 3283.64 563.71 2719.93 1551.20 1168.73 7144.56 2712.52 477.36 3189.88 860.16 2329.72 1242.86 1086.86 4456.45 2263.54 199.04 2462.58 468.96 1993.62 876.76 1116.86 1587.79 858.83 8140.03 2550.64 1749.07 119.06 0.02 1424.84 728.88 6646.39 1975.34 1361.25 117.05 135.11 1071.03 563.78 4283.11 1475.88 1406.00 219.08 0.05 114.50 552.35 462.75 3478.33 1257.93 1145.55 133.10 53.30 235.45 337.72 2188.73 815.70 778.60 46.95 19275.32 15332.80 11850.24 9857.08 6719.99 19275.32 15332.80 11850.24 9857.08 6719.99 Mar-12 12.00 Mar-11 12.00 Mar-10 12.00 Mar-09 12.00 Mar-08 12.00

144

Mahanagar Telephone Nigam Ltd. Profit And Loss - [INR-Crore] DESCRIPTION No of Months INCOME : Gross Sales Less: Inter divisional transfers Less: Sales Returns Less: Excise Duty Net Sales EXPENDITURE : Increase/Decrease in Stock Raw Material Consumed Power & Fuel Cost Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Less: Expenses Capitalised Total Expenditure Operating Profit (Excl OI) Other Income Operating Profit Interest PBDT Depreciation Profit Before Taxation & Exceptional Items Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Extra items Adjustments to PAT Profit Balance B/F Appropriations Equity Dividend % Earnings Per Share Adjusted EPS -65.23 -65.23 -44.47 -44.47 -41.44 -41.44 -4916.13 -9025.92 -2353.01 -5154.93 -2610.97 211.72 10.00 3.36 3.36 586.89 40.00 6.46 6.46 180.07 -4109.78 -4109.78 -2773.38 28.54 -2801.92 -3454.06 -843.09 -2610.97 513.47 301.75 211.72 631.65 224.83 406.82 5288.41 -1915.16 251.16 -1664.00 949.57 -2613.57 1496.22 -4109.78 4904.85 -1230.89 319.61 -911.28 451.95 -1363.23 1410.15 -2773.38 6751.12 -3095.02 1401.72 -1693.30 1.26 -1694.56 1759.49 -3454.06 4292.01 163.99 1049.48 1213.47 1.15 1212.32 698.85 513.47 3991.44 731.08 607.42 1338.49 2.78 1335.71 704.06 631.65 213.53 3711.56 172.32 927.05 57.96 205.99 202.23 3247.32 184.45 984.16 75.24 211.45 219.44 4965.32 186.82 1095.50 133.41 150.64 183.06 2126.89 192.67 1357.26 185.82 246.31 188.34 1642.94 194.75 1437.78 235.98 291.65 3373.25 3673.95 3656.10 4456.00 4722.52 3373.25 3673.95 3656.10 4456.00 4722.52 Mar-12 12.00 Mar-11 12.00 Mar-10 12.00 Mar-09 12.00 Mar-08 12.00

145

Reliance Communications Ltd. Profit And Loss - [INR-Crore] DESCRIPTION No of Months INCOME : Gross Sales Less: Inter divisional transfers Less: Sales Returns Less: Excise Duty Net Sales EXPENDITURE : Increase/Decrease in Stock Raw Material Consumed Power & Fuel Cost Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Less: Expenses Capitalised Total Expenditure Operating Profit (Excl OI) Other Income Operating Profit Interest PBDT Depreciation Profit Before Taxation & Exceptional Items Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Extra items Adjustments to PAT Profit Balance B/F Appropriations Equity Dividend % Earnings Per Share Adjusted EPS 156.00 5.00 0.76 0.76 662.00 -96.00 10.00 -3.67 -3.67 502.75 981.68 17.00 2.32 2.32 4300.24 9102.91 16.00 23.27 23.27 2294.90 4881.35 15.00 12.53 12.53 155.00 -1.00 156.00 -860.00 -102.00 -758.00 9727.00 2408.00 753.00 3161.00 1265.00 1896.00 1741.00 155.00 12912.00 397.00 1184.00 1581.00 846.00 735.00 1595.00 -860.00 12769.82 784.78 2477.41 3262.19 1113.13 2149.06 1511.24 637.82 -18.35 619.47 140.54 478.93 11541.73 3544.93 779.50 4324.43 1035.68 3288.75 1933.51 1355.24 3459.83 4815.07 12.40 4802.67 9978.66 4813.39 520.58 5333.97 870.05 4463.92 1843.66 2620.26 -16.17 2604.09 17.64 2586.45 820.00 476.00 3967.00 3855.00 564.00 45.00 1158.00 601.00 5948.00 4404.00 670.00 131.00 144.27 671.05 7900.88 2969.88 974.96 108.78 138.32 757.06 6916.42 2352.82 1158.05 219.06 91.76 786.96 5187.97 2263.01 1472.33 176.63 12135.00 13309.00 13554.60 15086.66 14792.05 12135.00 13309.00 13554.60 15086.66 14792.05 Mar-12 12.00 Mar-11 12.00 Mar-10 12.00 Mar-09 12.00 Mar-08 12.00

146

Tata Communications Ltd Profit And Loss - [INR-Crore] DESCRIPTION No of Months INCOME : Gross Sales Less: Inter divisional transfers Less: Sales Returns Less: Excise Duty Net Sales EXPENDITURE : Increase/Decrease in Stock Raw Material Consumed Power & Fuel Cost Employee Cost Other Manufacturing Expenses General and Administration Expenses Selling and Distribution Expenses Miscellaneous Expenses Less: Expenses Capitalised Total Expenditure Operating Profit (Excl OI) Other Income Operating Profit Interest PBDT Depreciation Profit Before Taxation & Exceptional Items Exceptional Income / Expenses Profit Before Tax Provision for Tax Profit After Tax Extra items Adjustments to PAT Profit Balance B/F Appropriations Equity Dividend % Earnings Per Share Adjusted EPS 1411.24 1582.58 20.00 6.01 6.01 2179.40 2341.96 20.00 5.70 5.70 16.95 16.95 2099.38 2582.56 -4.72 1892.30 2403.53 45.00 18.10 18.10 28.25 1742.91 2075.62 45.00 10.68 10.68 265.12 93.78 171.34 3103.80 987.97 179.10 1167.07 194.87 972.20 707.08 265.12 2755.75 856.02 190.71 1046.73 211.93 834.80 659.65 175.15 -21.11 154.04 -8.52 162.56 2576.83 641.21 270.65 911.86 246.08 665.78 574.73 91.05 218.28 309.33 -173.85 483.18 2902.92 846.51 231.80 1078.31 190.60 887.71 425.27 462.44 251.05 713.49 197.54 515.95 2663.24 620.06 182.03 802.09 39.60 762.49 301.31 461.18 -11.20 449.98 145.52 304.46 130.32 622.24 1915.19 366.91 39.03 30.11 127.72 520.46 1714.84 329.52 40.53 22.68 107.72 416.67 1570.33 301.59 39.98 140.54 90.87 353.74 1880.60 391.21 30.64 155.86 63.12 240.90 1899.16 396.08 13.92 50.06 4091.77 3611.77 3218.04 3749.43 3283.30 4091.77 3611.77 3218.04 3749.43 3283.30 Mar-12 12.00 Mar-11 12.00 Mar-10 12.00 Mar-09 12.00 Mar-08 12.00

147

Bharti Airtel Ltd. Balance Sheet (New) - Standalone - Actual - Abridged- [INR-Crore] DESCRIPTION EQUITY AND LIABILITIES Share Capital Share Warrants & Outstandings Total Reserves Shareholder's Funds Long-Term Borrowings Secured Loans Unsecured Loans Deferred Tax Assets / Liabilities Other Long Term Liabilities Long Term Trade Payables Long Term Provisions Total Non-Current Liabilities Current Liabilities Trade Payables Other Current Liabilities Short Term Borrowings Short Term Provisions Total Current Liabilities Total Liabilities ASSETS Non-Current Assets Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment A/c Capital Work in Progress Intangible assets under development Pre-operative Expenses pending Assets in transit Non Current Investments Long Term Loans & Advances Other Non Current Assets Total Non-Current Assets Current Assets Loans & Advances Currents Investments Inventories Sundry Debtors Cash and Bank Other Current Assets Short Term Loans and Advances 533.70 32.10 2134.50 481.20 1052.00 17540.50 107.90 34.40 1461.90 133.20 1026.70 8880.10 4619.60 27.20 2105.00 816.70 66.40 11009.00 2054.94 62.15 2550.05 2251.60 119.71 7149.47 1573.23 56.86 2776.46 502.94 99.73 4576.02 11804.10 8481.70 1087.00 66280.10 11705.10 7081.20 305.90 66272.10 40773.40 37302.85 31161.35 11153.70 9722.82 9379.62 923.00 3543.50 1432.00 5047.20 1594.70 2566.67 2751.08 40440.80 40700.70 28025.00 25013.36 19030.65 66906.80 26466.00 61437.40 20736.70 44212.50 16187.50 37266.70 12253.34 28115.65 9085.00 4512.10 8200.00 5895.60 8287.40 26895.10 88054.10 4959.80 8609.70 2764.40 6861.10 23195.00 77916.30 5353.10 17637.90 59417.30 3342.38 16460.36 51490.86 1962.01 13871.08 40746.79 7784.40 4500.40 8891.26 4226.72 8381.69 3527.38 140.50 11729.40 100.20 10609.70 5042.20 7386.54 6634.21 2.90 8230.90 836.70 2518.40 17.10 7451.60 527.60 2513.20 39.40 4999.50 3.30 51.73 7661.92 -327.11 52.42 6517.92 63.87 1898.80 293.10 47237.70 49429.60 1898.80 278.60 41934.20 44111.60 1898.80 186.10 34652.30 36737.20 1898.24 116.22 25629.51 27643.96 1897.91 57.63 18285.95 20241.49 Mar-12 Mar-11 Mar-10 Mar-09 Mar-08

148

Total Current Assets Miscellaneous Expenses not written off Total Assets Contingent Liabilities Book Value Adjusted Book Value

21774.00

11644.20

18643.90

14187.93 0.09

9585.24 0.20 40746.79 2148.87 106.34 53.17

88054.10 54144.10 129.38 129.38

77916.30 50037.00 115.42 115.42

59417.30 5396.40 96.24 96.24

51490.86 3083.51 145.01 72.50

Idea Cellular Ltd. Balance Sheet - Standalone - Actual - Abridged- [INR-Crore] DESCRIPTION Mar-12 Mar-11 Mar-10 Mar-09 Mar-08

SOURCES OF FUNDS: Share Capital Share Warrants & Outstandings Total Reserves Shareholder's Funds Secured Loans Unsecured Loans Total Debts Total Liabilities APPLICATION OF FUNDS : Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment A/c Capital Work in Progress Pre-operative Expenses pending Assets in transit Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Other Current Assets Loans and Advances Total Current Assets Less: Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets / Liabilities Total Assets -552.74 22137.57 -287.02 20260.33 -225.64 17983.65 -142.54 18873.78 -66.19 10060.79 8287.42 6.33 8293.75 -5905.44 8074.64 6.08 8080.72 -6069.69 3679.62 319.26 3998.88 64.52 3122.39 98.65 3221.04 1542.80 2543.66 141.82 2685.48 -1051.48 52.94 807.55 134.19 1.77 1391.86 2388.31 52.22 534.75 451.54 0.81 971.72 2011.03 46.70 430.12 280.44 151.94 3154.20 4063.40 42.73 329.59 2344.43 153.56 1893.54 4763.85 27.62 198.59 497.06 76.18 834.56 1634.00 4219.21 3936.23 2755.13 4928.81 569.93 633.27 3549.19 462.58 1721.82 1625.72 23743.26 19131.62 14927.06 10822.89 8982.80 36032.31 12289.05 28938.75 9807.13 22834.40 7907.34 15562.75 4739.86 13204.30 4221.50 3308.85 34.95 9590.75 12934.54 7087.61 2115.42 9203.03 22137.57 3303.27 47.81 8979.62 12330.70 6580.17 1349.46 7929.63 20260.33 3299.84 44.45 8112.95 11457.24 5988.61 537.81 6526.41 17983.65 3100.10 18.23 8176.09 11294.42 5564.93 2014.43 7579.37 18873.78 2635.36 3.76 906.91 3546.03 5315.42 1199.34 6514.76 10060.79

149

Contingent Liabilities Book Value Adjusted Book Value

1549.36 38.99 38.99

1457.63 37.18 37.18

1960.75 34.59 34.59

1421.32 36.37 36.37

2035.01 13.44 13.44

Mahanagar Telephone Nigam Ltd. Balance Sheet - Standalone - Actual - Abridged- [INR-Crore] DESCRIPTION Mar-12 Mar-11 Mar-10 Mar-09 Mar-08

SOURCES OF FUNDS: Share Capital Share Warrants & Outstandings Total Reserves Shareholder's Funds Secured Loans Unsecured Loans Total Debts Total Liabilities APPLICATION OF FUNDS : Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment A/c Capital Work in Progress Pre-operative Expenses pending Assets in transit Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Other Current Assets Loans and Advances Total Current Assets Less: Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets / Liabilities Total Assets Contingent Liabilities Book Value Adjusted Book Value 0.00 21586.66 3367.07 40.27 40.27 0.00 20085.89 3026.89 105.50 105.50 9448.40 3751.14 149.97 149.97 5427.33 803.35 6230.68 -4578.93 7760.50 508.13 8268.63 -6339.83 17094.45 8266.22 25360.66 -8794.08 4835.26 6191.60 11026.86 4618.57 96.69 -355.30 12059.37 2576.60 189.88 189.88 4309.30 5445.82 9755.12 4406.53 159.17 -486.52 11921.36 2917.20 186.70 186.70 100.56 328.83 86.83 355.93 779.61 1651.76 125.48 339.06 140.14 568.53 755.59 1928.80 158.51 720.04 4876.44 356.62 10454.98 16566.59 191.27 782.47 4803.37 387.69 9480.64 15645.43 160.71 941.80 3369.36 286.20 9403.59 14161.65 9508.41 8948.87 509.54 465.09 557.39 896.99 1153.82 1177.96 950.48 964.99 15760.18 16323.03 16554.98 6283.83 6319.80 30117.01 14356.83 29362.35 13039.32 28275.77 11720.79 16293.28 10009.44 15842.58 9522.78 630.00 0.00 1906.70 2536.70 7000.00 12049.96 19049.96 21586.66 630.00 0.00 6016.48 6646.48 2553.97 10885.44 13439.41 20085.89 0.00 9448.40 0.00 12059.37 0.00 11921.36 630.00 0.00 8818.40 9448.40 630.00 0.00 11429.37 12059.37 630.00 0.00 11291.36 11921.36

150

Reliance Communications Ltd. Balance Sheet - Standalone - Actual - Abridged- [INR-Crore] DESCRIPTION SOURCES OF FUNDS: Share Capital Share Warrants & Outstandings Total Reserves Shareholder's Funds Secured Loans Unsecured Loans Total Debts Total Liabilities APPLICATION OF FUNDS : Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment A/c Capital Work in Progress Pre-operative Expenses pending Assets in transit Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Other Current Assets Loans and Advances Total Current Assets Less: Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets / Liabilities Total Assets Contingent Liabilities Book Value Adjusted Book Value 329.00 1932.00 178.00 480.00 8442.00 11361.00 306.00 1538.00 3813.00 854.00 8759.00 15270.00 298.34 1738.63 82.18 557.19 17329.60 20005.94 253.14 1482.22 535.15 561.94 22710.56 25543.01 201.22 1093.21 192.66 0.14 17028.06 18515.29 36196.00 36005.00 31898.60 31364.75 13844.14 765.00 9888.00 1683.52 3643.86 7117.56 37384.00 28841.00 30612.48 31407.77 16887.63 52455.00 15071.00 40904.00 12063.00 39838.17 9225.69 37941.15 6533.38 21576.32 4688.69 1032.00 0.00 44165.00 45197.00 23365.00 4508.00 27873.00 73070.00 1032.00 0.00 47112.00 48144.00 13606.00 3283.00 16889.00 65033.00 1032.01 0.00 49466.88 50498.89 3000.00 21478.28 24478.28 74977.17 1032.01 0.00 50658.31 51690.32 3000.00 27903.61 30903.61 82593.93 1032.01 0.00 23808.02 24840.03 950.00 19336.43 20286.43 45126.46 Mar-12 Mar-11 Mar-10 Mar-09 Mar-08

10363.00 2572.00 12935.00 -1574.00 299.00 0.00 73070.00 6238.00 217.53 217.53

22187.00 2784.00 24971.00 -9701.00

5836.53 3386.84 9223.37 10782.57

5781.49 3583.97 9365.46 16177.55

7207.76 4030.40 11238.16 7277.13

0.00 65033.00 2118.00 233.26 233.26 74977.17 3274.83 244.66 244.66 82593.93 6555.82 250.44 250.44 45126.46 7419.79 120.35 120.35

151

Tata Communications Ltd Balance Sheet - Standalone - Actual - Abridged- [INR-Crore] DESCRIPTION SOURCES OF FUNDS: Share Capital Share Warrants & Outstandings Total Reserves Shareholder's Funds Secured Loans Unsecured Loans Total Debts Total Liabilities APPLICATION OF FUNDS : Gross Block Less: Accumulated Depreciation Less: Impairment of Assets Net Block Lease Adjustment A/c Capital Work in Progress Pre-operative Expenses pending Assets in transit Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Other Current Assets Loans and Advances Total Current Assets Less: Current Liabilities and Provisions Current Liabilities Provisions Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off Deferred Tax Assets / Liabilities Total Assets Contingent Liabilities Book Value Adjusted Book Value -16.42 8473.73 12178.36 250.42 250.42 -125.93 8670.14 9794.01 245.88 245.88 -175.11 9919.69 7919.20 255.47 255.47 -133.25 9125.92 7634.32 238.53 238.53 -84.13 7325.14 4571.62 229.73 229.73 2417.77 99.25 2517.02 -1122.84 2561.77 94.07 2655.84 -1072.31 1814.16 174.67 1988.83 2702.55 2607.49 288.61 2896.10 1901.18 1994.91 259.98 2254.89 1772.83 0.45 709.94 53.32 510.43 120.04 1394.18 5.34 612.62 430.77 399.67 135.13 1583.53 1.25 632.29 110.86 315.98 3631.00 4691.38 1.56 1343.22 372.37 254.70 2825.43 4797.28 5.45 1063.13 79.63 441.06 2438.45 4027.72 4557.65 4842.97 2501.30 2723.67 2103.77 303.34 220.22 386.15 536.38 543.77 4752.00 4805.19 4504.80 4097.94 2988.90 8821.09 4069.09 8190.01 3384.82 6820.94 2316.14 5890.00 1792.06 4352.65 1363.75 285.00 0.00 6851.97 7136.97 850.00 486.76 1336.76 8473.73 285.00 0.00 6722.48 7007.48 1250.00 412.66 1662.66 8670.14 285.00 0.00 6995.78 7280.78 1281.76 1357.15 2638.91 9919.69 285.00 0.00 6513.05 6798.05 1288.82 1039.05 2327.87 9125.92 777.80 777.80 7325.14 285.00 0.00 6262.34 6547.34 Mar-12 Mar-11 Mar-10 Mar-09 Mar-08

152

Five years monthly closing price of telecom companies and Sensex closing
Date 31-Dec-12 30-Nov-12 31-Oct-12 28-Sep-12 31-Aug-12 31-Jul-12 29-Jun-12 31-May-12 30-Apr-12 30-Mar-12 29-Feb-12 31-Jan-12 30-Dec-11 30-Nov-11 31-Oct-11 30-Sep-11 30-Aug-11 29-Jul-11 30-Jun-11 31-May-11 29-Apr-11 31-Mar-11 28-Feb-11 31-Jan-11 31-Dec-10 30-Nov-10 29-Oct-10 30-Sep-10 31-Aug-10 30-Jul-10 30-Jun-10 31-May-10 30-Apr-10 31-Mar-10 26-Feb-10 29-Jan-10 31-Dec-09 30-Nov-09 30-Oct-09 30-Sep-09 31-Aug-09 31-Jul-09 Airtel 317.1 337 269.65 265.45 247.8 300.05 305.05 302.55 310.5 337.9 350.2 365.7 343.5 386.1 391.8 378 404.65 437.25 394.9 374.15 380.05 357.4 331.3 319 358.8 360.15 325.65 366.3 327.35 306.8 262.8 262.9 298.55 312.55 279.35 306.4 329.75 299.55 292.85 418.75 424.6 410.1 Idea 103.7 97.15 85.25 85.35 74.75 80 75.85 76.25 78.5 98.85 94.3 94.85 82 97.7 94.2 98.8 99.95 94.35 79.75 68.45 68.65 67.5 57.5 69.6 69.4 72.5 67.2 73.6 71.45 70.25 59.2 50.5 61.2 65.45 60.85 58.45 58.2 50.95 52.05 75.35 81.05 78.9 MTNL 26.4 25.6 26.25 32.45 36.6 30.35 23.55 23.25 24.95 27.35 32.25 30.75 22.7 26.4 31.4 31.5 35.35 47.15 43.05 45.4 48.3 45.45 40.5 48.05 54.85 52.9 67.4 62.15 61.1 67.35 66.25 55.5 71.15 73.2 71.85 75.75 73.75 73.85 69 91.45 95.1 102.65 Rcom 73.8 71.35 54 64.75 48.6 56 63.45 64.6 75.15 84.05 94.4 99 69.85 74.1 79.85 71.75 79.45 101.55 95.7 89.4 99.8 107.7 86 122.6 145.1 132.05 179.55 168.25 156 178.45 198.3 144.85 163.65 170.7 157.35 169.85 172.9 171.95 175.95 308 260.5 275.65 TataComm 235.5 238.55 242.75 243.4 229.85 246.75 232.35 217.85 237.35 225.05 232.75 226 212.35 191.2 189.3 186.2 202.9 222.5 197.1 214.6 236.95 238.9 211.4 233.2 255.6 272.05 306.3 308.35 332.4 270.5 262.15 245.8 270.95 280.4 282.55 319.6 336.05 380.9 392.3 484.5 502.7 504.9 Sensex 19426.71 19339.9 18505.38 18762.74 17429.56 17236.18 17429.98 16218.53 17318.81 17404.2 17752.68 17193.55 15454.92 16123.46 17705.01 16453.76 16676.75 18197.2 18845.87 18503.28 19135.96 19445.22 17823.4 18327.76 20509.09 19521.25 20032.34 20069.12 17971.12 17868.29 17700.9 16944.63 17558.71 17527.77 16429.55 16357.96 17464.81 16926.22 15896.28 17126.84 15666.64 15670.31

153

30-Jun-09 29-May-09 29-Apr-09 31-Mar-09 27-Feb-09 30-Jan-09 31-Dec-08 28-Nov-08 31-Oct-08 30-Sep-08 29-Aug-08 31-Jul-08 30-Jun-08 30-May-08 30-Apr-08 31-Mar-08 29-Feb-08 31-Jan-08

802.15 820.9 752.75 625.75 638.5 633.95 715.5 671.05 653.75 784.85 837.5 798.7 721.25 875.95 898.25 826.25 826.25 858.85

71.3 83.35 58.05 50.15 46.9 47 52.65 47 42.75 75.35 82.5 88.3 93.1 108.9 105.5 102.75 110.15 123.65

97.3 104.2 72.05 69.1 64.25 72.25 79.05 74.05 65.7 84.3 99 103.8 90.2 93.35 110.45 96.55 118.4 119.55

289.9 305.8 214.95 174.6 155.45 170.2 227.25 195.5 220.7 333.9 395.7 500.05 442.4 577.15 579.75 508.3 574.75 601.95

475.1 472.45 547.75 516.2 403.55 453.5 500.85 394 487.05 468.2 415 450.4 373.2 509.3 499.15 513.75 508.45 510.4

14493.84 14625.25 11403.25 9708.5 8891.61 9424.24 9647.31 9092.72 9788.06 12860.43 14564.53 14355.75 13461.6 16415.57 17287.31 15644.44 17578.72 17648.71

154