Equity Research - Fundamental analysis

SUMMER INTERNSHIP PROJECT ON
“EQUITY RESEARCH ON TELECOM SECTOR OF
INDIAN ECONOMY
Submitted in partial fulfilment of
The requirement for
Master of Management Studies (MMS)
Name of the Name of the
Faculty Guide Company Guide
Prof. Mayur Malviya Mr. Pratin Koregaonkar
By
Chetan P. Shivankar Day and Date:
Roll No. 107, Div- B Friday, 31st
Aug. 2012
Batch of 2011-13
NCRD’S
STERLINGINSTIUTE OF MANAGEMENT STUDIES
AFFILIATED TO UNIVERSITY OF MUMBAI
Plot No. 93/93A, Sector19, Near Seawoods
Railway Station, Nerul (East), Navi Mumbai 400706.
Tel: 022-27702282 Fax:022-27722290
I

CERTIFICATE by the INSTITUTE
This is to certify that ___________________________________ (Name) a student of
______ (discipline) _______from_________________________________________
(Institute/University) has done/is doing his/her semester project at
__________________ from __________to__________under my guidance.
The project work entitled “_______________________________________”
embodies the original work done by___________________during his/her above full
semester project training period.
Date:
Name of the Faculty Guide Authorize Signatory
___________________________
Place Your College Name with Stamp Director
III

CERTIFICATE OF ORIGINALITY
I Mr. Chetan Prakash Shivankar Roll No B-107 of 2011, a full time bonafide
student of first year of Master of Management Studies (MMS) Programme of Sterling
Institute of Management Studies, Nerul, Navi Mumbai, affiliated to University of
Mumbai.
I hereby certify that this project work carried out by me at BMA WEALTH
CREATORS LTD., SANPADA. The report submitted in partial fulfilment of
requirement of the program is an original work of mine under the guidance of the
industry mentor MR. PRATIN KOREGAONKAR and faculty mentor PROF.
MAYUR MALVIYA and is not based or reproduced from any existing work of any
other person or on any earlier work undertaken at any other time or for any other
purpose, and has not been submitted anywhere else at any time.
(Faculty Mentor’s Signature) (Student Signature)
31st
August, 2012 31st
August, 2012
IV

ACKNOWLEDGEMENT
This project would not have been a success without the guidance and motivation of
all my mentors. I am thankful to all the persons behind this project.
I would like to express my gratefulness to Mr. Pratin Korgaonkar (Branch Manager
of BMA Wealth Creators- Sanpada) who acted as a mentor throughout my project for
providing me valuable information and guidance.
Secondly, I would also like to thank Mr. Sai - Territory Manager of BMA Wealth
Creators (Sanpada) who has been very helpful in getting the required information
related to this project.
Last but not the least; I would like to thank my colleagues for motivating me all the
time throughout this project.
Student Name- Chetan P. Shivankar Signature
Date: 31st
August, 2012
V

EXECUTIVE SUMMARY
Stock market is one of the booming sectors in today’s economy. But this is a place where people
enter and exit within a short period. Stock Market is a place where money is in bulk, you just need
to grab it in a right way. Professional investor will make more money & less loss than, who let their
heart rule. Their head eliminate all emotions for decision making. Be ruthless & calculating, you are
out to make money.
Decision should be based on actual movement of share price measured both in money & percentage
term & nothing else. Greed must be avoided patience may be a virtue, but impatience can
frequently be profitable.
In Equity Analysis anticipated growth, calculations are based on considered FACTS & not on
HOPE. Equity analysis is basically a combination of two independent analyses, namely
fundamental analysis & Technical analysis.
Fundamental analysis is used for the long term investment. In Fundamental analysis a company’s
goodwill, its performances, liquidity, leverage, turnover, profitability & financial health was
checked. These includes study of financial statement, financial rations of the company. Investors
prefer Fundamental analysis.
Technical analysis refers to the study of market generated data like prices & volume to determine
the future direction of prices movements. Technical analysis mainly seeks to predict the short term
price travels. The focus of technical analysis is mainly on the internal market data, i.e. prices &
volume data. It appeals mainly to short term traders.
VI

INDEX
1. Executive Summary....................................................................................................................VI
2 Introduction to the study..........................................................................................................VIII
4. History of the organisation...........................................................................................................X
5. Basic Concepts..........................................................................................................................XII
8. Technical Analysis................................................................................................................XVIII
a.............................................................................................................................................Patterns
....................................................................................................................................................XXII
b...............................................................................................................................................Trends
..................................................................................................................................................XXIX
d..........................................................................................................................................Indicators
..................................................................................................................................................XXXI
e........................................................................................................................Live study of a Chart
...............................................................................................................................................XXXIII
VII

INTRODUCTION TO THE STUDY
This Study has been undertaken to understand the” Stock Market” & how the trading is done in the
stock Market. In the Indian economy, there are two types of market i.e. Money Market and Capital
Market. Money market is regulated by Reserve Bank of India (RBI) i.e. the Central Bank of Indian
economy whereas; Capital Market is regulated by Securities and Exchange Board of India (SEBI).
Primarily there are two types of stock markets – the primary market and the secondary market. This
is true for the Indian stock markets as well. Basically the primary market is the place where the
shares are issued for the first time. So when a company is getting listed for the first time at the stock
exchange and issuing shares – this process is undertaken at the primary market. That means the
process of the Initial Public Offering or IPO and the debentures are controlled at the primary stock
market. On the other hand the secondary market is the stock market where existing stocks are
brought and sold by the retail investors through the brokers. It is the secondary market that controls
the price of the stocks. Generally when we speak about investing or trading at the stock market we
mean trading at the secondary stock market. It is the secondary market where we can invest and
trade in the stocks to get the profit from our stock market investment.
Equities are being traded on (BSE) Bombay Stock Exchange and (NSE) National Stock Exchange.
Metals, gold, silver are being traded on Multi-Commodity Exchange, and agricultural products are
being traded on (NCDEX) National Commodity and Derivative Exchange and Currencies are being
traded on CDS (Currency Derivative Segment).
Stock Market is the only market which provides “Value for your Sentiments”; and to understand
that value of sentiments we need to do analysis on the two platforms i.e. Fundamental and Technical
analysis. Fundamental analysis includes study of different accounting statements like Balance
Sheet, Cost Sheet etc. Industry Situation, Market Position whereas; Technical analysis includes
study of different Charts and their patterns, Volume, No. of Shares and its price.
VIII

OBJECTIVE OF THE STUDY
• To analyze the telecom industry and find the future growth opportunities.
• To carry out the company analysis of the selected companies and to suggest whether they
are a viable investment option.
• To look at the historical performance data of the company and estimate the future
performance of stocks.
• To estimate a value that an investor can compare with the security's current price and figure
out what sort of position to take with that security.
IX

HISTORY OF THE ORGANISATION
BMA Wealth Creators is a premier financial services organisation providing individual and
corporates with customized financial solutions. We work towards understanding your financial
goals and risk profile. Our expertise combined with thorough understanding of the financial markets
results in appropriate investment solutions for you. At Wealth Creators we realize your dreams,
needs, aspirations, concerns and resources are unique. This is reflected in every move we make with
and for you. We have deep appreciation for the Value of building an everlasting relationship with
YOU.
As the Managing Director and Chief Executive Officer, Mr Anubhav Bhatter is the guiding force of
the Company. A graduate in Commerce from St Xaviers College, Kolkata and a Chartered Financial
Analyst, Mr Anubhav Bhatter founded one of the leading financial services company in India, BMA
Wealth Creators Limited. With over nine years of financial experience, he has set new standards and
established niche operations to bring BMA Wealth Creators Limited to a position that it has reached
today.
Our financial services corporate entities are represented by:
BMA Wealth Creators Limited - which holds corporate membership in National Stock Exchange
Ltd, Bombay Stock Exchange Ltd. and Central Depositories Securities Ltd.
BMA Commodities Limited - which holds corporate membership in commodities exchange of
NCDEX and MCX. It is also SEBI approved AMFI registered Mutual Fund advisory and
intermediary.
We inherit the legacy of BMA group which has been one of the dominant entities in Ferrous and
Ferro Alloy industry in India. The BMA Group has created its niche in by promoting successful
ventures in the fields of coal mining, refractory, steel and ferro alloy. The strive to achieve
excellence and dynamic growth has been possible through optimum mix of technology, customer
orientation, best business practices, forging alliances, high quality standards and proactive business
culture.
X

Mission and Vision of the Organisation:
MISSION:
• To be a premier financial supermarket providing integrated investment services.
VISION:
• To provide integrated financial services building investor wealth and confidence.
XI

BASIC CONCEPTS:
1. Stock Exchange:
A stock exchange is a market on which shares are bought and sold (or "traded"). For a
company's shares to be traded on a stock exchange, they must generally be listed on that stock
exchange.
2. Share:
A share is a unit of ownership in a company. When you buy a share you become a part-owner, a
shareholder, in the company. Shares are also known as equities or securities. A company whose
shares may be bought by the public and traded on the open market is called a quoted Public
Limited Company (PLC).
A Share has a "nominal" price - at which it was originally authorised for issue - and a market
price - at which it is currently trading. You'll find prices quoted in most newspapers and in
specialist magazines. You can also find prices quoted on other places, like on Teletext and on
the internet for instance.
3. Bull: An operator who expects the share price to rise and takes position in the market to sell at a
later date.
4. Bull Market:
A bull market is one where prices are rising, whereas a bear market is one where prices are
falling. The two terms are also used to describe types of investors.
5. Bear:
An operator who expects the share price to fall.
6. Bear Market:
A weak and falling market where buyers are absent.
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7. Support & Resistance:
Support is the price level through which a stock or market seldom. Resistance, on the other
hand, is the price level that a stock or market seldom surpasses.
These support and resistance levels are seen as important in terms of market psychology and
supply and demand. Support and resistance levels are he levels at which a lot of traders are
willing to buy the stock (in the case of a support) or sell it (in the case of resistance).
8. Stop Loss:
An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order
is designed to limit an investor's loss on a security position.
Also known as a "stop order" or "stop-market order".
9. Target Price:
A price that, if achieved, would result in a trader recognizing the best possible outcome for his
or her investment. This is the price at which the trader would like to exit his or her existing
position so that he or she can realize the most reward.
10. Why Invest in Stocks?
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While there are many ways you can choose to invest your money, the stock market has,
historically, provided the highest potential return to investors. Over the long-term, no other type
of investment has performed better than stocks. Over time, stock market investing has
outperformed CDs and cash investing instruments, bonds, and even real estate investing. On
average, stocks have provided about a 10% annual return to investors.
11. What are the Risks Associated with Stock Market Investing?
Every beginning stock market investor should know that stock prices can vary, sometimes
wildly, and that a significant or the entirety of a stock investment can be lost. Most stock
investors seek to minimize this risk by developing a balanced, diversified portfolio of stock
investments.
12. Intra-day and Delivery based Trading:-
Intra-Day:
Intraday trading is typically completed within a day that means you have sell the stocks that you
have purchased that day before the closing of the exchange. Even if you do not sell the stocks
by yourself, they will automatically square off before the closing of the exchange. In day trading
you can buy stocks without paying for the full price of the stocks. The market makers allow you
pay only a part of the price to hold the shares. So, you can gain more by investing less.
In day trading you can always short sell the stocks that mean you can always sell the stocks
before buying them and then buy the stocks before the closing of the market. This is one benefit
that can give you profit even when the price of the stock is sure to fall. The brokerage of the
intraday trading is always lower than the delivery trading. In day trading you are getting the
profit on the very day. So, you investment is for a few hours only. Therefore, even if the stock
price rises, a little your profit percentage is significant.
Delivery Based Trading:
In case of delivery based investment or long term investment, you can sell the stocks as and
when you wish to sell or buy them. With delivery based trading, you can always hold a stock till
it reaches the expected price. The long term investment can always get you dividend. You can
also benefit from split shares, bonus stocks and other benefits that the company announces.
XIV

EQUITY MARKET
Professional investor will make more money & less loss than, who let their heart rule. Their head
eliminate all emotions for decision making. Be ruthless & calculating, you are out to make money.
Decision should be based on actual movement of share price measured both in money & percentage
term & nothing else. Greed must be avoided patience may be a virtue, but impatience can
frequently be profitable.
In Equity Analysis, anticipated growth and calculations are based on considered FACTS & not on
HOPE. Equity analysis is basically a combination of two independent analysis, namely
fundamental analysis & Technical analysis. The subject of Equity analysis, i.e. the attempt to
determine future share price movement & its reliability by references to historical data is a vast one,
covering many aspect from the calculating various FINANCIAL RATIOS, plotting of CHARTS
to extremely sophisticated indicators.
A general investor can apply the principles by using the simplest of tools: pocket calculator, pencil,
ruler, chart paper & your cautious mind, watchful attention. It should be pointed out that, this equity
analysis does not discuss how to buy & sell shares, but does discuss a method which enables the
investor to arrive at buying & selling decision.
EQUITY ANALYSIS
ECONOMIC INDUSTRY COMPANY
FUNDAMENTAL TECHNICAL
Economic Analysis:
XV

An Economic analysis is the filter or scanner of the surrounding at the time of equity
research, which help the analyst to make a rational decision. In the economic analysis, the following
factors are considered as a whole with a perspective of industry & also considered with a
perspective of individual company:
1. Inflation rates.
2. Economic growth.
3. Governmental Exim & other policies regarding businesses & industry.
4. LPG (liberalization, privatization, globalization)
5. Interest rates: standards of returns for measurement.
6. FII s perception to share market.
7. Political feel.
Industry Analysis:
Since each industry is unique, a systematic study of its specific features and characteristics
must be an integral part of the investment decision process. Industry analysis should focus on the
following:
 Structure of the industry.
 Nature of the competition.
 Nature and prospects of the demand.
 Costs, efficiency and profitability.
 Technology and research.
Company Analysis:
In the company analysis, the investor assimilates the several bits of information related to
the company and evaluates the present and future values of the stock. The risk and return associated
with the purchase of the stock is analysed to take better investment decisions. The present and
future values of the stock are affected by a number of factors
such as:
 Earnings
 Capital structure
 Management
 Competitive edge
 Operating efficiency
 Financial performance
Fundamental Analysis:
XVI

Fundamental analysis is the study of economic, industry and company conditions in an
effort to determine the value of a company s stock. Fundamental analysis typically focuses on key
statistics in company s financial statements to determine if the stock price is correctly valued.
Most fundamental information focuses on economic, industry and company statistics. The typical
approach to analyzing a company involves four basic steps:
 Determine the condition of the general economy.
 Determine the condition of the industry.
 Determine the condition of the company.
 Determine the value of the company s stock
Fundamental analysis facilitates comparison between two companies. It reflects the financial
efficiency & financial position of a company. Fundamental analysis is fruitful in preparing plans for
the future. However, fundamental Analysis should not be considering as the ultimate objective test
but it may be carried further based on the outcome & revelations about the cause of variations.
Fundamental Analysis is helpful in forecasting likely position of company in near future.
Fundamental analysis is a very powerful analytical tool useful for measuring performance of an
organization. The ratio analysis concentrates on the inter-relationship among the figures appearing
in the financial and accounting statements. The ratio analysis helps the investor to analyze the past
performance of the firm and to make further future projection regarding financial position. Ratio
analysis allows interested parties like shareholders, investors, creditors and government to make an
evaluation of financial aspect of a firm s performance.
Fundamental Analysis consist of following:
 Study of Balance sheet
 Study of Profit and Loss a/c
 Study of Ratios

Technical analysis:
Technical analysis refers to the study of market generated data like prices and volume to
determine the future direction of prices movements. Technical analysis mainly seeks to predict the
short-term price travels. It is important criteria for selecting the company to invest. It also provides
the base for decision-making in investment. It is one of the most frequently used yardstick to check
and analyze underlying price progress. For that matter a variety of tools are used.
Technical analysis involves the use of various methods for charting, calculating and
interpreting graph & chart to assess the performances & status of the price. It is the tool of financial
analysis, which not only studies but also reflecting the numerical & graphical relationship between
the important financial factors.
The focus of technical analysis is mainly on the internal market data, i.e. prices & volume data. It
appeals mainly to short term traders. It is the oldest approach to equity investment dating back to
the late 19th century.
XVII

TECHNICALANALYSIS
History of Technical Analysis
Technical Analysis as a tool of investment for the average investor thrived in the late nineteenth
century when Charles Dow, then editor of the Wall Street Journal, proposed the Dow Theory. He
recognized that the movement is caused by the action/reaction of the people dealing in stocks rather
than the news in itself.
Technical analysis is a method of evaluating securities by analyzing the statistics generated by
market activity, such as past prices and volume. Technical analysts do not attempt to measure a
security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest
future activity. Just as there are many investment styles on the fundamental side, there are also
many different types of technical traders. Some rely on chart patterns; others use technical
indicators and oscillators, and most use some combination of the two. In any case, technical
analysts' exclusive use of historical price and volume data is what separates them from their
fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a
stock is undervalued the only thing that matters is a security's past trading data and what
information this data can provide about where the Security might move in the future.
Basic premises of technical analysis:
a. Market prices are determined by the interaction of supply & demand forces.
b. Supply & demand are influenced by variety of supply & demand affiliated
c. Factors both rational & irrational.
d. These include fundamental factors as well as psychological factors.
e. Barring minor deviations stock prices tend to move in fairly persistent trends.
f. Shifts in demand & supply bring about change in trends.
g. This shift s can be detected with the help of charts of manual & computerized action,
because of the persistence of trends & patterns analysis of past market data can be used to
predict future prices behaviours.
XVIII

Why we use TECHNICALANALYSIS?
1. Technical analysis provides information on the best entry and exit points for a trade.
2. On a chart, the trader can see where momentum is rising, a trend is forming, a price is
dipping or other events are developing that show the best entry point and time for the most
profitable trade. With the constant movement of various currencies against each other in the
Forex market, most traders will focus on using technical indicators to find and place their
trades.
Usually the following tools & instruments are used to do the technical analysis:
 Open - This is the price of the first trade for the period (e.g., the first trade of the day).
When analyzing daily data, the Open is especially important as it is the consensus price after
all interested parties were able to "sleep on it."
 High - This is the highest price that the security traded during the period. It is the point at
which there were more sellers than buyers (i.e., there are always sellers willing to sell at
higher prices, but the High represents the highest price buyers were willing to pay).
 Low - This is the lowest price that the security traded during the period. It is the point at
which there were more buyers than sellers (i.e., there are always buyers willing to buy at
lower prices, but the Low represents the lowest price sellers were willing to accept).
 Close - This is the last price that the security traded during the period. Due to its availability,
the Close is the most often used price for analysis. The relationship between the Open (the
first price) and the Close (the last price) are considered significant by most technicians. This
relationship is emphasized in candlestick charts.
 Volume - This is the number of shares (or contracts) that were traded during the period. The
relationship between prices and volume (e.g., increasing prices accompanied with increasing
volume) is important.
 Open Interest - This is the total number of outstanding contracts (i.e., those that have not
been closed, or expired) of a future or option. Open interest is often used as an indicator.
XIX

 Bid - This is the price a market maker is willing to pay for a security (i.e., the price you will
receive if you sell).
 Ask - This is the price a market maker is willing to accept (i.e., the price you will pay to buy
the security).
Price Styles
Price in a chart can be displayed in three styles:
1. Bar Chart.
2. Line Chart.
3. Candlestick Chart.
99% of the traders use Candlestick charts to analyse or study the stocks.
1. Bar Charts:
The highs and lows of a foreign currency are plotted in a diagram and the points are joined
with vertical lines (bars). A small horizontal tick to the left denotes the opening level while a
small horizontal tick to the right represents the closing price of each interval.
2. Line Charts:
It gives the detailed information about every aspect.
The exchange rates for each time period are plotted in a diagram and the points are joined.
Prices on the y-axis, time on the x-axis.
The line chart chooses for example the closing price of consecutive time periods, but can
also work with daily, official fixings.
XX

The relatively easy handling of line charts is a great advantage. Line charts do not show
price movements within a time period. This can be a problem because important information
for exchange rate analysis can be lost. This problem was remedied with the development of
bar charts that represent a more sophisticated form of line chart.
3. Candle stick Chart:
A candlestick is black if the closing price is lower than the opening price. A candlestick is
white if the closing price is higher than the opening price.
XXI

PATTERNS
A. Bullish Pattern:
1. Long white (empty) line: This is a bullish line. It occurs when prices open near the low and
close significantly higher near the period's high.
2. Hammer: This is a bullish line if it occurs after a significant downtrend. If the line occurs
after a significant up-trend, it is called a Hanging Man. A Hammer is identified by a small
real body (i.e., a small range between the open and closing prices) and a long lower shadow
(i.e., the low is significantly lower than the open, high, and lose). The body can be empty or
filled-in.
3. Piercing line: This is a bullish pattern and the opposite of a dark cloud cover. The first line
is a long black line and the second line is a long white line. The second line opens lower
than the first line's low, but it closes more than halfway above the first line's real body.
XXII

4. Bullish engulfing lines: This pattern is strongly bullish if it occurs after a significant
downtrend (i.e., it acts as a reversal pattern). It occurs when a small bearish (filled-in) line is
engulfed by a large bullish (empty) line.
5. Morning star: This is a bullish pattern signifying a potential bottom. The "star" indicates a
possible reversal and the bullish (empty) line confirms this. The star can be empty or filled-
in.
6. Bullish doji star: A "star" indicates a reversal and a doji indicates indecision. Thus, this
pattern usually indicates a reversal following an indecisive period. You should wait for a
confirmation (e.g., as in the morning star, above) before trading a doji star. The first line can
be empty or filled in.
B. Bearish Patterns
XXIII

1. Long black (filled-in) line: This is a bearish line. It occurs when prices open near the high
and close significantly lower near the period's low.
2. Hanging Man: These lines are bearish if they occur after a significant uptrend. If this
pattern occurs after a significant downtrend, it is called a Hammer. They are identified by
small real bodies (i.e., a small range between the open and closing prices) and a long lower
shadow (i.e., the low was significantly lower than the open, high, and close). The bodies can
be empty or filled-in.
3. Dark cloud cover: This is a bearish pattern. The pattern is more significant if the second
line's body is below the centre of the previous line's body (as illustrated).
4. Bearish engulfing lines: This pattern is strongly bearish if it occurs after a significant
XXIV

uptrend (i.e., it acts as a reversal pattern). It occurs when a small bullish (empty) line is
engulfed by a large bearish (filled-in) line.
5. Evening star: This is a bearish pattern signifying a potential top. The "star" indicates a
possible reversal and the bearish (filled-in) line confirms this. The star can be empty or
filled in.
6. Doji star: A star indicates a reversal and a doji indicates indecision. Thus, this pattern
usually indicates a reversal following an indecisive period. You should wait for a
confirmation (e.g., as in the evening star illustration) before trading a doji star.
7. Shooting star: This pattern suggests a minor reversal when it appears after a rally. The star's
body must appear near the low price and the line should have a long upper shadow.
XXV

C. Reversal Patterns
1. Long-legged doji: This line often signifies a turning point. It occurs when the open and
close are the same, and the range between the high and low is relatively large.
2. Dragon-fly doji: This line also signifies a turning point. It occurs when the open and close
are the same, and the low is significantly lower than the open, high, and closing prices.
3. Gravestone doji: This line also signifies a turning point. It occurs when the open, close, and
low are the same, and the high is significantly higher than the open, low, and closing prices.
4. Star: Stars indicate reversals. A star is a line with a small real body that occurs after a line
XXVI

with a much larger real body, where the real bodies do not overlap. The shadows may
overlap.
5. Doji star: A star indicates a reversal and a doji indicates indecision. Thus, this pattern
usually indicates a reversal following an indecisive period. You should wait for a
confirmation (e.g., as in the evening star illustration) before trading a doji star.
D. Neutral Patterns
1. Spinning tops: These are neutral lines. They occur when the distance between the high and
XXVII

low, and the distance between the open and close, are relatively small.
2. Doji: This line implies indecision. The security opened and closed at the same price. These
lines can appear in several different patterns. Double doji lines (two adjacent doji lines)
imply that a forceful move will follow a breakout from the current indecision.
3. Harami ("pregnant" in English): This pattern indicates a decrease in momentum. It occurs
when a line with a small body falls within the area of a larger body. In this example, a
bullish (empty) line with a long body is followed by a weak bearish (filled in) line. This
implies a decrease in the bullish momentum.
XXVIII

TRENDS
The direction of the trend is absolutely essential to trading and analyzing the market. In the
Foreign Exchange (FX) Market, it is possible to profit from both UP and Down movements,
because the buying and selling of one currency is always linked to another currency e.g.
BUY US Dollar SELL Japanese Yen.
Types of Trend:
Up Trend:
When the market is constantly moving in upward direction as shown in the below chart, we
call it as upward trend. As the trend moves upwards the US Dollar is appreciating in value.
Down Trend
When the market is constantly moving in downward direction, we call it as downward trend.
As the trend moves downwards the US Dollar is depreciating in value.
XXIX

Sideways Trend
Prices are moving within a narrow range (The currencies are neither appreciating nor
depreciating)
XXX

INDICATORS
1. Moving Average Convergence:
A trend-following momentum indicator that shows the relationship between two moving
averages of prices. The MACD is calculated by subtracting the 26-day exponential moving
average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal
line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.
There are three common methods used to interpret the MACD:
a. Crossovers: As shown in the chart above, when the MACD falls below the signal line,
it is a bearish signal, which indicates that it may be time to sell. Conversely, when the
MACD rises above the signal line, the indicator gives a bullish signal, which suggests
that the price of the asset is likely to experience upward momentum. Many traders wait
for a confirmed cross above the signal line before entering into a position to avoid
getting "faked out" or entering into a position too early, as shown by the first arrow.
b. Divergence: When the security price diverges from the MACD. It signals the end of the
current trend.
c. Dramatic rise: When the MACD rises dramatically - that is, the shorter moving average
pulls away from the longer-term moving average - it is a signal that the security is
overbought and will soon return to normal levels.
XXXI

Traders also watch for a move above or below the zero line because this signals the
position of the short-term average relative to the long-term average. When the MACD is
above zero, the short-term average is above the long-term average, which signals
upward momentum. The opposite is true when the MACD is below zero. As you can see
from the chart above, the zero line often acts as an area of support and resistance for the
indicator.
2. Relative Strength Index:
The relative strength index (RSI) is another one of the most used and well-known
momentum indicators in technical analysis. RSI helps to signal overbought and oversold
conditions in a security. The indicator is plotted in a range between zero and 100. A reading
above 70 is used to suggest that a security is overbought, while a reading below 30 is used
to suggest that it is oversold. This indicator helps traders to identify whether a security’s
price has been unreasonably pushed to current levels and whether a reversal may be on the
way.
The standard calculation for RSI uses 14 trading days as the basis, which can be adjusted to
meet the needs of the user. If the trading period is adjusted to use fewer days, the RSI will
be more volatile and will be used for shorter term trades.
XXXII

LIVE STUDY OF A CHART
This is a candlestick chart of Kingfisher Airlines of last 1 year from July 2011 to August
2011.
Price of the share is as follows:
Opening price: 11.2
High Price: 12.1
Low Price: 10.5
Closing Price: 10.3
Red candles indicate Bearish Candle and white candles indicate Bullish Candle. By looking
at the overall chart pattern of one year, we can see downward trend.
As we know that Hanging man is a reversal pattern, we can see that after formation of
Hanging man, price started falling down. And same with the Shooting star, market has
gradually fallen down.
XXXIII

Apart from this candles, we have different patterns like RSI, MACD, OBV, etc. which might
help us out to anticipate future price.
MACD (Moving Average Convergence and Divergence)-
When the main line crosses through the trigger line from below, this is seen as a buy signal
for the security. If the main line crosses the trigger line from above, this is a sell signal.
Also, moves through the zero line on the chart from above or below is used as a buy or sell
signal.
It is also important to take note of divergence between the MACD and the share price. If the
shares reach a new high, but the main line fails to do so, this is seen as bearish divergence.
Should the stock make a new low, but the main line does not, this is known as bullish
divergence.
RSI- Relative Strength Index
RSI is considered overbought when above 70 and oversold when below 30. In the above
chart, twice the RSI has gone below 30, which indicates that the shares were over-sold, so
that was an indication to buy the shares. It is a good signal for the buyers to enter into the
market.
On Balance Volume
The On Balance Volume (OBV) line is simply a running total of positive and negative
volume. A period's volume is positive when the close is above the prior close. A period's
volume is negative when the close is below the prior close. Higher the volume, higher the
trade taking place and higher the number of buyers and sellers.
XXXIV

TELECOM SECTOR IN INDIAN ECONOMY
India, emerging as a major player:
In 1975, the Department of Telecom (DoT) was separated from P&T. DoT was responsible
for telecom services in entire country until 1985 when Mahanagar Telephone Nigam Limited
(MTNL) was carved out of DoT to run the telecom services of Delhi and Mumbai. In 1990s the
telecom sector was opened up by the Government for private investment as a part of Liberalisation-
Privatization-Globalization policy. Therefore, it became necessary to separate the Government's
policy wing from its operations wing. The Government of India corporatised the operations wing of
DoT on October 01, 2000 and named it as Bharat Sanchar Nigam Limited (BSNL). Many private
operators, such as Reliance India Mobile, Tata Telecom, Hutch, BPL, Bharti, Idea etc., successfully
entered the high potential Indian telecom market.
Growth of mobile technology:
India has become one of the fastest growing mobile markets in the world. The mobile
services were commercially launched in August 1995 in India. In the initial 5-6 years the average
monthly subscribers additions were around 0.05 to 0.1 million only and the total mobile subscribers
base in December 2002 stood at 10.5 millions. However, after the number of proactive initiatives
taken by regulator and licensor, the monthly mobile subscriber additions increased to around 2
million per month in the year 2003-04 and 2004-05.
Although mobile telephones followed the New Telecom Policy 1994, growth was tardy in
the early years because of the high price of hand sets as well as the high tariff structure of mobile
telephones. The New Telecom Policy in 1999, the industry heralded several pro consumer
initiatives. Mobile subscriber additions started picking up. The number of mobile phones added
throughout the country in 2003 was 16 million, followed by 22 millions in 2004, 32 million in 2005
and 65 million in 2006 and over 100 million by mid of 2007. The only countries with more mobile
phones than India with 156.31 million mobile phones are China – 408 million and USA – 185
million.
XXXV

India has opted for the use of both the GSM (global system for mobile communications) and
CDMA (code-division multiple access) technologies in the mobile sector. In addition to landline
and mobile phones, some of the companies also provide the WLL service.
The mobile tariffs in India have also become lowest in the world. A new mobile connection
can be activated with a monthly commitment of US$ 5 only. In 2005 alone 32 million handsets
were sold in India. The data reveals the real potential for growth of the Indian mobile market.
PRESENT SCENARIO
• Although India's tele-density has improved from under 4% in March 2001 to over 18% at the end
of March 2007, we are way behind other developing nations. The total annual telecom revenue is
estimated to be over Rs 650 bn.
• The cellular telephony segment has emerged as the fastest growing segment in the Indian telecom
industry. The mobile subscriber base (GSM and CDMA combined) has grown from 1.9 m at the end
of FY00 to 140 m at the end of July 2007. A slew of tariff reduction in the past few years has helped
the segment to gain in scale. The cellular segment is playing an important role in the industry by
making itself available in the rural and semi urban areas where teledensity is the lowest.
• As far as the Internet services are concerned, India currently has a subscriber base of 6.9 m users.
Of this, around 19% is accounted for by broadband users (>=256 kbps). The ARPU for this segment
was Rs 210 at the end of FY06. PSU major, BSNL holds the top spot with a market share of 42%,
followed by MTNL with a share of 12%,. This is followed closely by Sify, which ranks third with a
market share of 11%.
• On the international basic telephony front, the end of VSNL's monopoly in 2002 brought three
private players in the international basic telephony business and the immediate effect was the fall in
tariffs. In the first six months only, the tariffs fell by 50% and the trend is likely to continue. With
the most favored customer status given to VSNL by fixed line majors like BSNL and MTNL going
away, the segment has been witness to fierce competition.
XXXVI

KEY POINTS:
Supply:
Intense competition has resulted in prompt service to the subscribers. However, smaller
towns and villages continue to have waiting periods on account of nonavailability of adequate
infrastructure.
Demand:
Given the low penetration levels in the country and continuously falling tariffs, demand will
continue to remain higher in the foreseeable future across all the segments.
Barriers To Entry:
 High capital investments
 Older and well-established players who have a nation wide network
 License fee
 Continuously evolving technology, and
 Falling tariffs.
Bargaining Power Of Suppliers:
Improved competitive scenario and commoditization of telecom services has led to reduced
bargaining power for services providers.
Bargaining Power Of Customers:
A wide variety of choices available to customers both in fixed as well as mobile telephony
has resulted in increased bargaining power for the customers.
XXXVII

Competition:
The entry of fourth cellular player and commencement of WLL services has resulted in
intense competition in the bigger cities. Reducing tariffs will hurt the new entrants, as they will be
unable to recover their high capital investments.
CHART SHOWING TOTAL TELECOM SUBSCRIBER BASE:
(Source: TRAI)
The Indian telecom industry is witnessing rapid rise in subscriber base, thanks to multiple
growth drivers like:
 improving demographics
 lower handset prices
 expansion by wireless operators
 infrastructure sharing
 lower regulatory levies.
XXXVIII

SECTOR CONTRIBUTION TO SENSEX GROWTH:
The Sensex has grown immensely since 2011 and is still increasing. Currently it has reached
9000. This growth would not have been possible without the help and support of the various sectors
in the industry. One of the sectors which has a major contribution in this growth is the Telecom
Sector. In the last year, Sensex grew by 9.2% whereas the contribution of Telecom sector was seen
to be -0.2%.
XXXIX

TRENDS IN INDIAN CELLULAR SERVICES
Cellular Subscriber Base
Operator May'2012 May'2011 Var. (%)
BSNL (21) 27994410 18000908 56%
Bharti Airtel (23)* 40743725 21860212 86%
Idea (11) 15266618 8062961 89%
Hutchison Essar (18)$ 18083466 11040797 64%
Spice Communication (2) 3007118 2027551 48%
MTNL 2547895 2097478 21%
BPL Mobile (1) 2091353 1792966 17%
Dishnet Wireless (7) 1874481 424475 342%
Reliance Telecom (23)# 4014404 2049254 96%
Total Cellular Subscriber
Base
130607955 75290092 73%
Source: COAI & AUSPI
Figure in the brackets denotes the current operating circles
* Include the WLL subscribers
# Include the GSM Subscribers in 7 telecom circles, the subscribers of Reliable Internet in Kolkata
circle and the WLL subscribers
$ Includes the subscribers of BPL Cellular but excludes subscribers of BPL Mobile Mumbai
XL

( Source: Cellular Operators Association of India)
Indian Telecom subscriber base has increased rapidly by 47% to touch 218.85 million in
May 2007, from 148.39 million in May 2006. The surge in subscriber based was powered by
impressive 73% spurt in GSM cellular subscriber base to 130.61 million in May 2007 from 75.29
million in May 2007. Nevertheless, the country has been witnessing sustained fall in Average
Revenue Per Unit (ARPU) from Rs 375 per unit in September 2005 to Rs 335 per unit in September
2006.
Nevertheless, thanks to strong growth in subscriber base, increasing non voice revenues and
lowering fixed cost per unit, the Indian telecom service sector is set to report buoyant growth in
revenues and profitability in the short to medium term.
IDEA and Uninor are the two companies been leading the market. And the companies like
Airtel abd Vodafone are the constituent player leading the market from from far years and are now
at the position nearby 9%, which shows that they are the consistent player of the market.
XLI

MARKET-SHARE OF THE MAJOR PLAYERS IN THE TELECOM
SECTOR:
Players Market share %
Bharti Airtel 22
BSNL 15.97
Idea 8.56
Tata teleservices 9.7
Reliance Communication 20.3
Hutch 10.4
Others 13.07
Total 100
From the chart given above, it is observed that Bharti Airtel leads the race with major
market share i.e. 22%. The reason behind this is the widespread network, huge subscriber base,
plethora of services, pace with the new technology, etc. whereas reliance communication being a
comparatively late entrant has attained a significant market share. As competition among the
existing players is huge, it makes the role of new players unnoticeable. The major players in the
telecom industry cover almost 86.93% of the market share.
XLII

REGULATORY CHANGES
 Access Deficit Charge (ADC) regime:
A revised ADC regime has been implemented w.e.f. April 01, 2007 wherein revenue-share ADC
reduced to 0.75% of AGR and per-minute ADC on outgoing ILD calls has been abolished. ADC on
incoming calls reduced to Rs.1.00 per minute. The revised estimate for ADC for 2007-08 is Rs. 20.5
bn
 Universal Service Obligation (USO) Tender:
The DoT has finally extended the USO subsidy to wireless networks with the successful
conclusion of bidding under the USO scheme. 7,954 towers are entitled to the subsidy - in 19
service areas (except Metros).
 National roaming tariff:
Domestic roaming tariffs have been revised with effect from February 15, 2007. Under the new
structure, there is no rental/surcharge for national roaming and lower ceiling for the 'per-minute
charges' for roaming calls. Incoming SMS while roaming is free though outgoing SMS rates
continue under forbearance.
 Subscriber re-verification:
In November 2006, DoT directed all service providers to complete the reverification of their
entire prepaid subscriber base by March 31, 2007, in terms of collation of their identity/address
proofs and updating of their database with subscriber details. As DoT had imposed a penalty of
Rs.1,000 per unverified subscriber after the expiry of the deadline, most operators had to disconnect
some subscribers whose documentary proofs could not be collected until March 31, 2007.
XLIII

 Increase in Foreign Direct Investment (FDI) cap from 49% to 74%:
On November 03, 2009, Government of India announced-enhancement of FDI ceiling from
49% to 740% in the telecom sector, subject to certain preconditions. In view of the complications
involved in implementation of the preconditions, DoT had granted several extensions to the telecom
licensees to ensure compliance. On April 19, 2007 DoT finally notified the FDI limit with a
deadline of July 18, 2011 to report compliance.
 Terms and Conditions of resale in IPLC segment:
DoT has accepted the recommendations of TRAI on the terms and conditions on which reselling
of international bandwidth is to be permitted in India. The broad conditions include entry fee at
Rs.10 mn. License Fee at 6% of AGR, term of license being 10 years and identical terms for FDI
ceiling as applicable to ILDOs.
 Port Charges Regulation:
In February 2007, TRAI amended the existing Port Charges Regulation 2001, by reducing the
port charges payable by private operators to BSNL/MTNL w.e.f. April 01, 2007. Another significant
change is that the slab rate for ports shall now be determined on the basis of the demand made and
not on the basis of ports finally allotted by BSNL.
 Regulation on QoS for broadband services:
In October 2006, TRAI issued a regulation on QoS for broadband servicesoffered by all access
and internet service providers pursuant to a public consultation conducted in June 2006. This
regulation was implemented on January 01, 2007.
 TRAI decision on Interconnect Usage Charge for Short Message Service
XLIV

(SMS):
On August 21, 2006, TRAI published its decision to refrain from specifying any termination
charge for SMS, thus leaving it under the Forbearance' category. At the same time TRAI has
expressed its concern that the tariff for premium rate SMS Is high and apparently unrelated to cost,
hinting to operators to voluntarily reduce these tariffs
 TRAI decision on roaming revenue sharing:
After a public consultation, TRAI published its decision on September 11, 2006 disallowing any
revenue sharing on roaming calls. TRAI reiterated that the termination charges prescribed by them
are cost based and since no additional cost is incurred interminating roaming traffic, there is no
justification for higher payout to the terminating network.
 Regulation for interconnection of Intelligent Networks (IN) of all service
providers:
On November 27, 2006, TRAI issued a regulation mandating all service providers to provide
interconnection to all eligible service providers so that subscribers of all access providers can access
the IN services offered by other service providers. Service providers are required to enter into
reciprocal and non-discriminatory agreements for technical and commercial aspects of such
connectivity within three months.
 Changes in the NLD and ILD licenses:
There have been significant changes in the NLD and ILD licenses recently. The entry fees for
these licences have been substantially reduced to Rs.25 million each for ILD and NLD licences,
which has already led to a number of new players entering the field.
XLV

RECENT DEVELOPMENTS
The Bharti group's application for direct-to-home (DTH) broadcasting is all set to be cleared
and soon the group may be issued a letter of intent (LoI) for the DTH service. Recently,
clarifications were sought from Bharti on its foreign direct investment (FDI) component and the
equity structure, in connection with its DTH proposal.
Anil Ambani-promoted Reliance Blue Magic is expected to launch its DTH service soon.
Sun TV is also in the queue for DTH. As against the multi-operator DTH scenario in India, in most
countries, DTH attracts only one or two players.
Idea Cellular and Nokia Siemens Networks announced signing of a USD 500 million GSM
network expansion contract. Under the contract, Nokia Siemens Network will expand Idea
Cellular’s GSM/GPRS/EDGE networks to cover population centres across six more circles. The 2-
year contract includes supply and services of GSM equipment, Intelligent Network, Value Added
Services and Circuit and Packet core equipment. Nokia Siemens Networks will deploy the latest
state of art equipment like flexi BTS, mini-ultra base stations, Release 4 architecture, media
gateways and MSS servers.
Spice Communications promoted by Dilip Modi, part of the B K Modi group and providing
cellular services in the states of Punjab and Karnataka, has lined up a public issue to raise Rs 464
crore at lower band (Rs 41) and Rs 520 crore at upper band (Rs 46). The net proceeds from the
issue are intended to be used for part repayment of longterm debt, for payment of NLD and ILD
license fee and related capital expenditures to set up base infrastructure for NLD/ILD.
The Bangalore-based value-added services (VAS) provider OnMobile is planning to tap the
capital market with an initial public offering (IPO) of Rs 500-600 crore. The company’s maiden
offer is expected to open during the current financial year and it intends to invest the proceeds for
its foray into the Wireless Application Protocol (WAP) and General Packet Radio Service (GPRS)
segments. The company was incubated by Infosys Technologies in 2000, and at present the IT
major holds a 14 per cent stake in it.
XLVI

PROSPECTS OF TELECOM SECTOR
• As far as the fixed line business goes, the low penetration levels in the country and the increasing
demand for data based services such as the Internet will act as major catalysts in the growth of this
segment, which has touched 50 m subscribers by the end of FY12 (including WLL subscribers).
The huge market share of public sector behemoths, MTNL and BSNL (together they account for
82% of the total fixed line connections) is likely to get reduced further as the penetration by private
players spreads. In spite of this the PSUs will continue to retain their dominant position this is
on account of high capital investments required in setting up a nation wide network. As a result, the
private sector players will have to rely on key business centers and pockets of high urbanization for
their growth.
• Increasing choice and one of the lowest tariffs in the world have made the cellular services an
attractive proposition for the average consumer. The segment has grown at over 73% YoY in FY06.
It is being estimated that during the tenth five-year plan,around 31.6 m subscribers would jump
onto the cellular bandwagon all over India and this would entail an investment to the tune of Rs
252.4 bn. Policy measures like lowering of taxes on the cellular industry and benefits of enhanced
FDI limits shall further the prospects of the cellular industry.
• The International Long Distance (ILD) telephony business is expected to witness increased
competition with the entry of private players. Already, private players like Bharti, Reliance and
Data Access have started providing ILD services and this has pulled the tariffs significantly down.
Although increased competition will result in depressed revenues in the near term, low tariffs would
ultimately result in increased volumes and higher usage.
• Taking the competition further in the ILD space where we saw huge tariffs fall last year due to the
entry of private players, TRAI has written to the Ministry of Telecommunication and Information
Technology to permit resale of IPLC. If the move goes through, apart from increasing competition
in this space, it is expected that the bandwidth prices will come down by a further 20-25%. This
move is also believed to be a step forward in opening up the ILD sector
XLVII

SELECTION OF THE COMPANY
After understanding the dynamics of the telecom sector and the various issues revolving
around it, three companies were chosen from a group of players in the telecom sector. Such
companies have been chosen which showed consistent performance in the past and were also
fundamentally sound.
Some of the major players in Telecom sector are as follows:
 Bharti Airtel
 BPL Mobile Comm.
 Escorts telecomm.
 Hutchison Essar
 Idea Cellular
 MTNL
 Reliance Communication
 Spice Telecommunication
 Tata Teleservices
 VSNL

Time (2 months duration) being a major constraint, two companies were chosen from the whole
telecom sector. Companies chosen for further analysis are:
 Bharti Airtel
 VSNL
XLVIII

DATAANALYSIS AND INTERPRETATION
BHARTI AIRTEL LIMITED
Bharti Airtel Ltd (Formerly known as Tele-Ventures (BTVL)) was incorporated on 7th July,
1995, for promoting investments in diversified telecom service projects. The company was formed
as a 80:20 joint venture between the Bharti Group through its subsidiary Bharti Telecom and STET
International Netherlands NV, a company promoted by Telecom Italia, Italy.
Bharti Airtel has bagged the 'Best Emerging Market Carrier' award at the Telecom Asia
Awards 2007. The GSM service provider was adjudged best from among a list of 30 telecom
companies in the Asia Pacific region. Earlier, Bharti Airtel had won the 'Best Indian Carrier' award
for two consecutive years, in 2005 and 2006. The company introduced new products like
BlackBerry wireless solution, Airtel Live and the company was the first wireless services operator
to introduce Ring back tones(Hello Tunes).
Also the company entered into the partnerships with the leading companies like Nokia,
Siemens, Ericsson and IBM for its network planning, supply & management and for its IT
requirements respectively. During 2005-2006, Vodafone acquired 10% economic interest in the
company by way of subscription of convertible debentures in Bharti Enterprises Ltd, representing
an indirect economic interest in Bharti Airtel Ltd and acquisition of direct interest in the company
from Warburg Pincus LLC. The company also signed a managed capacity expansion contract with
Ericsson to provide managed services and expand its GSM/GPRS network into rural India in 15
circles
XLIX

BUSINESS OVERVIEW:
Bharti is one of India's leading private sector service-provider of telecom services with more
than 20 million customers in India and is the first to have an all India presence. The company is
structured into three main units, Mobile Services which offers GSM Mobiles Servies and Infotel
Services which provides broadband & Telephone, long distance and enterprise services which offers
carriers and corporates. All the services of company is been provided under brand name AIRTEL.
The company was first GSM Operator to have more than ten million customers and also the
first telecom company to cover all the 23 telecom circles of India. The Company has a presence in
4,676 census towns and in 207,327 non-census towns and villages, covering an addressable
population of 59% of the total population. With this coverage facility the company became the first
operator to have an All-India footprint.
BUSINESS RISK:
The business is subject to extensive regulation by the Government; which could have an
adverse effect on the business. Technical failures and natural disasters could damage the
telecommunication networks. Changes in available technology could increase competition and the
capital costs.
MARKET RISK:
There is very little market risk in this segment, considering the ever increasing demand of
the telecom services. There have been substitutes for telecom services like the Postman, which has
been available for years but the demand for it is getting decreasedwhereas the demand for telecom
services has never been affected due to that. There is a permanent market for the product, and it
does not face any serious market risk.
L

VOLUME BASED BUSINESS:
The profits of the company are totally based on the volume of their business. The more
efficiently they provide the service, their turnover will increase accordingly and thereby adding
additional profits to the company’s account. With the expansion undertaken by the company in
recent times, it is slated to make the most of this situation.
FUTURE FORECAST:
In long term the demand for telecom services is expected to rise further. The reasons being
the low tariffs, technology, focus on rural areas, ever increasing population, etc. Telephony
penetration in urban areas is quite high as compared to rural penetration and as of now this is been
taken into consideration by various players. Technology is also expected to improve a lot in the
years to come, which would help not only in cost reduction but also in providing services
efficiently.
PRICE INFORMATION:
Rs.
BSE(30/08/2012) 242.75
NSE(30/08/2012) 242.85
P/E 37.5
EPS 21.27
Market Cap 166930.2
52W High at BSE 960
52W Low at BSE 410
LI

COMPARATIVE CHART OF BHARTI AIRTEL WITH SENSEX:
From the chart given above, it is observed that there has been an upside trend in
the SENSEX as well as the Share price of Bharti Airtel. But the rise in the value of Bharti
Airtel is more than that of SENSEX.
ONE YEAR PRICE MOVEMENT OF BHARTI AIRTEL:
The Chart given above shows a consistent rise in the price of Bharti Airtel in the
previous one year. Some minor fluctuations were observed during the year but it did not
affect the price movement to a remarkable extent. The stock observed an uptrend during
the year and is expected to rise further.
LII

PROJECTED PROFIT AND LOSS ACCOUNT
LIII

Net Revenues:
0
5000
10000
15000
20000
25000
30000
2008-09 2009-10 2010-11 2011-12
5000
10000
15000
20000
25000
30000
The net revenues of the company are growing at an average rate of 50.52% per year. As the
industry is under the growth stage, this may help in boosting the revenues further. Some of the
reasons behind this are declining prices due to competition, increasing rural penetration, technology,
etc.
Expenses:
The expenses of the company are growing but the company is able to keep them within
permissible limits, which would enable the company to earn higher operating profit.
Operating Profit:
The operating profit of the company as a percentage of net revenues is constantly above
30%, which indicates that even though the company is operating on a larger scale the operations of
the company are being carried out with utmost efficiency. The profitability of the company has not
taken a beating and real income of the company continues to look good.
Profit after Tax:
The company is being able to manage its financing very well and on that account
has managed to retain more interest of its shareholders. An increase in the interest
payments by the company is reflected in the profit after tax of the company. Inspite ofthis, the PAT
shows a consistent growth in the future years.
LIV

0
50
100
150
200
2008-09 2009-10 2010-11 2011-12
15000
10000
5000
Operating profit before tax:
The operating profit before tax of the company is increasing consistently every year. This is
a very good sign for the company that the operating profit of the company is ever increasing. It
shows that the performance of the company in terms of their operations is good. The company is
not only increasing its business in terms of volume but it is also realizing more profits or in other
words its margins have not dropped.
LV

PROJECTED BALANCE SHEET
The capital structure of the firm is stable i.e. there is proportionate rise in the shareholders’ funds
and the debts of the company. As the current liabilities in the form of creditors are more, it signifies
the creditworthiness of the company. Also, there is a consistent increase in the fixed assets of the
company.
LVI

PROJECTED CASH FLOW SUMMARY
Year Mar.10 Mar.11 Mar.12
Cash and Cash Equivalents at Beginning of
the year
384.14 307.43 571.61
Net Cash from Operating Activities 4631.11 8107.95 13343.33
Net Cash Used in Investing Activities -5084.34 -7975.09 -14594.8
Net Cash Used in Financing Activities 376.35 340.13 2420492
Net Inc/(Dec) in Cash and Cash Equivalent -76.71 -473.03 -1530.31
Cash and Cash Equivalents at End of the year 307.43 780.46 1302.92
Total cash from operations:
The total cash flow from operations for the company is also increasing. The rise in cash flow
from operations increases considerably in the years 2007 and 2008. This is a good sign for the
company. The rise in the cash flow from the operations signifies that the company is able to extract
maximum value from its available resources. The company has managed to maintain its margins
and thus not allowed its operating profit to dip.
On looking at the operating profit before tax and the total cash flow from operations it is
clear that the cash position of the company is secure. The company looks to be in a cash rich
position. The cash flow statement of the company indicates that the company is managing its cash
position very well and the inflows of cash are very well managed by the company and it is also
evident that the company is allocating adequate cash to increase their fixed assets.
Key Financial Ratios:
LVII

Key Ratios Formulae Mar.10 Mar.11 Mar.12
EBITDA Ratio EBITDA / Income 0.36 0.41 0.41
Net Profit Ratio PAT/ Income 0.18 0.23 0.2
Debt-Equity Ratio Debt / Equity 0.83 0.54 0.49
Current Ratio Current Assets /
Current Liabilities
0.46 0.46 0.47
Interest Cover EBIT / Interest 10.00 11.00 21.53
Return on Equity (%) PAT / Equity 27.37 35.2 36.8
Return on Capital
Employed (%)
EBIT / Capital
Employed
28.67 28.83 29.57
EBITDA or Operating Profit Margin:
The operating profit margin in true sense is the indicator of the company’s actual operating
efficiency. The company has increased its sales after Mar.10 by 0.5% to Mar.11and then it remains
constant considerably but if there is no rise in the operating profit margin then there is a lack of
efficiency on the part of the company. In this case the company’s operating profit margin is
consistently over 30%. This means that even though the company is undertaking huge expansions it
has maintained its operating profit margin.
Net Profit Margin Ratio:
The net profit margin ratio measures the overall efficiency of production, administration, selling,
financing, pricing, and tax management. The Net profit Ratio goes on increasing Mar.10 and
steadily to the positive direction. After looking at the company’s net profit margin, one can say that
it is consistent, which is considered to be favorable.
Debt-Equity Ratio:
The debt-equity ratio shows the relative contributions of creditors and owners. The debt-equity ratio
of the company is declining, and is expected to still lower down.
lower the debt-equity ratio, the higher the degree of protection enjoyed by the creditors.
Current Ratio:
LVIII

The current ratio measures the ability of the firm to meet its current liabilitiescurrent
assets get converted into cash during the operating cycle of the firm, and provide the funds needed
to pay current liabilities. Even though the current ratio of the firm is consistent but it is much lower
than the general norm i.e. 1.33 in India.
Interest Coverage Ratio:
Interest Coverage Ratio, a major determinant of bond rating is widely used by lenders to
assess a firm’s debt capacity. High interest coverage ratio signifies the ability of the firm to meet its
interest burden even if the PBIT suffer a considerable decline. Interest Coverage ratio in case of
Bharti Airtel is quite favorable as it is increasing consistently. The Interest cover given by Bharti
Airtel is high from Mar.11 by 11.00% to Mar.12 by 21.53% shows the ability of the firm to meet its
interest burden even if the PBIT suffer a considerable decline.
Return on Equity:
This ratio measures the profitability of equity funds invested in the firm. Bharti Airtel has a
favourable Return on Equity as it is increasing every year i.e. from 27.37 it has reached 36.8 in
2years duration. This ratio is of great interest to the equity shareholders.
Return on Capital Employed:
The ROCE measures the profitability of the capital employed i.e. shareholder’s funds plus
the total debt (both short term as well as long term). Bharti Airtel has attained a sharp rise in ROCE
in 2007 but is expected to give comparatively low returns in 2008 due to comparatively low PBIT
and increasing interest.
Earnings per share:
This ratio indicates the actual profit left for the owners of the company i.e. shareholders. A
growing EPS shows that the company is contributing to the shareholders value. A growing EPS
leads to increase in the value (price) of the company in the market.
Thus, it can be said that Bharti is contributing consistently to the shareholders value.
P/E Ratio:
LIX

It is the parameter to judge the proper valuation of the company in the market. Higher P/E
shows that the market is valuing the company at a higher multiple. This is the widely used
parameter by the market for judging the over or under valuation of the company for investment
purpose. A lower P/E is considered one of the most important criteria for the selection of the
company by the investors. The P/E ratio of Bharti is decreasing from 40.5 to 37.5, which is a good
sign from the point of view of the shareholders.
FUTURE PROSPECTS:
• The company has already completed the testing of IPTV in NCR region and will launch in select
part in NCR region in November-December this year and in the next calendar year in other parts of
the country.
• The company plans a $8bn spread by 2010 and 25% of the market share i.e. approximately 125
million subscriber base.
LX

• Bharti Airtel signed a memorandum of Understanding with Nokia Siemens Networks for USD
900 Million in July 2007. This is an expansion contract across Airtel’s mobile, fixed Network
platforms. Nokia Siemens Networks will expand Airtel’s GSM network in eight circles; its NLD
and ILD network with 1.8 million Next Generation Network (NGN) ports and its International
Calling Card prepaid service capacity by 4.5 million new users.
• The company is making major investments in international infrastructure and going to buy full
ownership of the i2i cable.
• Company expects to achieve 72-74% population coverage till March 2008 from current level of
62%.
• The company has filed the scheme of de-merger for approval of the Honourable High Court of
New Delhi of its passive telecom (mobile) infrastructure to Bharti Infratel, its wholly owned
subsidiary. The company expects the demerger to take place in October 2007.
LXI

VIDESH NIGAM SANCHAR LIMITED.
Videsh Sanchar Nigam Ltd (VSNL) was incorporated in 1st April 1986 as a GOI company,
to take over the activities of the erstwhile Overseas Communication Services (OCS) and with a
view to provide International Telecommunication Services to and from India. The company took
control and management of all international telecommunication services from OCS, a Department
of the Ministry of Communications. VSNL is the leading Indian provider of International Long-
distance (ILD) and Internet related services. VSNL is the first company to introduce retail internet
services in India in 1995.
Initially, GOI was holding 52.97% stake in VSNL. In February 2002, GOI divested 25%
stake to the Tata Group as a strategic partner along with the right to manage the company.
M/s.Panatone Finvest Limited, a company which is owned by various Tata Group companies picked
the stake at a price of Rs.202 per share. Following GOI's subsequent open offer of further 20%
equity of VSNL's, the tata group has become the biggest shareholder with a holding of over 45%,
while the GOI stake in VSNL came down to 26.12%. The company offers its products and services
under the brand name Tata Indicom in India.
BUSINESS OVERVIEW:
The company operates under three business segments in India- Wholesale Voice, Enterprise
and Carrier Data and other services. The company provides value added telecommunication
services such as international telephony, leased channels, dial-up internet, broadband, net telephony,
national long distance, enterprise data, frame relay and Internet Services. Apart from these services
the company is also providing TV uplinking services, transponder leasing services etc. VSNL's
main gateway centres are located at Mumbai, New-Delhi, Kolkata and Chennai. The international
telecommunication circuits are derived via Intelsat and Inmarsat satellites and wide band submarine
cable systems e.g. FLAG, SEA-ME-WE-2 and SEA-ME-WE-3.
VSNL is the first Indian service provider to enter in to a Wireless Broadband roaming
alliance with an international operator Star Hub, which is Singapore's second [54] largest info-
communication company. The company one of the leading player in the growth of Wi-Fi hotspot
industry in India has the largest public hotspot network in india with over 250 hotspots.
LXII

BUSINESS RISK:
The business is subject to extensive regulation by the Government; which could have an
adverse effect on the business. Technical failures and natural disasters could damage the
telecommunication networks. Changes in available technology could increase competition and the
capital costs.
MARKET RISK:
There is very little market risk in this segment, considering the ever increasing demand of
the telecom services. There have been substitutes for telecom services like the Postman, which has
been available for years but the demand for it is getting decreased whereas the demand for telecom
services has never been affected due to that. There is a permanent market for the product, and it
does not face any serious market risk.
VOLUME BASED BUSINESS:
The profits of the company are totally based on the volume of their business. The more
efficiently they provide the service, their turnover will increase accordingly and thereby adding
additional profits to the company’s account. With the expansion undertaken by the company in
recent times, it is slated to make the most of this situation.
FUTURE FORECAST:
In long term the demand for telecom services is expected to rise further. The reasons being
the low tariffs, technology, focus on rural areas, ever increasing population, etc. Telephony
penetration in urban areas is quite high as compared to rural penetration and as of now this is been
taken into consideration by various players. Technology is also expected to improve a lot in the
years to come, which would help not only in cost reduction but also in providing services
efficiently.
PRICE INFORMATION:
LXIII

Rs.
BSE (27-07-12) 451.85
NSE (27-07-12) 450.9
P/E x 27.96
EPS 15.68
Market Cap. 11448.45 cr.
52W High at BSE 515
52W Low at BSE 342
COMPARATIVE CHART OF VSNL WITH SENSEX:
From the chart given above, it is observed that there has been an upside trend in the
SENSEX as well as the Share price of VSNL. But the rise in the value of VSNL is
more than that of SENSEX.
One Year Price movement of VSNL:
LXIV

The chart given above shows some fluctuations which can prove unfavourable
from investorss’ piont of views. There is not much movement in the stock priceand even if its there
keeps on fluctuating. Also, it can be said that the stock volumes traded on the exchange is quite less.
PROJECTED PROFIT AND LOSS ACCOUNT
Net Revenues:
LXV

The net revenues of the company are growing at an average rate of 8.5% per year. The
revenues of the company underwent a sudden fall in 2004 due to the entry of various new players in
the industry. But after that the company is trying to regain its earlier position by growing at a
medium pace but with consistency. As the industry is under the growth stage, this may help in
boosting the revenues further. Some of the reasons behind this are declining prices due to
competition, increasing rural penetration, technology, etc.
Expenses:
The expenses of the company are growing but the company is able to keep them within
permissible limits, except the selling expenses which are expected to increase
comparatively more due to need arisen for more marketing. Ultimately, this would enable the
company to earn not only higher profit but also increase the subscriber base.
Operating Profit:
The operating profit of the company as a percentage of net revenues is constantly above
20%, which indicates that even though the company is operating on a larger scale the operations of
the company are being carried out with utmost efficiency.
Profit after Tax:
The growth in PAT is not consistent, it is quite fluctuating as is observed over a
LXVI

period of time. Also the amount of interest is much more high as compared to the interest that was
paid some few years back.
Operating profit before tax:
The operating profit before tax of the company is increasing consistently every
year. This is a positive sign for the company that the operating profit of the company is
ever increasing though at a low pace as compared to the other players in the industry. It
shows that the performance of the company in terms of their operations is satisfactory.
Projected Balance Sheet
LXVII

The increase in debts of the company is more as compared to the equity. The Company is
continuously making investments but there is no remarkable increase in the profits made by the
company. Also, the net current assets held by the company are reducing every year, the reason
being rising current liabilities and simultaneously reducing current assets. The Capital Work in
Progress is increasing continuously over a period of time.
Key Ratios Formulae Mar-06 Mar-07 Mar-08
EBITDA Ratio EBITDA / Income 0.28 0.27 0.27
LXVIII

Net Profit Ratio PAT / Income 0.13 0.12 0.11
Debt-Equity Ratio Debt / Equity 0.01 0.02 0.03
Current Ratio Current Assets /
Current Liabilities
1.32 1.25 1.15
Interest Cover EBIT / Interest 382.51 104.13 102.77
Return on Equity (%) PAT / Equity 7.9 7.37 7.35
Return on Capital
Employed (%)
EBIT / Capital
Employed
11.36 11.31 11.39
EBITDA or Operating Profit Margin:
The operating profit margin in true sense is the indicator of the company’s actual operating
efficiency. The company has increased its sales but still there is no rise in the operating profit
margin. This signifies lack of efficiency on the part of the company even if the company’s operating
profit margin is consistently over 20%. As the company is undertaking huge expansions it has
maintained its operating profit margin but it is low as compared to the other players in the industry.
Net Profit Margin Ratio:
The net profit margin ratio measures the overall efficiency of production, administration,
selling, financing, pricing, and tax management. After looking at the company’s net profit margin,
one can say that it is declining over a period of years, which is considered to be unfavorable.
Debt-Equity Ratio:
The debt-equity ratio shows the relative contributions of creditors and owners. The debt-
equity ratio of the company is increasing since 2007, and is expected to stay constant. The lower the
debt-equity ratio, the higher the degree of protection enjoyed by the creditors. But in this case the
debt-equity ratio is increasing that means the degree of protection enjoyed by the creditors is
comparatively low.
Current Ratio:
The current ratio measures the ability of the firm to meet its current liabilitiescurrent assets
get converted into cash during the operating cycle of the firm, and provide the funds needed to pay
current liabilities. The current ratio of the firm is declining every year and also it is lower than the
general norm i.e. 1.33 in India.
LXIX

Interest Coverage Ratio:
High interest coverage ratio signifies the ability of the firm to meet its interest burden even
if the PBIT suffer a considerable decline. Interest Coverage ratio in case of VSNL is quite
unfavorable as it is decreasing. Also it is been observed that there was a sudden fall in the interest
coverage ratio in FY12.
Return on Equity:
This ratio measures the profitability of equity funds invested in the firm. VSNL has got an
unfavourable Return on Equity as it is decreasing every year i.e. from 7.9 it has reached 7.35 in
2years duration. This ratio being of great interest to the equity shareholders, they may loose interest
in the company due to declining RoE.
Return on Capital Employed:
The ROCE measures the profitability of the capital employed i.e. shareholder’s funds plus
the total debt (both short term as well as long term). VSNL has attained a continuous decline in
ROCE in previous two years and is expected to give comparatively low returns in 2008 due to
comparatively low PBIT and increasing interest.
Earnings per share:
This ratio indicates the actual profit left for the owners of the company i.e. shareholders. A
growing EPS shows that the company is contributing to the shareholders value. In case of VSNL,
the EPS is expected to increase in FY08 but as observed in the earlier years, there is no consistency
in EPS.
P/E Ratio:
It is the parameter to judge the proper valuation of the company in the market. Higher P/E
shows that the market is valuing the company at a higher multiple. This is the widely used
parameter by the market for judging the over or under valuation of the company for investment
purpose. A lower P/E is considered one of the most important criteria for the selection of the
LXX

company by the investors. The P/E ratio of VSNL is increasing from 25.07 to 27.96, which is not a
good sign from the point of view of the shareholders.
LXXI

VIDESH SANCHAR NIGAM LIMITED
Investment Rationale: At CMP 451.85 (as on 27 June, 2007) the share price
trades at 28.82 (on the basis EPS of FY 2007e i.e15.68) and at 111 times (on the
basis EPS of FY 2008e i.e. 17.56).
The increased competition in India with the DoT issuing ILD licences to new
players, some of who were VSNL's customers earlier, is expected to shrink the
Company's addressable market and hence affect this business adversely.
The growth in broadband subscribers has been slower than that in mobile
subscribers. The predominant reasons are the limited access to last mile networks
that limits the ability to serve retail customers and the inability to demonstrate an
adequate value proposition except to enterprises and a small group of individuals.
An important concern for the Company in its voice business continues to be the
lack of direct access to end customers.
The implementation of the CAC regime has not fallen in place so far, due to
technical and other reasons. The delay in implementation of the CAC regime is a
cause of concern for VSNL.
LXXII

RESEARCH METHODOLOGY
Research is often described as an active, diligent and systematic process of inquiry aimed at
discovering, interpreting and revising facts. This intellectual investigation produces a greater
understanding of events, behavior or theories and makes practical applications through laws and
theories. The term research is also used to describe a collection of information about a particular
subject, and is usually associated with science and scientific method.
BASIC RESEARCH:
Basic research is also called as fundamental or pure research. Its primary objective is the
advancement of knowledge and the theoretical understanding of the relations among the variables.
It is exploratory and often driven by researcher’s curiosity or interest. It is conducted without any
practical end in mind. Basic research often lays down the foundation for further applied research.
APPLIED RESEARCH:
Applied research is done to solve specific, practical questions. Its primary objective is not to
gain knowledge for its own sake. It is usually descriptive in nature. It is almost always done on the
basis of basic research. As far as equity research is concerned there are two types of research
methods that are followed:
 Fundamental analysis
 Technical analysis
Financial statement analysis is the biggest part of Fundamental analysis also known as
quantitative analysis, it involves looking at historical performance data to estimate the future
performance of stocks whereas Technical analysis does not care one bit about the value of the
company, it is only interested in the price movements of the company s share in the market.
LXXIII

This project deals with the fundamental analysis aspect of the equity research. The
researcher in this project has tried to look into the details of the financial statements of the
companies, the environment surrounding the telecom sector, the latest developments in this regard,
the management discussions on the part of every company and the government policies concerned
with the telecom sector.
DATA COLLECTION:
• Primary data for a project is the first hand information regarding the project being studied.
In this regard the primary data for this project would be getting the necessary information
from the company management by an interview, telephonic conversation or direct mail.
• Secondary data for a project would be the collection of information that has a bearing on the
outcome of the project from secondary sources like news, press releases, internet etc.
The data collected for this project was from a secondary source. The data was complied with
the help of sources like News articles, Internet, Capitaline software. In this research, primary data
could not be gathered as the company officials could not be contacted for a one to one interview or
a telephonic interview.
LXXIV

FINDINGS
BHARTI AIRTEL LTD
• Investment rationale:
At CMP 880.75 (as on 13 June 2012) the share price trades at 41.4 times (on the basis EPS of
FY2011 i.e. 21.27) and at 30.59 times (on the basis EPS of FY 2012e i.e. 28.79). I predict that the
share prices would rise from 880.75 to 1079.63 in a span of 8 months to 10 months.
• New technologies and paradigms:
The trend towards adoption of Next Generation Networks (NGN) is global and the discussions
in India are still at a preliminary stage. Technologies like Triple Play, wherein a single cable can
deliver voice, data and video on demand and IPTV, provide the company with a unique opportunity.
• Global foray:
Sri Lanka is the first international operation of Bharti Airtel and is in line with the Company's
plan to expand its telecom operations internationally in select markets. Bharti Airtel is in the
process of preparing a detailed business plan for rolling out GSM operations in Sri Lanka within the
next financial year.
• Strong strategic partnerships:
Singtel continues to be an investor and a strategic alliance partner and the company expects to
leverage the strengths and experience of Singtel in years to come
LXXV

RECOMMENDATIONS
• On completion of the company analysis, I feel that Bharti Airtel is fundamentally a very
strong company and has a tremendous growth potential. I recommend BMA Wealth Creators
Ltd. and all its clientele to Buy/Hold the company’s shares and derive maximum value from
it.
• Bharti Airtel is holds fundamentally and technically strong in the market as on the basis EPS
of FY2011 i.e. 21.27 and further as on the basis EPS of FY 2012 i.e. 28.79, the shares of the
company will shares their shares in the span of 8 to 10 months.
LXXVI

LIMITATIONS
• While conducting the research I was unable to collect data from primary source which I feel
would have had a bearing on the outcome of the research. Through interviews with the
concerned authorities I could have got first hand information about the company and this
could have certainly given me a broader perspective on the company’s future plans.
• Future changes are largely unpredictable; more so when the economic and business
environment is buffeted by frequent winds of change. In an environment characterized by
discontinuities, the past record proves to be a poor guide to future performance.
• The market behavior if irrational may give rise to – under-valuations for extended periods;
over-valuations from unjustified optimism and misplaced enthusiasm for unreasonable
lengths of time. The slow correction of under or over valuation poses a threat to the analysis.
LXXVII

ASSUMPTIONS
To arrive at a target price of the socks mentioned above, following assumptions were made:
 The estimated growth in sales is calculated by taking Compound Annual Growth Rate for
last five years.
 The Operating Profit Margin is assumed to be constant, to arrive at operating profit figure.
By keeping the OPM % constant we can arrive at the operating profit for next year.
 Depreciation rate is assumed to be constant, due lack of availability of facts about assets,
method of calculating depreciation, depreciation is assumed to be constant.
 Interest and tax rate are taken as per the current rates. That helped to arrive at more accurate
figures.
 Profit earning ratio is assumed to be constant. As EPS is calculated from estimated profits,
target price is calculated by keeping P/E constant.
LXXVIII

CONCLUSION
 Strong growth in subscriber base, increasing non voice revenues and lowering fixed cost per
unit, the Indian telecom service sector is set to report buoyant growth in revenues and
profitability in the short to medium term.
 There are two key drivers for the growth in this business. First, the enhanced capability of
the Company to deliver services on a global basis is attracting new customers and opening
up new markets. Second, there is significant growth in the existing customers' businesses
globally.
 Bharti Airtel, one of the major payers in the telecom service provider industry has attained a
significant market share in the country with its widespread network, huge subscriber base
and quality service. Also, the company to make its presence felt all across the globe, is
spreading its wings to international markets.
 VSNL, a company striving to make its presence felt in domestic as well as international
market is lagging behind in the race against the new players. The reason behind this is the
inability of the company to operate efficiently due to the large number of its subsidiaries,
because of which there is no direct access to its end customers
LXXIX

BIBLIOGRAPHY
WEBSITES:
 www.bmawc.com
 www.google.com
 www.capitalline.com
 www.bseindia.com
 www.nseindia.com
 www.trai.gov.in
BOOKS:
 Investment Analysis and Portfolio Management- Prasanna Chandra.
 Security Analysis and Portfolio Management – Punithavathy Pandian
LXXX

Equity Research - Fundamental analysis

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