Fm.finalterm Paper.12

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Acknowledgement

I would like to express my gratitude for the helpful comment and Suggestions by myteacher.

Most importantly I would like to thank my lecturer Ms. Sukhwinder Kaur for her days of supervision. Her critical direction and support on work has played a major role in both the content and presentation of our discussion and arguments in our tutorial classes.Also her method of teaching and clearance of doubts regarding with the topic have mademe successful to complete it on time. I would also thank my friends and related personsfor their help in preparing this term paper.

I have extended my appreciation to the several sources which provided various kinds of knowledge base support for me during the research.

Megha Tah



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TABLE OF CONTENTS

CONTENTS PAGE No.

1.) EXEVUTIVE SUMMARY 4

2.) INTRODUCTION 4

3.) RELIANCE COMMUNICATION LTD 5

4.) BHARTI AIRTEL 11

5.) COMPARATIVE ANALYSIS OF DIVIDEND POLICY 17

6.) EVALUATION ANALYSIS AND CONCLUSION 27



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EXECUTIVE SUMMARY

Dividend payout is one of the firm¶s most important decisions; it is a kind of repayingshareholders the money they have paid for purchasing shares. Most financial managerstend to level the dividend payouts by not reducing it from the last year. Paying dividendsis deemed as a management¶s signal to financial markets that company is concernedabout its shareholders interests, and increasing the dividends signals that company iscertain about potential of future growth of the company. However, adding to thisargument some companies do not pay dividend at all and companies like Bharti Airteland Microsoft is best example of this. Not paying dividends signifies that the company isexploring new investment avenues and wish to retain the profits and invest them in useful projects thus adding value to the shareholders investment.

Bharti Airtel and Reliance Communication are two companies listed both on Sensex and Nifty; we however shall be considering Sensex for our further discussions. Bothcompanies are entirely different in their dividend policies. Bharti Airtel, since its

establishment had never paid dividend except the year 2009, on the other hand Reliancecommunication had paid dividend each year. As an investor we shall carry outcomparative analysis using CORE approach1 (Context, Overview, Dividend Ratios andEvaluation). Discussion will be supported by relevant facts and figures and finallyconcluded by discussing various pros and cons of each type of dividend policy.

INTRODUCTION

As discussed earlier we shall be using be using core approach fo r our comparativeanalysis, we shall be starting with context and figure in which environment both thecompanies are operating what are various endogenous and exogenous factors , what arethe rules and regulations in telecom industry and what are the variou s factors contributingto performance of the company. In the overview section we shall be discussing about therevenues generated by each company, profits level and how it affects the dividend policy.Then we will look at various ratios like dividend payout ratios, earnings per share and price earnings ratio. Having looked at each important aspect of the company we shall beevaluating each company based on their performance and eventually conclude our discussion.

OBJECTIVE OF THE STUDY

1) To understand the dividend policy of Airtel and Reliance comm. Ltd.

2

) To comprehend the reason of increasing/decreasing of dividend each year.

3) To make out the comparison analysis of dividend in Reliance comm. ltd and

Bharti Airtel.



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RELIANCE COMMUNICATION LTD

HISTORY OF RELIANCE COMMUNICATION

Late Dhirubhai Ambani had a vision of making tools of communication available tocommoners thereby allowing them to overcome barriers of mobility. Likewise, RelianceCommunications is capable of delivering services covering entire gamut of informationand communication value chain. Their products and services include infrastructuresetting, applications and consultancy.

Reliance Communications was set up as Reliance Infocomm in 1999 and from 2000

onwards laying of optical fibers started in Maharashtra, Gujarat and Andhra Pradesh.Reliance Infocomm was inaugurated in 2002 and first of interconnect (POI) wasestablished in New Delhi in same year. Also in that year, Reliance Communicationscommissioned their 1st optic fiber backbone. In 2005, this company launched globalroaming facility and CDMA services. Reliance Communications was formed in 2006 andlisted in Bombay and National stock exchanges.

Reliance Communications Limited founded by the late Shri. Dhirubhai H Ambani (1932 -

2002) is the flagship company of the Reliance Anil Dhirubhai Ambani Group. It is India'sforemost truly integrated telecommunications service provider. With a customer base of over 36 million including close to one million individual overseas retail customers,

Reliance Communications ranks among the top ten Asian Telecom companies. Itscorporate clientele includes 600 Indian, 250 multinational corporations and over 200global carriers and owns and operates the world's largest next generation, IP enabledconnectivity infrastructure, comprising over 150,000 kilometres of fiber optic cablesystems in India, USA, Europe, Middle East and the Asia Pacific region.



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Board of Directors

Balance Sheet o

RelianceCommunications

------------------- in Rs. Cr. -------------------

Dec '05 Mar '07 Mar '08 Mar '09

9 months 15 months 12 months 12 months

Sources Of Funds

Total Share Capital 0.05 1,022.31 1,032.01 1,032.01

Equity Share Capital 0.05 1,022.31 1,032.01 1,032.01

Share Application Money 611.57 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 14,783.43 19,503.23 23,808.02 50,658.31

Revaluation Reserves 0.00 0.00 0.00 0.00

Net worth 15,395.05 20,525.54 24,840.03 51,690.32

Shri Anil D. Ambani - Chairman

Promoter, non-executive and non-independent Director

Prof. J Ramachandran

Independent Director

Shri S.P. Talwar


Shri Deepak Shourie


Shri A.K.Purwar




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Secured Loans 0.00 5,113.57 950.00 3,000.00

Unsecured Loans 0.00 9,454.27 19,336.43 27,903.61

Total Debt 0.00 14,567.84 20,286.43 30,903.61

Total Liabilities 15,395.05 35,093.38 45,126.46 82,593.93

Dec '05 Mar '07 Mar '08 Mar '09


Application Of Funds

Gross Block 198.09 20,625.82 21,576.32 37,941.15

Less: Accum. Depreciation 31.85 2,527.37 4,688.69 6,533.38

Net Block 166.24 18,098.45 16,887.63 31,407.77

Capital Work in Progress 0.00 2,185.60 7,117.56 3,643.86

Investments 12,074.10 5,434.43 13,844.14 31,364.75

Inventories 0.00 98.51 201.22 253.14

Sundry Debtors 0.00 802.11 1,093.21 1,482.22

Cash and Bank Balance 0.05 28.08 192.65 534.89

Total Current Assets 0.05 928.70 1,487.08 2,270.25

Loans and Advances 3,158.91 19,137.97 17,028.20 23,272.50

Fixed Deposits 0.00 40.37 0.01 0.26

Total CA, Loans & Advances 3,158.96 20,107.04 18,515.29 25,543.01

Current Liabilities 1.68 6,309.33 7,214.31 5,774.74

Provisions 2.57 4,422.81 4,023.85 3,590.72

Total CL & Provisions 4.25 10,732.14 11,238.16 9,365.46

Net Current Assets 3,154.71 9,374.90 7,277.13 16,177.55

Miscellaneous Expenses 0.00 0.00 0.00 0.00Total Assets 15,395.05 35,093.38 45,126.46 82,593.93

Contingent Liabilities 0.00 3,781.30 4,392.73 6,555.82

Book Value (Rs) 1,478,347.67 100.39 120.35 250.43

Analysis:



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Reliance communication total fixed asset s increased by 37,467.47 while liabilities are

Increased by 10,617.18 so company assets are more than liabilities .this shows company position is good or satisfactory.

Profit & Loss account of

Reliance

Communications------------------- in Rs. Cr. -------------------

Dec '06 Mar '07 Mar '08 Mar '09


Income

Sales Turnover 0.00 12,756.30 14,792.05 15,086.66

Excise Duty 0.00 0.00 0.00 0.00

Net Sales 0.00 12,756.30 14,792.05 15,086.66

Other Income 13.26 231.89 520.53 4,148.13

Stock Adjustments 0.00 0.00 0.00 0.00

Total Income 13.26 12,988.19 15,312.58 19,234.79

Expenditure

Raw Materials 0.00 16.48 15.15 29.95

Power & Fuel Cost 0.00 266.74 91.76 138.32

Employee Cost 1.11 684.40 858.65 758.36

Other Manufacturing Expenses 0.00 3,091.60 4,052.45 5,837.25

Selling and Admin Expenses 0.23 2,841.53 2,622.58 3,673.92

Miscellaneous Expenses 0.33 342.54 978.17 898.81

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00

Total Expenses 1.67 7,243.29 8,618.76 11,336.61

Dec '05 Mar '07 Mar '08 Mar '09




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Operating Profit -1.67 5,513.01 6,173.29 3,750.05

PBDIT 11.59 5,744.90 6,693.82 7,898.18

Interest 0.00 456.55 870.05 1,153.24

PBDT 11.59 5,288.35 5,823.77 6,744.94

Depreciation 2.74 1,836.12 1,843.66 1,933.51

Other Written Off 0.00 0.00 0.00 0.00

Profit Before Tax 8.85 3,452.23 3,980.11 4,811.43

Extra-ordinary items 0.00 0.00 0.00 3.80

PBT 8.85 3,452.23 3,980.11 4,815.23

Reported Net Profit 5.65 2,408.85 2,586.45 4,802.67

Total Value Addition 1.66 7,226.81 8,603.61 11,306.66Preference Dividend 0.00 0.00 0.00 0.00

Equity Dividend 0.00 102.23 154.80 165.12

Corporate Dividend Tax 0.00 17.37 26.31 28.06

Per share data (annualised)

Shares in issue (lakhs) 1.00 20,446.15 20,640.27 20,640.27

Earnings Per Share (Rs) 565.39 11.78 12.53 23.27

Equity Dividend (%) 0.00 10.00 15.00 16.00

Book Value (Rs) 1,478,347.67100.39 120.35 250.43

ANALYSIS

In profit and loss statement income increased by 3922.21 in 2009 and expenditure is2717.85 so company is in satisfactory position.



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RELIANCE COMMUNICATION: A GLANCE OF STOCK

MARKET

Month

Open High Low Close

Price Price Price Price

9-Jan 228 265.45 155 170.2

9-Feb 168 183.75 150.3 155.45

9-Mar 153.1 188.4 131.35 174.6

9-Apr 175.15 240.9 172.65 214.95

9-May 218 346.8 211.75 305.8

9-Jun 312.05 359 282.65 289.9

9-Jul 290 302.85 228.5 275.659-Aug 276.5 293.4 221.35 260.5

9-Sep 262.25 317.3 260.6 308

9-Oct 307.95 319.7 175 175.95

9- Nov 165 183 162.25 171.95

9-Dec 172 189.9 168.3 172.9

10-Jan 175.9 193.8 166 169.85

10-Feb 169.1 176 154.55 157.

35

10Mar 159.25 174.1 156.8 170.7

10-Apr 174 174 169.55 170.95



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Reliance news related to share market:1. Reliance Comm has target of Rs 185 thacker: Reliance comm. Target 185 becausecontinuously 52 weeks high in market price.

2. Sensex gain 100pts on Asian cues: RiL leads: As Reliance Infrastructure rose 2.5%,as promoters invested Rs 1,821 crore in company via warrant conversion. Pr omoter stakewill go up to 43% versus 38% and converted warrants at Rs 929/share

3.R.COMM rings in 8.3% net rise at Rs 1637cr : After a year to year decline Airtel isthe country¶s second largest mobile operator 8.3% jump in net profit and growth in

revenues from mobile and broadband operations.

4.R.COMM o1 net up 24% to invest Rs 50k cr in FY 09: By investing on wirelessconnection reliance net profit rise 24% in 2009 by investing 40,000 crore.

5.R.COMM rise in 71% in net profit: Again in broadband connection and in wirelessconnection Airtel gain 71% profit and continuously high in market s

BHARTI AIRTEL LIMITED

Incorporated on July 7, 1995, Bharti Airtel Ltd is a division of Bharti Enterprises. The businesses of Bharti Airtel are structured into two main strategic groups - Mobility andInfotel. The Mobility business provides GSM mobile services in all 23 telecommunications circles in India, while the Infotel business group provides telephoneservices and Internet access over DSL in 15 circles. The compan y complements itsmobile, broadband, and telephone services with national and international long -distanceservices. The company also has a submarine cable landing station at Chennai, whichconnects the submarine cable connecting Chennai and Singapore. Bhar ti Tele-Ventures



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provides end-to-end data and enterprise services to corporate customers by leveraging itsnationwide fibre-optic backbone, last mile connectivity in fixed -line and mobile circles,VSATs, ISP and international bandwidth access through the g ateways and landingstation. All of Bharti Tele-Ventures' services are provided under the Airtel brand.

As of September 2005, Bharti Tele-Ventures was the only company to provide mobile

services in all 23 telecom circles in India.

Corporate Structure

Balance Sheet of Bharti

Airtel------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 1,893.88 1,895.93 1,897.91 1,898.24

Equity Share Capital 1,893.88 1,895.93 1,897.91 1,898.24

Share Application Money 12.13 30.00 57.63 116.22



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Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 5,437.42 9,515.21 18,283.82 25,627.38

Revaluation Reserves 2.13 2.13 2.13 2.13

Net worth 7,345.56 11,443.27 20,241.49 27,643.97

Secured Loans 2,863.37 266.45 52.42 51.73

Unsecured Loans 1,932.92 5,044.36 6,517.92 7,661.92

Total Debt 4,796.29 5,310.81 6,570.34 7,713.65

Total Liabilities 12,141.85 16,754.08 26,811.83 35,357.62

Mar '06 Mar '07 Mar '08 Mar '09


Application Of Funds

Gross Block 17,951.74 26,509.93 28,115.65 37,266.70

Less: Accum. Depreciation 4,944.86 7,204.30 9,085.00 12,253.34

Net Block 13,006.88 19,305.63 19,030.65 25,013.36

Capital Work in Progress 2,341.25 2,375.82 2,751.08 2,566.67

Inventories 17.74 47.81 56.86 62.15

Sundry Debtors 1,076.17 1,418.52 2,776.46 2,550.05

Cash and Bank Balance 201.81 239.11 200.86 153.44

Total Current Assets 1,295.72 1,705.44 3,034.18 2,765.64

Loans and Advances 1,937.54 3,160.02 5,103.13 5,602.83

Fixed Deposits 105.61 541.35 302.08 2,098.16

Total CA, Loans & Advances 3,338.87 5,406.81 8,439.39 10,466.63

Deffered Credit 0.00 0.00 0.00 0.00

Current Liabilities 6,735.36 9,809.83 12,400.38 13,832.49

Provisions 537.44 1,232.84 1,961.95 634.40

Total CL & Provisions 7,272.80 11,042.67 14,362.33 14,466.89

Net Current Assets -3,933.93 -5,635.86 -5,922.94 -4,000.26

Miscellaneous Expenses 7.94 2.66 0.20 0.09

Total Assets 12,141.84 16,754.07 26,811.84 35,357.62

Contingent Liabilities 4,740.34 7,615.04 7,140.59 4,104.25



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Book Value (Rs) 38.71 60.19 106.34 145.01

Analysis:

In Bharti Airtel total asset are increased 8545.78 while liabilities are increased by1143.31 so company position is good.

Profit & Loss account o

Bharti Airtel ------------------- in Rs. Cr. -------------------

Mar '06Mar '07 Mar '08 Mar '09

12 mths

12 mths 12 mths 12 mths

IncomeSales Turnover 11,259 17,851.61 25,761.11 34,048.32

Excise Duty 0.00 0.00 0.00 0.00

Net Sales 11,259 17,851.61 25,761.11 34,048.32

Other Income 26.94 105.62 104.04 -1,261.75

Stock Adjustments -13.84 30.07 9.05 5.29

Total Income 11,272 17,987.30 25,874.20 32,791.86

Expenditure

Raw Materials 53.56 52.16 42.90 17.70

Power & Fuel Cost 0.00 0.00 0.00 0.00

Employee Cost 734.20 1,076.95 1,297.88 1,397.54

Other Manufacturing Expenses 3,299.73 5,017.27 7,339.01 8,627.13

Selling and Admin Expenses 2,804.85 4,030.48 5,892.50 9,385.68

Miscellaneous Expenses 314.37 444.28 535.46 1,409.89

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00

Total Expenses 7,206.71 10,621.14 15,107.75 20,837.94

Mar '06 Mar '07 Mar '08 Mar '09


Operating Profit 4,038.57 7,260.54 10,662.41 13,215.67

PBDIT 4,065.51 7,366.16 10,766.45 11,953.92



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Interest 236.81 282.07 393.43 434.16

PBDT 3,828.70 7,084.09 10,373.02 11,519.76

Depreciation 1,432.34 2,353.30 3,166.58 3,206.28

Other Written Off 127.39 137.80 266.07 178.82

Profit Before Tax 2,268.97 4,592.99 6,940.37 8,134.66

Extra-ordinary items 17.64 9.92 -60.67 -46.15

PBT (Post Extra-ord Items) 2,286.61 4,602.91 6,879.70 8,088.51

Tax 273.68 566.79 632.43 321.78

Reported Net Profit 2,012.08 4,033.23 6,244.19 7,743.84

Total Value Addition 7,153.15 10,568.98 15,064.84 20,820.24

Equity Dividend 0.00 0.00 0.00 379.65Corporate Dividend Tax 0.00 0.00 0.00 64.52

Per share data (annualised)

Shares in issue (lakhs) 18,938 18,959.34 18,979.07 18,982.40

Earnings Per Share (Rs) 10.62 21.27 32.90 40.79

Equity Dividend (%) 0.00 0.00 0.00 20.00

Book Value (Rs) 38.71 60.19 106.34 145.01

ANALYSIS

In profit and loss account it reveals that total income is increased by 6917.66 andtotal expenditure increased by 5730.19 so Airtel expenses are less than income itshows company is having satisfactory position.



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BHARTI AIRTEL LIMITED IN STOCK MARKET

Month

Open High Low Close

Price Price Price Price

9-Jan 719.7 725 576 633.859-Feb 627 678.4 607 636.65

9-Mar 625 637 544 625.8

9-Apr 625.8 759.6 594.3 749.3

9-May 760 990 738.7 819.65

9-Jun 921 921 741 802.1

9-Jul 800.35 864 404.25 410.55

9-Aug 410.55 439 360.1 424.7

9-Sep 429 453 395.1 418.559-Oct 435 467 290.3 292.15

9- Nov 285 325.45 229.5 299.7

9-Dec 302 348.8 300 328.8

10-Jan 330 349.8 304.65 306.5

10-Feb 305.5 323.8 269.65 279.25

10-Mar 281.6 321 280 311.9

10-Apr 315 315.6 300.35 302.15



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BHARTI AIRTEL NEWS RELATED TO SHARE MARKET :

1. Bharti Deal i-banker get 3rd

time lucky: 3rd time lucky again in deal of Kuwait firm

zian¶s African operation.

2. Bharti Airtel shares up on Zain but execution a challenge: After investing in zian¶African deal operations market share rise but only 2.7% still challenge.

3. Limited downside in Bharti Airtel Bharti Airtel the short term pressure has beenfactored in because if it wouldn't have been factored in, the stock would not have been atthese levels. I think the stock should have been Rs 350 -370 but only because of theoverhang of the Zain acquisition it is at about Rs 300 levels, so I see limited downsidefrom these levels.

4. Sensex sluggish in afternoon trade, Bharti outperforms (Lead): as market is 18

points higher than before it seems for Airtel to overseas acquisition is almost complete .

5. Telecom boom boosts Bharti Airtel: With more advancement in broadband serviceand in handsets there is increase of 5 % in market which shows there is telecom boom

COMPARATIVE ANALYSIS OF DIVIDEND POLICY- BHARTI

AIRTEL AND RELIANCE COMMUNICATIONS

The Indian telecommunication industry, with about 564 million mobile phoneconnections as of Feb 2010 is the third largest telecommunication network in the worldand the second largest in terms of number of wireless connections. The Indian telecomindustry is the fastest growing in the world and is projected that India will have a 'billion plus' mobile users by Jan 2012. It is worth noting that the Indian Mobile subscriber basegrew by approximately twice in just four years (from 28.56 million subscribers in Dec2000 to 75.5 million subscribers in Dec 2005) and then over the next four it grew four folds (from 75.50 million subscribers in Dec 2005 to 430.12 million subscribers in Dec



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2009). Exhibit 1 shows the growth in number of subscribers from 2000 to 2009.

28.5 36.2 44.954.6

75.598.4

140.3

206.8

300.5

430.12

0

50

10 0

15 0

20 0

25 0

30 0

35 0

40 0

45 0

50 0

2 00 0 2 001 20 02 20 03 2 00 4 2 00 5 20 06 20 07 2 00 8 2 00 9

No. Of Subscribers

No. Of Subscribers

Exhibit 1: Number of Subscribers (Source TRAI)2

Bharti Airtel had a first mover advantage in telecom industry by bringing mobilerevolution to India in 1995; this also gives it a competitive edge over other pla yers in thetelecommunication. Reliance however since its establishment in 2006 had always be aclose competitor of Bharti Airtel. Its business model is based on providing low costservice and mobile phones to every individual in the country. Bharti Airtel deals withonly GSM connection while Reliance Communication deals with both CDMA and GSM

connections. There have been frequent price wars among all the major players in themarket thus benefiting the end consumers. Telecom industry is also characterised b y onehaving high marketing expenses, holding huge fixed assets and big revenues as thecustomer base is growing. However as shown in Exhibit 2 both the players controls over 43% of total market share others players like Vodafone and TATA are very activethough.

2 Telecom Regulatory Authority of India TRAI 2009 annual report



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Exhibit 2: Market Share of major wireless operators in 2009 (Source TRAI)3

Telecom Regulatory Authority of India is the governing body that ensures the greater competition in the telecom sector together with better quality and affordable prices inorder to meet the objectives of New Telecom Policy, 1999.

OVERVEIW

BHARTI AIRTEL

Bharti Airtel (Airtel) is one of the leading providers of telecommunications services inIndia. The company offers mobile, wire line, broadband and television services. It is alsoengaged in passive telecom infrastructure services business through subsidiary, Bharti

Infratel. At the end of FY2009, it had a customer base of 93.9 million for mobile servicesand 2.7 million for telemedia services.

The company¶s mobile services segment offers mobile services using GSM technologyon 900MHz and 1800MHz bands. At the end of FY2009, it had 93,923,248 mobilecustomers, representing a market share of 24% of the wireless market in India. It offers post- paid, pre- paid, roaming and value added services through its sales and distributionchannel, covering 1,191,323 outlets. These services are provided under the Airtel brand.

In January 2009, the company also launched services in Sri Lanka. These services have

beenlaunched on 3.5G network. In January 2010, Airtel achieved a presence in Bangladesh byacquiring a 70% stake in Warid Telecom, a wholly owned subsidiary of the Dhabi Groupin Bangladesh offering mobile services.

3 Telecom Regulatory Authority of India TRAI 2009 annual report



20

The telemedia services segment offers broadband and fixed line services through digitalsubscriber line (DSL), direct -to-home (DTH) TV and IPTV services. At the end of FY2009, it had 2,726,239 customers, of which 39.3% were subscribing to broadband/internet services. The segment mainly focuses on small and medium busi nessenterprises.The enterprise services group, including enterprise services carriers and

enterprise services corporate segments, offers a portfolio of services to carrier and largeenterprise customers, respectively.

Its international infrastructure includes ownership of the i2i submarine cable systemconnecting Chennai to Singapore, consortium ownership of the SMW4 submarine cablesystem and investment in capacities across a number of diverse submarine cable systemsacross transatlantic and transpacific routes. Additionally, in the recent past, it hasannounced investments in new cable systems such as Asia America Gateway (AAG),India Middle East and Western Europe (IMEWE), Unity North, EIG Europe IndiaGateway) and Eastern Africa Submarine Cable System (EASSy)4.

Main shareholders of Bharti Airtel are as follows:

SHARE HOLDERS % SHARE

Bharti Telecom 45.3%Pastel Limited 15.58%

Indian Continent Investment Limited 6.27%

Life Insurance Corporation Of India 4.23%

Europacific Growth fund 1.68%

Fidelity Management 1.26%

Table 1: Main Stake holders of Bharti Airtel

The company recorded revenues of INR 373520.8 million ($8,150.2 million) during thefinancial year ended March 2009 (FY2009), an increase of 38.3% over 2008. Increase inrevenues was mainly due to strong growth in customer base. In FY2009, India, thecompany's largest geographic market, accounted for 93.9% of the total revenues.

4 Datamonitor Report ³Bharti Airtel´, Company Profile, Publication Date : 24/04/2010



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50369

81558

116641

184202

270122

373521

0

50000

100000

150000

200000

250000

300000

350000

400000

2004 2005 2006 2007 2008 2009

Revenues (Rs mn)

Revenue s (Rs mn)

Exhibit 3: Increase in Revenues (Rs. mn)

The company is an integrated telecom company wi th presence in infrastructure,wholesale services, enterprise and customer services, and presence in other related areasof the telecom market. Integrated operations provide a competitive advantage to thecompany by allowing it to maintain control on quality of services delivery and expand itsofferings. However, increasing competition in the Indian telecom market may affect itsmarket share in coming years.

Integrated operations, strong brand value and significant strategic partnerships with

Yahoo, Apple and IBM are the main strengths of Airtel. However on closely identifyingthe annual report we will observe that revenues are increasing each year but Averagerevenue per customer is decreasing which is the main weakness. The decreasing averagerevenue per customer is because of increasing competition and frequent price wars. Other major threat for Bharti Airtel is the regulations imposed by TRAI for e.g. billingcomplaints should be resolved within a maximum of four weeks. For cellular services,the benchmark for call drop rates has been revised from less than 3% to less than or equalto 2%. However, Bharti Airtel has minimised these threats by incorporating new servicesto its spectrum and by expanding internationally. The company has been expanding its presence outside India in recent times through acquisitions and product launches in

various countries. The company¶s experience in the Indian market and its low cost business model has facilitated it to enter various emerging markets, such as Sri Lankan,Bangladesh and Africa. Airtel entered the Sri Lankan market for telecom services inJanuary 2009 and also created a terrestrial cable network for Bhutan.



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RELIANCE COMMUNICATION

Reliance Communications (RCOM) is an integrated communications service provider inIndia. The company is part of the Reliance Anil Dhirubhai Ambani Group. The companyserves consumer, enterprise and carrier customers. It operates a full spectrum of wireless,

wireline, and long distance, voice, data, video and internet communicatio n services. Italso offers direct-to-home (DTH) TV services under the brand, Big TV. The company

also participates in submarine cable network infrastructure, and owns, operates anddevelops telecom infrastructure, such as wireless communications sites and towers.

The company operates through three business segments: wireless, global and broadband.Its other operations include investments and other business not reported under segments.Until FY2009, the company operates through five business segments: wireless, global, broadband, investments and others.

The segment operates in 44 cities in India with close to 967,100 buildings connecteddirectly to network serving close to 1.42 million access lines. In the top 10 cities of India,it augments building connectivity program through deployment of WiMAX 802.16dtechnology. It also has plans to use the WIMAX technology to provide last mile toenterprise customers in more than 100 cities in PAN India in FY2010. Reliance¶senterprise customer base includes over 850 of the top 1,000 Indian enterprises andMNCs.

Reliance World (formerly Reliance WebWorld) is a nationwide chain of retail outletsoffering products and services of the Reliance Anil Dhirubhai Ambani Group. The

Reliance World outlets are connected to RCOM¶s countrywide optic fibre network. Thecompany operates 241 Reliance World outlets across 105 cities in the country.

Reliance generated revenue of INR 136940 in FY 2009 an increase of 2% as compared to previous fiscal year¶s revenue of INR 134260.

Major strength of Reliance which it enjoys over Bharti Airtel is its big corporate house backing. This difference is clearly reflected out in the annual report that Reliance holdsmore fixed assets than Airtel and had less gearing ratio (a balanced debt and equity).Strong brand value enhances the company¶s ability to penetrate new markets and enhance

customer loyalty.

RCOM is an integrated telecom operator in India. The company¶s operations encompasswireless, wireline and long distance retail operations, data centre and IT relatedoperations, telecom infrastructure business, and retail network. Its services offeringscover 23,000 towns, 600,000 villages and all major railway routes and highways,covering 90% of the country¶s population. Its infrastructure base includes national inter -city long distance network of over 160,000 route kilometres of ducted fibre optic cables,



23

over 180 MPLS integrated network nodes of Reliance Data Network, and over 304,000square feet of internet data centre capacity in multipl e locations.

DIVIDEND PATTERNS & DIVIDEND RATIOS

RELIANCE COMMUNICATIONS

Reliance Communications Limited published its first annual report in 2006, in which theyearned revenue of Rs 107,664 million. The dividend Reliance paid in the 4Q of 2006 wasRs 84.5 million so we can approximate the total dividend paid up by Reliance in thewhole year 200d to be Rs 330 million. Exhibit 4 clearly depicts that Reliancecommunications has always outperformed the BSE index except form 2009 till today,this can be attributed to

Exhibit 4: Movement of Reliance with BSE Index (Source: Moneycontrol.com,

CNBC)5

the global economic turmoil. Despite the global economic turmoil Reliance continues toentice its share holders by paying high dividends.

5Website http://www.moneycontrol.com/india/stockpricequote/telecommunicationsservice/reliancecommunications/RC13 asaccessed on 29/04/2010



24

0.00

0.

00.

¡

0.¢ 0

0.00

0.10

0.20

0.30

0.40

0.£

00.

¤

0

0.¥

0

0.¦

0

0.§

0

20 0 ̈

20 0©

20 0¦

200§

Dividend Paid Each Year

Di

id

d Paid Each Y

ar

Exhibit 5: Dividends paid each year (Reliance Communication Published accounts

2006-09)

Exhibit 5 depicts that Reliance¶s management had always showed concern for itsshareholders by increasing the dividends each year. In the beginning the companyobtained its share capital from Reliance Industries limited and got separated under theReliance Infrastructure Limited, which was the changed finally to RelianceCommunication Limited as a result of this the company divided Rs 10 face value sharesto Rs 5 face value thus doubling the total number of shares. The total number of

shareholding in Reliance can be shown in the following table:

umber hares ear

1250000000 200

20

1

0.00 200

20

02 1 200

20

02 1 200

Table 2: umber o hares rom 2006 to 2009 (Reliance Comm. Published annual

reports)

The graph shows that with over the time Reliance had increased its equity by issuingmore shares. In 200 , The Board of Directors of the Company have proposed a maiden

dividend of Re. 0.50 (10%) per Equity Share of the Company for the financial year ended31st March, 200 , subject to the approval by shareholders at the ensuing Annual GeneralMeeting (AGM). In 200 , Directors recommended a dividend of Re. 0. 5 (15%) per equity share each of Rs. 5 for the financial year ended 31st March, 200 , which, at theensuing Annual General Meeting, will be paid to (i) all those equity shareholders whosenames appear in the Register of Members as on 23rd September, 200 and (ii) to thosewhose names as beneficial owners, are furnished by the National Securities DepositoryLimited and Central Depository Services (India) Limited for the purpose. Company¶s



25

policy to pay sustainable dividend linked to long term performance, keeping in view thecapital needs for the Company¶s growth plans and the intent to optimal financing of such plans through internal accruals.

In 2009, Directors at their meeting held on 31st July, 2009 declared a dividend of Re.

0.80 (16%) per equity share each of Rs. 5 for the financial year ended 31st March, 2009and paid to all eligible equity shareholders of Reliance Comm on 6th August, 2009. In

terms of approval received from Reserve Bank of India, Reliance Comm had repurchased350 Zero Coupon FCCBs each of US $ 1,00,000 aggregating Rs.169.99 crore approx.(US $ 35 Million) at a discount during the year under review. In the current financialyear, Reliance Comm has also repurchased and cancelled 297 Zero Coupon FCCBs eachof US $ 1,00,000 at a discount.

Reliance Employee Stock Option Scheme

In 2008, Reliance offered Employee Stock Option Scheme (ESOS / Scheme) aimed toattract, retain and motivate the Employees. On 9th March, 2008 the ESOS CompensationCommittee had approved to grant upto 1,75,00,000 Options exercisable into equalnumber of fully paid up equity shares of the Company to eligible employ ees of theCompany, subsidiaries and holding company in accordance with the Scheme. The actualnumber of options granted to the eligible employees including non -executive independentdirector of the Company and its subsidiary was 1,49,91,185. In 2009, ESOSCompensation Committee of the Board of Directors of Reliance Communication on 16thJanuary, 2009 approved grant of 1,32,17,975 Options, exercisable into equal number of fully paid up equity shares of the Company to the eligible employees of the Company, i ts

subsidiaries and holding Company based on specified criteria under ³Employees Stock Option Scheme´ (ESOS) and the ESOS Plan 2009. In order to be eligible under the ESOSPlan 2009, employees were required to confirm the surrender of Options to which theywere entitled to under the Employees Stock Options Plan 2008 (Plan 2008).Consequently, the aggregate number of Options under Plan 2008 and the Plan 2009 shallnot exceed 1,32,17,975 Options.

On analysing earnings per share also described as total revues divided by total number of shares is also observed to increase with time as follows:



26

3 63

15 74

26 32

29 29

0 00

5 00

10 ! 00

15 00

20 00

25

00

30 ! 00

35 00

2006 2007 2008 2009

E n ngs p shar ( s.)

E " rning # p $ r # % " r $ & R # ! '

Exhibit 6: Earnings per share (Source: Reliance¶s published Annual Reports)BHARTI AIRTEL

Bharti Airtel on the other hand is a totally different company as compared to its closestrival, as it had never paid a dividend at all. However on BSE it had always outperformedthe index as shown in Exhibit 7:

Exhibit 7: Movement of Bharti Airtel with BSE (Source: Moneycontrol.com, CNBC)

The movement of the stock testifies the fact that Bharti Airtel was also hit by severely by

recession but it soon took control over its reins and made a strong come back. As evident



27

from the Exhibit 8 that Bharti Airtel though making huge profits since 2007 never pa id itsshareholders however, after being hit by recession in 2008 ± 09 they have paid dividendto its shareholders.

12%

23.70%

32%

43.10%

38.50%

30. ( 0%

0%

) 0%

20%

0

0%

40%

1

0%

2 00 4 2 001

20 02

2003

2004

2005

Returnon St keholders quity

6

7

t 8 r 9 o 9 Stak7

hold7

rs

Eq@

ity

Exhibit 8: Return On Stockholders Equity of Bharti Airtel (Source: Bharti Airtel

Annual Report 2009)

In April 2009, Board of Directors of Bharti Airtel announced to pay its shareholders adividend of Rs2 per equity shares of rs10 each (20% of the face value). The totaldividend amounted to be Rs 4442 million including tax of Rs. 645 million.

On close analysis of 2009 balance sheet will reveal the fact that on April 2009, BhartiAirtel¶s management decided to split the stock which i s also called the sub division of theRs 10 each equity shares to Rs 5 each. The company recently on 28/04/2010 announcedits shareholders for a dividend of 20% on the face value however the implementation dateis yet to be finalised.

Bharti Airtel Stock Option Scheme

To reward and retain its employees, Bharti Airtel is presently running two EmployeeStock Option Schemes. In 2009 the total number of outstanding shares under both of aforementioned scheme was 198331 and that in 2008 were 1251370. The vesting periodof both the options was 36, 42 and 48 months but later amended as after 1 year 30%, after 2 years again 30% and finally after 3 years 40% ownership will be granted and similarlyfor 48 and 42 months option so total contractual period was upto 4 years.

EVALUATION AND ANALYSIS OF DIVIEND POLICIES

The picture presented by both the companies is altogether different. In ter ms of dividend policies Bharti Airtel had always believed in future growth and decided to make the mostof its earnings for further expansion. This fact is understood as, unlike Reliance it is acompany without a strong corporate backing so it had to grow by utilising all the retained



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profits, which it did very well. On comparing the two companies the picture we get isfollowing.

Exhibit 9: Bharti Airtel and Reliance Comm. Share movement (Source

Moneycontrol.com, CNBC) In normal times both the companie s and were very much comparable, however after getting hit by recession Reliance¶s share price started jumping down. Bharti Airtel¶s

recent Zain deal is one very important factor that had contributed towards this factor.This fact can be bought out by analysing earnings per share which can be graphed asfollows:

3.156.53

10.78

21.43

34.23

41.4

0 0

3.63

15.74

26.3229.29

0

5

10

15

20

25

30

35

40

45

2004 2005 2 0 0 6 2007 2008 2009

A iA t

B l

C D

lianE D

Exhibit 10: Analysis of Earnings per Share (Rs.) between Reliance and Bharti Airtel



29

Reliance Communication is portraits a completely different picture than Bharti Airtel.Because of strong brand name it had high fixed assets and less retained earnings. Thusthis may mean also that Reliance had no plans of international expansion and exploitgrowing telecommunications market in India.

Price earnings ratio (P/E RATIO) for Reliance is 14.36 and that of Airtel is 12.26, whichis described as valuation ratio of a company's current share price compared to its per -share earnings. 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/Eratio doesn't tell us the whole story by itself. It 's usually more useful to compare the P/Eratios of one company to other companies in the same industry, to the market in generalor against the company's own historical P/E. So, P/E Ratio suggests that Reliance is a better stock to buy as it is speculated to grow in the market.

For a common investors Reliance is a perfect stock to hold as it pays frequent dividendsand is always bullish in nature. However for mutual funds and big institutional investorsBharti Airtel is a good stock to hold as it believes in enhancing shareholders value by not paying dividends but investing in international expansion. This boosts up the value of theshare and hence the shareholders money.



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APPENDIX

A. ) Bharti Airtel performance 2009.

Appendix 1: Snapshot of Bharti Airtel¶s Financial Performance



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B.) Reliance Publishes Annual Report 2009 :

C.) Reliance Publishes Annual Report 2008 :



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D.) Reliance Publishes Annual Report 2007 :



BIBLIOGRAPHY

1) Moon, Phillip; Bates, Ken, 1993. Core Approach in strategic performance appraisal. ManagementAccounting Research 4th Edition, Academic Press Limited.

2) www.rcom.co.in/Rcom/personal/home/myservices.html -

3)Datamonitor Report ³Bharti Airtel´, Company Profile, Publication Date : 24/04/2010

4)Websitehttp://www.moneycontrol.com/india/stockpricequote/telecommunicationsservice/reliancecommunications/RC13 as accessed on 29/04/2010

5) www.airtel.in/...bharti+airtel/Bharti+Airtel/About+Bharti+Airtel

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