Financial Managemen vopdaphone and idea.pdf

coporate financial analysis

1. Financial Management
Title: "Comparative Financial Analysis in Consumer Electricals Sector - Vodaphone idea ltdand Bharti
Airtel"

Submitted by :- NITIN JAIN
EMBA2318
Under the Guidance of,
Prof. Imlak Shaikh

2. INTRODUCTION: Vodaphone Idea Ltd
Vodaphone idea ltd is a telecom service provider Company with an extremely strong global presence, thanks to our philosophy
of Make in India, extensive distribution network and world class quality. Idea India Limited, widely known as Idea, was a
significant player in the Indian telecommunications industry, headquartered in Mumbai, Maharashtra. Established in 1995,
Idea quickly emerged as a leading mobile network operator, offering a broad spectrum of services, including 2G, 3G, and 4G
mobile voice and data services. Initially a joint venture between the Aditya Birla Group, Tata Group, and AT&T, it eventually
became solely owned by the Aditya Birla Group. Idea was renowned for its customer-centric approach and innovative
marketing campaigns, which resonated well with Indian consumers. The company prioritized network expansion, particularly
in rural areas, enhancing accessibility and connectivity across the country. Idea also offered various enterprise solutions and
value-added services, such as mobile banking and entertainment options, catering to a diverse user base. In August 2018, in
response to intense competition from other major telecom operators like Airtel, Reliance Jio, and BSNL, Vodaphone idea
ltdmerged with Vodafone India, forming Vodafone Idea Limited. This merger aimed to create a more competitive and
efficient entity, leveraging combined resources to provide superior services and extensive coverage. Despite facing regulatory
and market challenges, the merger positioned Vodafone Idea as a formidable player in the telecom sector. Idea India
Limited’s commitment to corporate social responsibility, focusing on education, health, and environmental sustainability,
was carried forward by Vodafone Idea Limited. Thus, Idea India Limited's legacy continues to influence the Indian
telecommunications landscape, contributing to improved connectivity and service quality for millions of users. Idea enjoys

Vision Statement
The vision statement of Vodafone Idea Limited (Vi) is to “create world-class digital experiences to connect and inspire every
Indian to build a better tomorrow.” Vi aims to enhance the lives of its millions of customers through technology, ubiquitous
connectivity, and unmatched customer experiences. Their commitment to digital transformation and meaningful innovations
reflects their passion for serving customers.
Mission Statement
The mission statement of Vodafone Idea Limited (Vi) is to “be the most loved brand by continuously raising the bar in
delivering simple, delightful experiences and meaningful innovations through new-age technologies.” Vi aims to create a
positive impact on its customers, team, shareholders, and the community through its commitment to excellence, trust, and
digital-first solutions.

3. INTRODUCTION: BHARTI AIRTEL LIMITED
Bharti Airtel Limited, commonly known as Airtel, is a leading Indian multinational telecommunications services company headquartered in New
Delhi, India. Founded in 1995 by Sunil Bharti Mittal, Airtel has grown to become one of the largest mobile network operators in the world,
operating in 18 countries across South Asia and Africa. The company's services encompass mobile voice and data services, fixed-line broadband,
digital TV, and a variety of enterprise solutions through its Airtel Business division, which includes voice, data, network integration, and managed
services. Airtel also offers financial services through Airtel Payments Bank, aimed at driving financial inclusion. Known for its innovation, Airtel
was the first telecom company in India to outsource its IT operations, setting a trend for cost efficiency and high volume through the 'minutes
factory' model. With a significant presence in Africa through its subsidiary, Airtel Africa, and operations in Sri Lanka and Bangladesh, Airtel
continues to expand its global footprint. The company is also actively involved in corporate social responsibility initiatives, focusing on education,
health, and community development through the Bharti Foundation. Airtel's robust financial performance, extensive service offerings, and
commitment to quality and innovation have established it as a key player in the global telecommunications industry. Thus, Bharti Airtel Limited
stands as a beacon of innovation and excellence in the global telecommunications industry, transforming connectivity and enriching lives across
continents. Its relentless pursuit of quality, strategic expansions, and commitment to social responsibility have not only fortified its market
position but also set new benchmarks for the industry. With its robust financial performance and customer-centric approach, Bharti Airtel
continues to shape the future of global telecommunications.
Vision Statement
Bharti Airtel Limited's vision is to enrich the lives of millions by enabling ease of communication and providing the best-in-
class digital services to its customers. The company aims to lead in the area of connectivity by providing innovative and
comprehensive solutions that enhance customer experience and drive digital transformation.

Mission Statement
Bharti Airtel Limited's mission is to provide affordable, high-quality telecom services to its customers, enabling them to stay
connected and achieve their aspirations. The company is committed to continuous innovation, superior customer service,
and leveraging technology to deliver unmatched value, while fostering a culture of integrity, inclusivity, and social
responsibility.

4. RESIDUAL INCOME & ECONOMIC VALUE ADDED

Residual Income (RI):
Residual Income (RI) is a financial performance metric that assesses the profitability of an investment by comparing its net
income to a minimum required rate of return. It is a measure of how well a business unit or investment centre has performed
above or below its cost of capital. The basic idea is to determine whether the earnings generated by the investment exceed
the cost of the capital used to finance it. The formula for calculating Residual Income is:

RI=Net Income − (Cost of Capital Invested Capital)
If RI is positive, it indicates that the investment has generated more income than the required rate of return, suggesting
that the investment has added value. Conversely, a negative RI suggests that the investment has not met the required rate
of return, indicating a potential loss of value.

Economic Value Added (EVA):
Economic Value Added (EVA) is a financial metric that evaluates a company's financial performance by assessing the
difference between its net operating profit after taxes (NOPAT) and the cost of its capital. EVA goes beyond traditional
measures of profitability by considering the opportunity cost of capital. The formula for calculating Economic Value Added
is:

EVA=NOPAT− (Capital x Cost of Capital)
EVA emphasizes the idea that a business should generate returns above its cost of capital to create value for its shareholders.
If EVA is positive, it suggests that the company has created value, while a negative EVA implies that the company has not
generated sufficient returns to cover its cost of capital.

In summary, both RI and EVA are value-based performance metrics that assess whether a business or investment has
created economic value by comparing the earnings generated to the cost of the capital employed. They provide insights
into the efficiency and profitability of an investment or business unit beyond traditional financial metrics.

5. IMPORTANCE OF VALUE-BASED PERFORMANCE METRICS

Here are some of the points briefly covering the importance of value-based performance metrics, RI and
EVA:

▪ Align with shareholder value creation:
They directly measure a company's ability to generate returns above its cost of capital, which is the true measure of
value creation for shareholders.

• Overcome limitations of traditional metrics:
Traditional metrics like earnings per share (EPS) or return on assets (ROA) can be misleading, as they don't account
for the cost of capital or the risk associated with investments.

▪ Drive better decision-making:
By focusing on value creation, value-based metrics encourage managers to make decisions that maximize long-term
shareholder value, rather than short-term profits or growth.

▪ Enhance accountability:
They provide a clear and objective measure of performance, making it easier to hold managers accountable for their
decisions and results.

▪ Facilitate better resource allocation:
By identifying the most profitable and value-creating segments of a business, value-based metrics help managers
allocate resources more effectively.

6. DATA DESCRIPTION AND IMPORTANT CALCULATION:
IDEA INDIA Ltd.

7. Particulars
Mar-24 Mar-23 Mar-22 Mar-21 Mar-20
Revenue from operations 42,243.20 41,884.10 38,202.40 41,658.90 44,683.00
YOY Growth 0.86% 9.64% -8.30% -6.77%
Other Income 139.30 270.70 97.50 258.40 1,086.10
Finance Income
Total income 42,382.50 42,154.80 38,299.90 41,917.30 45,769.10
YOY Growth 0.54% 10.07% -8.63% -8.42%
Expenses 8,373.50 8,868.11 12,163.12 15,290.01 16,708.89
Cost of materials consumed 2.20 0.00 0.00 0.00 0.00
Changes in inventories of finished
goods, work-in-progress and stock
in-trade
0.00 0.00 0.00 0.00 0.00
Employee benefit expenses 1,927.00 1,685.10 1,561.40 1,858.30 1,972.60
Other expenses 23,871.70 1,922.60 1,924.50 2356.4 3306
EBITDA (Operating income) 16,581.60 38,541.80 34,813.40 37,702.60 40,490.50
EBITDA Margin -56.98% 10.71% -7.66% -6.89%
Depreciation and Amortization
expenses 21,988.30 22,362.20 22,857.50 22,906.20 23,888.80
EBIT -5,406.70 16,179.60 11,955.90 14,796.40 16,601.70
EBIT Margin -133.42% 35.33% -19.20% -10.87%
Finance costs 25763 23343.9 20973.4 17991.6 15377.2
EBT -31,169.70 -7,164.30 -9,017.50 -3,195.20 1,224.50
Tax
Current Tax 822.00 - - -20.80 -
Deferred tax - - - - 10,844.80
Tax Rate -2.64% 0.00% 0.00% 0.65% 0.00%
PAT -31,991.70 -7,164.30 -9,017.50 -3,174.40 -9,620.30
NOPAT 17,018.89 38,541.80 34,813.40 37,457.16 40,490.50
Income Statement (Idea India Limited)

8. Aanalysis of financial Data of Vodaphone idea Ltd

1. Debt and Equity Analysis
• Debt to Equity Ratio Trends:
o The debt to equity ratio indicates the company's leverage and financial risk. Vodafone Idea Ltd. has shown
fluctuating debt levels relative to equity over the years:
▪ It decreased from 3.36 in March 2020 to 4.15 in March 2024, indicating a relative increase in equity
compared to debt in recent years.
▪ However, it peaked at 5.95 in March 2022, suggesting a higher reliance on debt financing during that
period.
2. Capital Structure and Total Capital
• Total Capital Growth:
EVA Calculation[Idea India Limited]
S.NO.
Mar-24 Mar-23 Mar-22 Mar-21 Mar-20
Debt
2,07,885.40 2,01,820.50 1,91,073.90 1,57,488.50 96,434.60
Equity
50,119.80 48,679.70 32,118.80 28,735.40 28,735.40
Total Capital 258005.2 250500.2 223192.7 186223.9 125170
Beta 1.08 1.08 0.49 0.55 0.74
Debt to Equity
Ratio 4.15 4.15 5.95 5.48 3.36
Market rate of
Return -13.55% -13.55% -13.55% -13.55% -13.55%
Cost of Equity 12.40% 12.40% 9.45% 9.75% 10.70%
Cost of debt 0.00 0.00 0.00 0.00 0.00
Risk free rate of
Return 7% 7% 7% 7% 7%
WACC 2.41% 2.41% 1.36% 1.50% 2.46%
Tax rate -2.64% 0.00% 0.00% 0.65% 0.00%
Required rate of
return 12% 12% 12% 12% 12%
EVA NOPAT - (WACC*Capital Invested)
EVA 10,804 32,506 31,778 34,655 37,416

9. o Vodafone Idea Ltd.'s total capital has steadily increased from ₹1,25,170 million in March 2020 to ₹2,58,005.2
million in March 2024.
o This growth primarily stems from increases in both debt and equity, reflecting the company's financing activities
and possibly strategic investments.
3. Cost of Equity and WACC (Weighted Average Cost of Capital)
• Cost of Equity Trends:
o The cost of equity has varied over the years, ranging from 9.45% to 12.40%. Higher costs of equity indicate
increased risk perceptions by investors.
o The consistency of the required rate of return (12%) suggests that investors have maintained their expectations
despite changes in market conditions.
• WACC Analysis:
o The WACC (Weighted Average Cost of Capital) has fluctuated but generally remained low, ranging from 1.36%
to 2.46%.
o A lower WACC indicates that Vodafone Idea Ltd. has been able to finance its operations at a relatively low cost
compared to its overall capital structure.
4. Economic Value Added (EVA)
• EVA Trends:
o Economic Value Added (EVA) measures the company's ability to generate returns above its cost of capital. The
trend in EVA for Vodafone Idea Ltd. shows variability:
▪ It decreased from ₹37,416 million in March 2020 to ₹10,804 million in March 2024.
▪ This decline indicates that the company's net operating profit after tax (NOPAT) might not have been
sufficient to cover the cost of capital in the latest year, resulting in a lower EVA.
Insights and Recommendations:
1. Financial Restructuring and Risk Management:
o Vodafone Idea Ltd. should continue monitoring its debt levels and debt to equity ratio to maintain a balanced
capital structure.
o Given the fluctuating nature of the debt to equity ratio, the company might consider strategies to optimize its
financing mix to reduce financial risk.

10. 2. Cost of Capital Efficiency:
o The company has achieved relatively low WACC, indicating efficiency in managing its capital costs.
o Continued focus on maintaining a competitive cost of equity and optimizing the cost of debt (if applicable) will
be essential to sustain this advantage.
3. Profitability and Performance:
o Despite challenges reflected in the recent EVA decline, Vodafone Idea Ltd. can explore opportunities to enhance
operational efficiency and profitability.
o Strategies such as cost management, revenue diversification, and technological innovation could help improve
financial performance and increase EVA in the future.
4. Market and Investor Relations:
o Maintaining transparent communication with investors about the company's financial health and strategic
initiatives will be crucial.
o Clear articulation of plans to address operational challenges and capitalize on growth opportunities can help
enhance investor confidence and support.
By focusing on these insights and recommendations, Vodafone Idea Ltd. can navigate its financial landscape effectively,
mitigate risks, and capitalize on opportunities for sustainable growth and value creation

11. In the image, the EVA line is above the WACC line, which means that the company is generating positive economic value.
The EVA line is also increasing over time up to in 2022, however the same has witnessed a dip in 2023 but company has
shown its resilience in 2024, which means that the company is creating more economic value in each period. This is a good
sign for the company's financial health.

The WACC line is also increasing over time, but at a slower rate than the EVA line. This means that the cost of capital is
increasing for the company, but it is not increasing as fast as the company's economic value. This is also a good sign for the
company's financial health.

Overall, the image suggests that the company is in good financial health and is creating economic value. However, it is
important to note that this is just a snapshot of the company's financial performance at a single point in time. To get a more
complete picture of the company's financial health, it would be necessary to analyse other financial metrics, such as the
company's revenue, profitability, and debt levels. Here are some of the graphs of EVA and Tax Rate, and EVA and FCF:

12. 2.41% 2.41%
1.36%
1.50%
2.46%
-2.64%
0.00% 0.00%
0.65%
0.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
1 2 3 4 5
EVA & TAX RATE
EVA Tax Rate

13. The company's free cash flow (FCF) has been negative for the past five years, indicating a
consistent outflow of cash from its operations.











2.41% 2.41% 1.36% 1.50% 2.46%
10992.21578
36893.9
27220.3
8694.778918
0.00%
500000.00%
1000000.00%
1500000.00%
2000000.00%
2500000.00%
3000000.00%
3500000.00%
4000000.00%
1 2 3 4 5
EVA & FCF
EVA Net Cash Flow

14. Bharti Airtel Limited















The EVA calculation for Tata Motors provides a valuable insight into the company's ability to generate economic value
beyond the cost of capital. EVA is derived by subtracting the Weighted Average Cost of Capital (WACC) from the Net
EVA CALCULATION [BHARTI AIRTEL LIMITED]
S.NO.
Mar-24 Mar-23 Mar-22 Mar-21 Mar-20
Debt
1,25,982.20
1,40,641.
00 1,03,408.10 94,407.70 82,363.20
Equity
2,876.60 2,836.60 2,795.00 2,746.00 2,727.80
Total Capital 128858.8 143477.6 106203.1 97153.7 85091
Beta 0.62 0.59 0.61 0.67 0.83
Debt to Equity
Ratio 43.80

49.58 37.00 34.38 30.19
Market rate of
Return -13.55% -13.55% -13.55% -13.55% -13.55%
Cost of Equity 10.10% 9.95% 10.05% 10.35% 11.15%
Cost of debt 11.43% 10.33% 13.68% 12.52% 13.92%
Risk free rate of
Return 7% 7% 7% 7% 7%
WACC 8.57% 10.33% 13.58% 12.54% 13.83%
Tax rate 25.36% -0.05% 0.00% -0.71% 0.00%
Required rate of
return 12% 12% 12% 12% 12%
EVA NOPAT - (WACC*Capital Invested)
EVA
27,702

62,959

50,749

40,469

38,567

15. Operating Profit After Tax (NOPAT), with NOPAT calculated as the difference between Revenue and Operating Expenses. Tata
Motors exhibits both positive and negative EVA figures, indicating that the company is creating value in excess of the cost of
capital where the EVA is positive and cost of capital is more where EVA is negative.
In 2023, the EVA stands at INR 5286.23, reflecting a better performance than previous years. The WACC, representing the
cost of debt and equity, is used as a benchmark to evaluate whether the company is generating returns above the expected
rate except in the year 2019. A positive EVA signifies that Tata Motors is effectively utilizing its capital to generate returns
higher than the cost of capital, a positive signal for investors and stakeholders.
Cost of Equity Calculation - Examining the cost of equity for Tata Motors involved analysing various factors. The risk-free
rate, based on the last 10 years of government bond data, remained consistent at 7%, serving as a baseline for assessing the
company's investment risk. The beta, indicating how Tata Motor’s stock price moves compared to the market, showed values
of 1.26, 1.76, 1.5, 1.0, and 1.0 over the years. Additionally, considering a steady assumed market return of 12%, the cost of
equity was calculated using the Capital Asset Pricing Model (CAPM). The resulting figures varied across the years: 13.30%,
15.80%, 14.50%, 12.00%, and 12.00%. This gave the cost of equity for Tata Motors, taking into account risk-free rates, beta
values, and market conditions
In the image, the EVA line is above the WACC line in 2023, which means that the company was not generating economic
value during 2020, 2021 and 2022 as cost of capital was more than the EVA generated. But in 2023, company has generated
significantly better EVA than WACC in the same year. The EVA line is also increasing over time after a dip in 2020 due to Covid
crisis, which means that the company is creating more economic value after Covid crisis. This is a good sign for the company's
financial health. Overall, the image suggests that the company is in good financial health and is creating economic value.
However, it is important to note that this is just a snapshot of the company's financial performance at a single point in time.
To get a more complete picture of the company's financial health, it would be necessary to analyse other financial metrics,
such as the company's revenue, profitability, and debt levels. Here are some of the graphs of EVA and Tax Rate, and EVA and
FCF:

16. 8.57% 10.33% 13.58% 12.54% 13.83%
27701.97902
62958.98683
50749.4025
40468.96151
38567.1503
0.00%
1000000.00%
2000000.00%
3000000.00%
4000000.00%
5000000.00%
6000000.00%
7000000.00%
1 2 3 4 5
Axis Title
Crompton & Greaves
EVA and WACC
WACC EVA

17. 27701.98
62958.99
50749.40
40468.96
38567.15
25.36% -0.05% 0.00% -0.71% 0.00%
-10000.00
0.00
10000.00
20000.00
30000.00
40000.00
50000.00
60000.00
70000.00
1 2 3 4 5
EVA & TAX RATE
EVA Tax Rate

18. Mar-24 Mar-23 Mar-22 Mar-21 Mar-20
Current assets 38,034.40 40,577.00 37,817.80 40,071.90 58,781.30
Current liabilities 88,290.80 78,245.00 74,484.20 71,439.40 93,211.20
Depreciation and amortization 29108.5 26355 24592.4 21997.5 20392.1
Fixed assets 2,33,729.10

2,27,964.80

1,72,664.20

1,58,694.70

1,62,938.00

Operating income
38,745.41 77,780.05 65,176.10 52,653.82 50,334.40
Capital expenditure 393 593 747 929 928
FREE CASH FLOW 54,099.20 82,019.92 66,066.10 41,214.35





27701.97902
62958.98683
50749.4025
40468.96151
38567.1503
54099.19885
82019.91835
66066.1
41214.34706
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
1 2 3 4 5
EVA & FCF
EVA Net Cash Flow
FREE CASH FLOW CALCULATION

19. IMPORTANT RESULTS AND DISCUSSION:
Here are some additional things to consider:
➢ Reasons for the negative EVA: There could be a number of reasons why the company's EVA is negative, such as low
profitability, high operating costs, or a high cost of capital. It would be helpful to analyse the company's income statement
and balance sheet to identify the specific drivers of the negative EVA.
➢ Trends over time: The EVA and WACC have both been volatile over the past five years. It is important to consider
whether these trends are likely to continue in the future.
➢ Industry comparisons: It would be helpful to compare the company's EVA and WACC to other companies in the same
industry. This would provide some context for the company's financial performance
➢ It is important to compare financial metrics to benchmarks, such as industry averages or the company's own historical
performance. This will help you to determine whether the company's financial performance is good, bad, or average.
➢ It is also important to consider the context in which financial metrics are being measured. For example, a company's EVA
may be lower than its WACC in a period of high economic growth. This does not necessarily mean that the company is in
bad financial health; it simply means that the company is not creating as much economic value as it could be given the
current economic conditions.
➢ Reasons for Negative EVA: Several factors could contribute to the negative EVA, such as:
• Low profitability: The company might have low operating margins or high expenses, leading to insufficient profit
generation.
• High cost of capital: The company might have expensive debt or equity, increasing the hurdle rate for
profitability.
• Inefficient asset utilization: The company might not be effectively using its assets to generate returns.
• Further Analysis: To gain deeper insights, it would be helpful to analyse the company's income statement and
balance sheet to identify specific drivers of the negative EVA.

20. • Compare the EVA to the company's WACC (Weighted Average Cost of Capital) to understand the value creation
spread.
• Benchmark the EVA against other companies in the same industry to assess relative performance.

MANAGERIAL IMPLICATIONS THAT CAN BE ADDRESSED:
In the auto sector, companies like Vodaphone idea ltdand Bharti Airtel face several managerial implications that need to be
addressed to maintain competitive advantage and ensure sustainable growth. Here are some key areas to focus on:
1. Adoption of Electric Vehicles (EVs):
a. R&D and Innovation: Investing in research and development to innovate and produce more efficient and affordable
electric vehicles.
b. Infrastructure Development: Collaborating with government and private entities to expand charging infrastructure
2. Supply Chain Management:
a. Resilience Building: Developing more resilient supply chains to withstand disruptions, such as those caused by global crises
or natural disasters.
b. Localization: Increasing the localization of components to reduce dependency on imports and mitigate risks associated
with global supply chains.
3. Digital Transformation:
a. Smart Manufacturing: Implementing Industry 4.0 technologies to enhance manufacturing processes through
automation, data analytics, and IoT.
b. Customer Engagement: Leveraging digital platforms for better customer engagement, personalized marketing, and
improving the overall customer experience
4. Sustainability and Environmental Responsibility:

21. a. Eco-friendly Practices: Integrating sustainable practices in production processes to reduce carbon footprints.
b. Circular Economy: Exploring opportunities in recycling and reusing materials to promote a circular economy.
5. Market Diversification:
a. Global Expansion: Identifying new markets and adapting strategies to cater to diverse consumer preferences.
b. Product Diversification: Expanding product lines to include hybrids, EVs, and other innovative vehicle types.
6. Human Resource Development:
a. Skill Upgradation: Investing in training programs to upskill the workforce in new technologies and methodologies.
b. Talent Retention: Creating a conducive work environment and offering competitive benefits to attract and retain top
talent.
7. Regulatory Compliance and Policy Adaptation:
a. Proactive Policy Engagement: Staying ahead of regulatory changes and engaging with policymakers to shape favourable
industry policies.
b. Compliance Management: Ensuring all operations comply with local and international regulations to avoid legal and
financial repercussions.
8. Customer-centric Innovations:
a. Product Customization: Offering customized solutions to meet varying customer demands and preferences.
b. Enhanced After-sales Service: Improving after-sales service to boost customer satisfaction and loyalty. Addressing these
managerial implications can help Vodaphone idea ltdand Bharti Airtel stay competitive, innovate effectively, and meet the
evolving demands of the automotive market.