Capital budgeting management of Bharti airlines Harvard Case Solution & Analysis

Question 1). Study the effect of the company capital budgeting decision for the future.

Capital budgeting decision is one of the important decisions made by a company. The capital investment decision is one of the most imperative decisions and foundation stones of the financial management process. The company can pose financial performance either by internal organic approach to its financial options or can avail the facility of external inorganic approach.

The external inorganic approach means that it will use borrowed funds to make an acquisition and hopefully it will increase its business. The recent global recession affects the telecommunication industry. Therefore, Bharti airline has not experienced the expected growth from the expansion strategy that it was expected, but a steady decline in the profits.

The company had invested in projects such as 3G services in Zain and Qualcomm Deal.  From investing in 3G service, it is had provided a new high-speed network to its clients. Therefore, it is assured that the investment in 3G service was beneficial to the customer, and it could provide access to the speedy system.

The capital budgeting decision in Zain and Qualcomm Deal was the second biggest overseas acquisition by theIndian company. After investing in it, it can get a direct presence in the African market and also it will make it the world’s fifth largest wireless company.

The international investment capital decision will provide the access to the company to access the international market without any barrier and it will provide it opportunity to access in the whole world as well as it will increase the customer portfolio of the company. The acquisition of Zain’s company will increase the customer portfolio to 42 million, and Africa’s customers will generate annual revenue of $ 3.6 billion. The acquisition of Qualcomm moved Airtel into a critical position in the 4G LTE market in Delhi, Mumbai, Haryana and Kerala. According to the net present value’s calculation,this loss is not as high as compared to the overall telecom industry. (Appendix 2 & 3).

Question 2) Discuss The Company Capital Investment Financing Policy.

The company adopted the strategy of inorganic growth and expanded the business through takeovers. The company raised an enormous debt for the acquisition and paidfor acquisition through debt. The external growth strategy has high risk, whereas, return on investment is also higher. The company avoids short term borrowing for acquisition in order to take the safe position because the return is long term.

The company cannot afford to take a short term loan as the acquisition is a long-term investment, and the return will reflect on long-term. Therefore, it prefers to make long-term debt for the purchase. Airtel acquired Zain in $10.7 billion, and it raised the finance more from debt as compared to equity.

The company had borrowed nearly $9 billion from the international market in order to finance the deal resulting in an interest payment of more than US $200 million. The debt to equity ratio of the company reached in 1.4 was one of the highest debt to equity ratio in the telecom industry.

The second it acquired 49% stake in the broadband wireless access (BWA) Indian Branch of Qualcomm with the initial investment of $165 million and further investment later and for the acquisition of Qualcomm’s 4G broadband venture came with a debt of around $1 billion to $1.2 billion.

Question 3). What are the company growth opportunities and the areas of the improvement of future growth?

The company's core operations are that it provides telecom services to the customers, and the four strategic business unit segments of the company are Mobile, Telemedia, Enterprise and Digital TV. The growth opportunity for the company is that it makes such strategies to acquire several companies internationally in order to increase the customer portfolio of the company. The company should buy such companies through which it can increase facilities and benefits for the customers.

The company should continue with organic growth, but the interest expense is higher because of which profitability reduced. The objective and mission of the company is to become one of the world’s leading telecom players. The company is looking forward to the future opportunities for the future growth and expansion.

Capital budgeting management of Bharti airlines Case Solution

The company should restructure its top management if it wants to grow in the market. The recent investment of the company is the profitable investment for the company, but still it has to acquire domestic competitors in order to capture the local market share. ........................................

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