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, Tele media, 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.
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.
The company should also consider buying small companies such as Virgin and Aircel in order to increase the customer portfolio in its local market. Most of the customers use the service of their companies because of reliable rates, therefore, the company should consider the differentiation strategy as well as pricing strategy in order to compete in the market and sustain the growth of the company.
Appendix 1
| Bharti airtel | |||||||
| CALCULATION OF WACC | |||||||
| Information | Bharti airtel | ||||||
| Pretax cost of debt | 2.22% | ||||||
| Tax rate | 40.00% | ||||||
| After-tax cost of debt | 1.333% | ||||||
| Current dividend | 2.22 | ||||||
| Growth Rate | 12.47% | ||||||
| Stock price (today) | 394 | ||||||
| Cost of equity | 13.033% | Cost of Equity= D1/Po+g | |||||
| Debt/capital | 84.11% | Mention in (The methodology in determining Coller's Value) | |||||
| Equity/capital | 15.89% | Calculated from past balance sheet Exhibit 1 | |||||
| WACC | 3.94% | WACC = (E/V) x RE +(P/V) x RP + (D/V) *Kd*(1-tax) | |||||
| Assumptions: | Sources | ||||||
| Current dividend | 2.22 | market data | |||||
| Growth Rate | 12.5% | market data | |||||
| Stock price (today) | 394.00 | market data( http://www.bloomberg.com/quote/BHARTI:IN) | |||||
| Tax rate | 40.00% | assumed | |||||
| Pretax cost of debt | 2.22% | given in the case | |||||
Appendix 2
| Free Cash flow (BHARTI FUNDS AND ASSETS) | |||||
| Mar-10 | Mar-11 | Mar-12 | Mar-13 | ||
| Profit after tax | 13,523 | -188,330 | -295,101 | -17,800 | |
| Depreciation | 38900 | 41931 | 59160 | 68261 | |
| free cash flow | 52,423 | -146,399 | -235,941 | 50,461 | |
| WACC | 3.94% | ||||
| Net present value | ($251,955.46) | ||||
| IRR | -33% | ||||
Appendix 3
| Free Cash flow Valuation (Indian Telecom Service industry) | |||||
| Mar-10 | Mar-11 | Mar-12 | Mar-13 | ||
| PAT | 13523 | -188330 | -295101 | -17800 | |
| WACC | 5.00% | Assumed | |||
| Net present value | ($427,505.26) | ||||
| IRR | -68% | ||||
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