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GROUP No.: B2
GROUP NAME: STRATEGIST
Table of Contents
1
Introduction.....................................................................................................................................2
2.1
Strategic Issues................................................................................................................................2
How Airtel benefits from the Acquisition?.........................................................................................2
3.1
Regulatory Hurdles..................................................................................................................3
5.2
STRATEGIC DIAMOND........................................................................................................4
Financial Analysis...........................................................................................................................6
Forecasts..........................................................................................................................................7
Recommendations...........................................................................................................................8
8.1
8.2
8.2.1
8.2.2
8.2.3
8.2.4
8.2.5
8.2.6
8.2.7
8.2.8
Engaging people.............................................................................................................10
8.3
QSPM Analysis......................................................................................................................10
8.3.1
8.3.2
DUPONT Analysis........................................................................................................................13
9.1
9.2
Du Pont Analysis....................................................................................................................13
Bibliography................................................................................................................... 15
2 Introduction
2.1 AIRTEL LOOP Acquisition
Bharti Airtel, Indias largest mobile operator by subscriber base, on 18 th February 2014 entered into a
strategic agreement with Loop Mobile, formerly known as BPL Mobile, to acquire Loops
subscribers, as well as some of its assets, for about Rs.700 crore. The deal is subject to regulatory
approvals. With this acquisition, Bharti becomes the top operator with seven million subscribers
followed by Vodafone with 6.8 million subscribers. Under the agreement, Loop Mobiles three
million subscribers in Mumbai will join Airtels over four million subscribers, creating an unmatched
mobile network in Mumbai. (Money Control, 2014)
The proposed transaction will bring together Loop Mobiles 2G/EDGE enabled network supported by
2,500 plus cell sites, and Airtels 2G and 3G network supported by over 4000 cell sites in Mumbai.
(Money Control, 2014)
STRENGHTH
WEAKNESS
Superior overall network quality and reliability Late adoption of 3G and advanced wireless
High brand equity
technologies
Competitive Advantage over other Players
Debt and finances
High network coverage by Loop Mobile
OPPORTUNITIES:
Gaining more market share
To tap the untapped market segment
THREATS:
Price competition from BSNL and MTNL
Entry of new entrants
Problem in implementing Mobile Number
Portability
Increase the cost of building and upgrading
the telecom infrastructure
A Strategy Diamond is a crisp way to analyse, visualize, summarize, and share your strategy
for the product or the business. The strategy diamond provides the experts a logical, concise,
coherent way to study, analyse, integrate, summarise, and communicate product, business,
and corporate level strategies. The model covers strategy formulation, which helps to answer
questions about what the strategy is and what it will be in the future. (JD, 2010)
So this strategic diamond can be applied to Bharti Airtel and acquisition of loop mobile worth
Rs 700 Crore. From this Airtel mobile can get a bigger picture on its strategy.
Five major elements of the strategy: There are mainly 5 key parts of the strategy namely
Arenas, vehicles, differentiation, staging, economic logic.
Vehicles identify the degree to which the strategy relies on internal development efforts
relative to partnering with or acquisition of external parties. So considering this stage, how
Bharti Airtel tries to get new customers through internal means or even though acquisition.
So after doing the strategic agreement with the loop mobile, Airtel would be the Mumbais
largest mobile network, with combined user base of around 7 million connections in the
region 4 million with Airtel and 3 million with Loop Mobile. This strategic action will also
offer customers the widest exclusive retail reach with 220 outlets that will enable best-in-class
customer service. (Tarun, 2014)
Differentiators are those factors that are believed to allow the firm to "win" in its targeted
arenas, particularly external arenas. Differentiators can include image, price, reliability, and
other key inputs.
So here the core competencies must include its the presence all over India. It has the presence
every place of India and mainly its customer service has placed itself in the top position in
this highly competitive communication market. To differentiate itself in India's highly
competitive communications environment by ensuring customer relations delight through
personalized customer service, Bharti Airtel has a managed services agreement with Nortel
India to host contact centre services for subscribers to Bharti's Airtel GSM mobile, broadband
and fixed-line services. Another major differentiator is Airtel Money. It had tied up with
two African company TIGO, GENTEL for the money transfer from mobile to mobile.
5
Staging and Pacing What will be our speed and sequence of moves?
Staging and pacing refer to the sequence and speed of strategic moves. This element helps
identify decision points since strategic moves don't have a single possible pathway. This
powerful facet of strategizing helps them to think about timing and next steps, instead of
creating a strategy that is a static, monolithic plan.
Since just recently Bharti Airtel has acquired Loop mobile, till now there is no certain moves
taken by the company to go further. But it is clear that it is going to provide 3G service to all
the loop mobile subscribers. This acquisition helped Airtel to emerge stronger in Mumbai
with over 7 million subscribers.
The economic logic element reflects how all the pieces tie together in a way that satisfies key
stakeholders. Economic logic for profit-oriented firms can take the form of scale economies,
scope economies, premium pricing or some combination of these. For non-profit
organisations, economic logic reflects how well the organization is achieving its mission and
vision and serving its focal stakeholders.
In case of Bharti Airtel, it has acquired Loop mobile with certain goals i.e. to take over the 7
million subscribers into its network. So it is going to put all the above mentioned point into
the place and will try to retain its position as no 1 in India. Since it has taken 7 million
customers into its network, it is going to take profit from overall revenue. Since cost reduction
is very difficult in telecom industry, so it would be better to acquire more number of
customers. But the time will say how it is going to give service so that all the previous
customers will retain and new customers will be added in that Mumbai region. (Tarun, 2014)
6 Financial Analysis
Mar-10
35,951.80
22,026.60
13,925.20
1,396.20
9,295.44
Mar-11
38,338.90
24,677.40
13,661.50
324.1
7,620.22
Mar-12
42,228.50
27,960.10
14,268.40
-568
5,689.43
Mar-13
46,814.00
31,880.20
14,933.80
2,148.38
5,042.45
Analysis: From the above given Financial figures we can analyze that total income is constantly
increasing from 2009 to 2013. But linearly the total expenditure of the company is also increasing.
We can see that Operating Profit is increasing but the Adjusted Net Profit of the company is
decreasing. The reason behind the decrease in Adjusted Net Profit can be the huge amount of Interest
that the company is paying due to its debt.
6
As we can also conclude from the 2013 figures that the interest is large about 2148.38 crores which
indicates that company has undergone some more debt may be for the expansion and acquisition of
Loop mobile that happened in 18 February 2014. (http://www.capitaline.com/, n.d.)
Key Financial Ratios:
Key Financial Ratio's
Debt-Equity Ratio
Current Ratio
ROCE (%)
Price Earning (P/E)
Mar-09
0.3
0.61
33.17
15.47
Mar-10
0.2
0.7
26.27
12.65
Mar-11
0.21
0.49
18.03
17.73
Mar-12
0.29
0.54
13.26
22.56
Mar-13
0.29
0.52
11.66
22.02
Analysis: Looking at some important Financial Ratios, we can analyze that Debt-Equity ratio has
been decreased first and then increased in 2013 to 0.29. This represent that the amount of debt or
liabilities as compare to the equity of the company is more or increased. The same is represented by
the Current ratio that as compare to the current assets of the company the liabilities are higher thats
why the current ratio has also decreased from 0.61 to 0.52. Return on capital employed(ROCE) has
been decreased may be due to large debt but if we look at the Price Earnings ratio which is increases
from 15.47 to 22.02 indicates that the share price of the Bharti Airtel is high as compare to the
earning its providing, the demand or confidence of market in Bharti Airtel company is high.
7 Forecasts
As seen above in the Financial Analysis of Bharti Airtel, major parameters which is Total Income and
Operating Profit is increasing constantly. Now lets forecast those parameters for future 3 years on
assumptions based on past trends. (moneycontrol, 2014)
Key Financial Figures (Rs. in Crs.)
Year
Mar-11 Mar-12
38,338. 42,228.
Total Income
90
50
% change
6.64%
10.15%
Total
24,677. 27,960.
Expenditure
40
10
% change
12.03% 13.30%
Operating
13,661. 14,268.
Profit
50
40
Mar-13
46,814.
00
10.86%
31,880.
20
14.02%
14,933.
80
Forecasted Figures
Crs.)
Mar-14 Mar-15
52,431. 58,723.
68
48
12.00% 12.00%
36,343. 41,431.
43
51
14.00% 14.00%
16,088. 17,291.
25
97
(Rs. in
Mar-16
65,770.3
0
12.00%
47,231.9
2
14.00%
18,538.3
8
As per the past trend, total income of Bharti Airtel is constantly increasing and after the acquisition of
Loop mobile in 2014 it will again increase by some more amount. So the growth rate of income that
we have assumed is 12% as well as the expenditure will also increase so assumption for the
expenditure is 14%.
Operating Profit
24,000.00
22,000.00
20,000.00
18,000.00
16,000.00
14,000.00
12,000.00
10,000.00
2011
2012
2013
2014
2015
2016
According to Forecasted figures of 3 years, we can conclude that in coming years Operating profit of
the Bharti Airtel is going to increase by the expansion as well as the acquisition of Loop mobile.
8 Recommendations
8.1 Organizational Structure and Culture
Organization culture and structure of Bharti Airtel and Loop mobiles
Bharti Airtels Organizational structure was functional earlier and in order to drive the next phase of
companys growth, there have been some major changes in the structural hierarchy of the company.
Bharti Airtels organizational structure, effective starting 1 st August 2011, was aimed at driving
greater business and functional synergies, providing a common interface to customers, and creating a
de-layered and more agile organization. (Vikram_Dahiya, 2012)
The structure became a decentralized one which includes international division system &
geographical division structure, with an aim to decentralize the decision making and increase
accountability across all level of management. The new structure separates the B2B & B2C segment.
(http://www.airtel.in/about-bharti/media-centre/bharti-airtel-news/corporate/bharti-enterprisesannounces-new-apex-level-strategic-organization-structure, n.d.)
Loop Mobiles, on the other hand, has centralized organizational structure. It has also been reported
by the existing employees that the culture includes a very friendly environment for the employees to
work in.
Customers will benefit in future from the joint capabilities of each entity as it will help
identify the best features of both the companies and ensure that these remain intact.
Evolving a clear vision and business strategy of the acquisition during the process of
negotiation and having it ready for communication across the two companies would help
retain the employees of Loop mobiles and Bharti Airtel. (Dugar, 2009)
8.2.2
8.2.3
8.2.4
8.2.5
8.2.6
In order to make this acquisition a success, Bharti Airtel has to ensure the work life balance of
the employees of Loop Mobile and a transparent communication between the management
and employees.
8.2.7
8.2.8
Engaging people
The strategy towards growth has to be honest, transparent and candid to win the trust and
credibility of the employees. Quick wins in the integration process need to be celebrated and a
sense of positive urgency needs to be created.
A regular two way feedback mechanism needs to be set up so that there is sufficient input
from the organization to measure how well the integration strategy is working. Connecting
leaders and employees with counterparts or supervisors within both organizations, organizing
networking events and set up an online social-networking portal or collaboration workspace.
Airtel has been in the market for 18+ years and thus has towers and backhaul all over the country.
This is a major advantage. Deployment of new technologies or increasing capacity at times requires
software and minimal hardware upgrade. Having infrastructure already on the ground makes that
process much faster and smoother. Secondly, it is easier to capture new customers if a telco already
has a network in place.
1. Economics environment
Economic factors mainly include growth rate of the industry, per capita income, Inflation rate, GDP
rate etc... These are the factors that have a major impact on the operation and various decisions that
are to be taken to run the company. India is a developing country and favorable economic conditions
play a major role in success of any company. Though Airtel is market leader favorable economic
condition is a major external factor for success of the company.
2. Political and legal environment
Political and legal environments determine how to and what degree government policies and
regulations affect the economy and the telecom industry. Stable political and legal environment are
one of the factors necessary for the success of the telecom companies and the industry both.
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3. Technical Environment
Technical environment mainly consists of the technological aspects such as R&D, automation, and
the rate at which technology changes. These can be an important aspects as far as telecom industry is
concerned. Furthermore technological shifts can affect cost, quality and lead to innovation.
4. Threat of new entrants
The threat of new entrants have significant impact on the strategic decisions that are to be taken by
the firm. Though there are high entry barriers like high initial setup cost, licensing requirements,
difficulty in attaining customers, but a continuous threat of new entrant coming to industry is always
there.
5. Intensity of rivalry among firms
In the case of telecom sector there are only few major pan India operators, but rivalry among them is
very high. Each operator is trying to grab the maximum market share and attracting customers of
other firms. Also there is very little product differentiation between different operators which creates
a high rivalry among the firms operating in the industry.
6. Increasing Substitutes (Skype, G Talk, Facebook video chat etc.)
Increasing use of new concepts like Skype, Facebook video chat, Google hangout and services like
Whats-app have taken a hit on all the firms operating in the industry and have forced the companies
to change their strategies to overcome these issues. (Management Paradise, 2012)
In the following table we have considered two strategies whether they should acquire competitors in
Indian markets or they should expand globally.
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By analysing QSPM, we recommend that that Airtel should try and expand in international
markets like Africa and other emerging markets because growth opportunities are very high in
the countries where telecom industry is still in the nascent phase and Airtel could try to
capture major share in these emerging markets. Acquiring companies in Indian telecom
industry may not be that attractive option as the opportunities will be very limited.
Increasing use of new concepts like Skype, Facebook video chat, Google hangout and
services like WhatsApp are taking a hit on telecom companies. Hence the company can try to
come up with a product to counter such substitutes and integrate this with the existing tele
services.
9 DUPONT Analysis
9.1 Analyzing Competitive Advantages
To understand the performance of the company we need to perform a good internal analysis, need to
be able to analyze the financial performance of the company, identifying how its strategies contribute
(or not) to profitability.
For analyzing this we are going to perform a Du Pont analysis on Bharti Airtel, Idea cellular and
Reliance communication.
ROS
Bharti Airtel: 13.22%
Idea cellular: 6.46%
Reliance comm.:
5.53%
ROIC
Bharti Airtel: 9.89%
Idea cellular:
10.83%
Reliance comm.:
Capital Turnover
Bharti Airtel: 74.80%
Idea cellular:
167.54%
Reliance comm.:
COGS/Sales
Bharti Airtel: 50.98%
Idea cellular:
67.20%
Reliance comm.:
SG&A/Sales
Bharti Airtel: 18.05%
Idea cellular: 5.71%
Reliance comm.:
13.86%
Working
capital/Sales
Bharti Airtel: 25.26%
Idea cellular:
14.67%
PPE/Sales
Bharti Airtel: 82.04%
Idea cellular:
97.18%
Reliance comm.:
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Return on sales of Bharti Airtel is more than twice than Return on sales of Idea cellular and
Reliance communication. This is a good signal for the Bharti Airtel.
COGS/Sales ratio of the Bharti Airtel is also less than Idea cellular and Reliance
communication which again is the good sign. It says than on less amount of goods sold,
Bharti Airtel is generating more sales.
SG&A/Sales ratio of Bharti Airtel is 18.05% which is more than Idea cellular and Reliance
communication and a red sign. Here Bharti Airtel should try to minimise this ratio by
minimising Sales, general and administrative expenses adapting proper strategies.
Working capital/Sales ratio of Bharti Airtel is less than Reliance communication that is good,
but more than Idea cellular. Bharti Airtel should try to minimise this ratio that means it should
use methods to generate more Sales with less Working capital.
PPE/Sales ratio of Bharti Airtel is less than all other competitor considered (green flag) but
still it should try to minimise the investment of Property, plant and equipment and generate
more Sales.
Bharti Airtel should try to reduce their sales general and administrative expense as well as
property plan and equipment investment for the future.
Sources of Financial Data: (Bloomberg Businessweek, 2014) (Bloomberg Businessweek,
2014) (Bloomber Businessweek, 2014)
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