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									FINANCIAL MANAGEMENT

TELECOM INDUSTRY

FINANCIAL MANAGEMENT PROJECT ON IDEA

SUBMITTED TO:Prof. Harmeet Marwah SUBMITTED BY:Pallavi Mehta Roll no. 34 FI-1

PALLAVI MEHTA, FI-1, ROLL NO.34

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AN

CAN CHANGE YOUR LIFE HISTORY
2006
 Became part of the Aditya Birla Group subsequent to the TATA Group transferring its entire shareholding in the Company to the Aditya Birla Group  Acquired Escorts Telecommunications Limited (subsequently renamed as Idea Telecommunications Limited)  Restructuring of debt  Launch of the New Circles  Reached the 10 million subscriber mark  Received Letter of Intent from the DoT for a new UAS License for the Mumbai Circle.  Received Letter of Intent from the DoT for a new UAS License for the Bihar Circle through Aditya Birla Telecom Limited. ABNL, the parent of Aditya Birla Telecom Limited, pursuant to a letter dated November 22, 2006, agreed to transfer its entire shareholding in Aditya Birla Telecom Limited to the Company for the consideration of Rs. 100 million.

2004
 Completed debt restructuring for the then existing debt facilities and additional funding for the Delhi Circle.  Acquired Escotel Mobile Communications Limited (subsequently renamed as Idea Mobile Communications Limited)  Reached the four million subscriber mark  First operator in India to commercially launch EDGE services 2005  Reached the five million subscriber mark  Turned profit positive  Won an award for the "Bill Flash" service at the GSM Association Awards in Barcelona, Spain  Sponsored the International Indian Film Academy Awards

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2003
 Reached the two million subscriber mark

2002
 Changed name to Idea Cellular Limited and launched "Idea" brand name  Commenced commercial operations in Delhi Circle  Reached the one million subscriber mark

2001
 Acquired RPG Cellular Limited and consequently the license for the Madhya Pradesh (including Chattisgarh) Circle  Changed name to Birla Tata AT&T Limited  Obtained license for providing GSM-based services in the Delhi Circle following the fourth operator GSM license bidding process

2000
 Merged with Tata Cellular Limited, thereby acquiring original license for the Andhra Pradesh Circle

1999
 Migrated to revenues share license fee regime under New Telecommunications Policy ("NTP")

1997
 Commenced operations in the Gujarat and Maharashtra Circles

1996
 Changed name to Birla AT&T Communications Limited following joint venture between Grasim Industries and AT&T Corporation

1995
 Incorporated as Birla Communications Limited  Obtained licenses for providing GSM-based services in the Gujarat and Maharashtra Circles following the original GSM license bidding process.

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As India's leading GSM Mobile Services operator, IDEA Cellular has licenses to operate in 11 circles. With a customer base of over 17 million, IDEA Cellular has operations in Delhi, Maharashtra, Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttaranchal, Haryana, UP-West, Himachal Pradesh,UP-East, Rajasthan and Kerala. IDEA Cellular's footprint currently covers approximately 45% of India's population and over 50% of the potential telecom-market.

As a leader in Value Added Services, Innovation is central to IDEA's VAS Factory. It is the first cellular company to launch music messaging with 'Cellular Jockey', 'Background Tones', 'Group Talk', a voice portal with 'Say IDEA' and a complete suite of Mobile Email Services.

A frontrunner in introducing revolutionary tariff plans, IDEA Cellular has the distinction of offering the most customer friendly and competitive Pre Paid offerings, for the first time in India, with 'Super Power', 2 Minutes Outgoing Free, Lifelong offer and other segmented offerings like Women's Card. 'Lifetime Idea' is the first and only loyalty program, for pre paid customers, introduced by a Cellular brand. Customer Service and Innovation are the drivers of this Cellular Brand. A brand known for their many firsts, Idea is only operator to launch GPRS and EDGE in the country. The latest feather in Idea's cap is GSM Association Award for CARE. It is the second GSM Association award that Idea has won, the first one being for Bill Flash. Idea Cellular is part of the Aditya Birla Group, which is India's first truly multinational corporation. Global in vision, rooted in Indian values, the group is driven by a performance ethic pegged on value creation for its multiple stakeholders. The combined holding of the Aditya Birla Group companies in Idea stands at around 57 per cent. With ambitious future plans, the company is poised for rapid growth.

OUR CIRCLES
The Indian telecommunications market for mobile services is divided into 23 “Circles”. There are four “metropolitan” Circles, covering the cities of Mumbai, Delhi, Kolkata and Chennai, and 19 Circles classified by the Government as category “A”, category “B” or category “C”, which cover the rest of India. These classifications are based principally on a Circle’s revenue generating potential, with metropolitan and category A Circles having the highest revenue potential.

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Established Circles
We operate in the metropolitan Circle of Delhi, the category A Circles of Andhra Pradesh, Gujarat and Maharashtra, and the category B Circles of Haryana, Kerala, Madhya Pradesh and Uttar Pradesh (West).

Licenses for the Maharashtra and Gujarat Circles were awarded to us in December 1995, with network rollout and commercial launch achieved in 1997. Subsequently, in January 2000, we merged with Tata Cellular Limited, the mobile operator in the Andhra Pradesh Circle, and integrated its operations into ours by January 2001. In February 2001, we acquired RPG Cellcom Limited, the mobile operator in the Madhya Pradesh Circle, with full integration of this Circle with ours achieved by June 2001. We acquired the license for the Delhi Circle during the fourth mobile license auction in October 2001, with network rollout and commercial launch by November 2002. Escotel Mobile Communications Private Limited (“Escotel”), which we acquired in January 2004, was awarded the original licenses in the Circles of Haryana, Uttar Pradesh (West) and Kerala. We re-branded these Circles and integrated them with ours by June 2004.

New Circles
In connection with the acquisition of Escotel, we also acquired Escorts Telecommunications Limited (“Escorts”), which was awarded licenses for the New Circles. Due to certain existing license conditions we were unable to complete the transfer of shares of Escorts until June 2006. However, we ensured that Escorts met the first phase of network requirements for these New Circles in June 2005 in accordance with the relevant licenses (as amended following the payment of a penalty by us on behalf of Escorts). Following significant investment by us in the roll-out of the network in the New Circles, amounting to approximately Rs. 4,678 million upto September 30, 2006, we were able to achieve full commercial launch of mobile services in the New Circles between September and November 2006 in a manner which also met the network roll-out requirements of the licenses which were to be completed by June 2007.

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OUR PARTNERS
IIDEA welcomes all businesses and individuals interested in partnering with us to enhance and strengthen the IDEA products & services portfolio.To explore such potential partnerships, kindly get Iin touch with us by submitting the Partners Form. Some of our Technology and Content Partners :-

VAS
Onmobile Asia Pacific Ltd Cellebrum India Ltd Siddhivinayak Astro Services Ltd. Kodiak Ltd Mauj

Net4nuts India Ltd Yahoo Rediff

Mobile2win Sify NDTV

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ROAMING
Roamware.inc Starhome

Bharti Telesoft

MARKETING COMMUNICATIONS
Lowe India Pvt Ltd

Insight Media Ltd

PUBLIC RELATIONS
Clear PR

NETWORK
Nokia Ericsson Siemens

BILLING
Atos Origin

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INVESTOR CENTRE
 GRASIM  HINDALCO  ADITYA BIRLA NUVO  ULTRA TECH  INDAL

Top Management :Chairman - Kumar Mangalam Birla Managing Director - Sanjeev Aga Company Secretary - Pankaj Kapdeo Chief Financial Officer - Vikram Mehmi

Promoters and Directors:Chairman Director Director Director Director Director Director Director Director Managing Director Company Secretary Chief Financial Officer Managing Director Kumar Mangalam Birla Rajashree Birla Arun Thiagarajan G P Gupta Mohan Gyani Tarjani Vakil Biswajit A Subramanian M R Prasanna Saurabh Misra Sanjeev Aga Pankaj Kapdeo Vikram Mehmi Sanjeev Aga 80,000.00 40,000.00 70,000.00 30,000.00 20,000.00 100,000.00 120,000.00 13,321,115.00 -

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Idea Cellular Ltd – Balance Sheet

Year SOURCES OF FUNDS : Share Capital + Reserves Total + Total Shareholders Funds Secured Loans + Unsecured Loans + Total Debt Total Liabilities APPLICATION OF FUNDS : Gross Block + Less : Accumulated Depreciation + Net Block + Lease Adjustment Capital Work in Progress+ Investments + Current Assets, Loans & Advances Inventories + Sundry Debtors + Cash and Bank+ Loans and Advances + Total Current Assets Less : Current Liabilities and Provisions Current Liabilities + Provisions + Total Current Liabilities Net Current Assets Miscellaneous Expenses not written off + Deferred Tax Assets Deferred Tax Liability Net Deferred Tax Total Assets Contingent Liabilities+

Mar 06

Mar 05

2,742.53 1,574.00 1,168.53 1,470.75 1,444.85 2,915.60 4,084.13 3,975.13 1,157.63 2,817.50 0 95.67 307.03 8.81 90.81 129.09 1,408.64 1,637.35 773.42 0 773.42 863.93 0 0 0 0 4,084.13 208.04

2,742.53 1,699.60 1,042.93 1,692.75 1,005.28 2,698.03 3,740.96 4,168.63 1,491.14 2,677.49 0 64.62 307.03 13.45 142.44 151.89 833.75 1,141.53 449.71 0 449.71 691.82 0 32.9 32.9 0 3,740.96 235.92

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Idea Cellular Ltd – P & L A/C
Year INCOME : Sales Turnover + Excise Duty Net Sales Other Income + Stock Adjustments + Total Income EXPENDITURE : Raw Materials + Power & Fuel Cost+ Employee Cost + Other Manufacturing Expenses Selling and Administration Expenses + Miscellaneous Expenses + Less: Pre-operative Expenses Capitalised+ Total Expenditure Operating Profit Interest + Gross Profit Depreciation+ Profit Before Tax Tax+ Deferred Tax+ Reported Net Profit Extraordinary Items + Adjusted Net Profit Adjst. below Net Profit + P & L Balance brought forward Statutory Appropriations + Appropriations + P & L Balance carried down Dividend Preference Dividend Equity Dividend % Earnings Per Share-Unit Curr Book Value-Unit Curr

Mar 06(12) 2,007.07 0 2,007.07 13.99 0 2,021.06 0 0 118.48 779.5 394.08 0 0 1,292.06 729 252.96 476.04 347.54 128.5 2.9 0 125.6 0 125.6 0 0 0 125.6 0 0 0 0 0.56 3.03

Mar 05(12) 1,632.04 0 1,632.04 9.67 0 1,641.71 0.11 35.38 99.05 568.23 269.23 145.96 0.08 1,117.88 523.83 260 263.83 237.78 26.05 0 0 26.05 -0.26 26.31 0 -1,825.49 0 0 -1,799.44 0 0 0 0.12 2.48

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Ratio Analysis 1- NET PROFIT RATIO :
The net profit margin is indicative of “management’s ability to operate the business with sufficient success not only to recover from revenues of the period, the cost of merchandise or services, the expenses of operating the business and the cost of borrowed funds, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. The ratio of net profit to sales essentially expresses the cost of price effectiveness of the operation. A high net profit margin would ensure adequate return to the owners as well as enable a firm to withstand adverse economic conditions when selling price is declining, cost of production is rising and demand for the product is falling. A low net profit margin has the opposite implications.

NET PROFIT RATIO= NET PROFIT /NET SALES* 100 YEARS NET PROFIT NET SALES 2005 26.31 1632.04 2006 125.60 2007.07

NET PROFIT RATIO 2005 = 26.31/1632.04*100=1.61 NET PROFIT RATIO 2006 =125.60/2007.07*100=6.26
In the year 06’ the company had a ratio of 6.26, where as in the year 05’ it had a ratio of 1.61. This shows that there had been a subsequent increase in the net profit ratio of the company as compared to the previous year. There has been a subsequent increase in the net sales of the company, but there had been a reduction in the net profit of the company. The elements responsible in the reduction of net profit is increased staff cost and other expenditure, as well as huge reduction in the other income.

2- INVENTORY TURN OVER RATIO:
This ratio shows how fast inventory is sold. A high ratio is good from the viewpoint of liquidity and viceversa. A low ratio signifies that inventory does not sell fast and stays in the store for a long time.

INVENTORY TURN OVER RATIO = COGS/INVENTORY COGS = OPENING STOCK+NET PURCHASES+DIRECT EXPENSES-CLOSING STOCK YEARS 2005 2006 COGS 784.14 564.26 INVENTORY 2007.07 1632.04 INVENTORY TURNOVER RATIO 2005=784/2007.07= 0.39 INVENTORY TURNOVER RATIO 2006 = 564.26/1632.04 =0.34

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In the year 06’ the company had a ratio of 0.34 and in the year 05’ the company had a ratio of 0.34. This shows that the ratio has decreased, which signifies that the company’s inventory stays in store for a long time. This can be easily seen by the increase in the inventories of the company.

3- GROSS PROFIT RATIO:
Gross profit is the result of the relationship between prices, sales volume and cost. A change in the gross margin can be brought by changes in any of these factors. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit. It is also used in determining the extent of loss caused by theft, spoilage, damage and so for firms which follows the policy of fixed gross profit margin in pricing their products. A high ratio is a sign of good management as it implies that the cost of production of the firm is relatively low. It may also be indicative of a higher sales price without a corresponding increase in the cost of goods sold. It is also likely that the cost of sales might have declined. A low margin is a danger signal, which may be due to high cost of production, inefficient utilization current as well as fixed assets or low selling price resulting from severe competition, inferior quality of product, lack of demand etc.

GROSS PROFIT RATIO = GROSS PROFIT/NET SALES*100 YEARS 2005 2006 GROSS PROFIT 263.83 476.04 NET SALES 1632.04 2007.07 GROSS PROFIT RATIO 2005=263.83/1632.04 *100 = 16.16 GROSS PROFIT RATIO 2006 = 476.04/2007.07*100 =23.71
In the year 06’ the company’s ratio was 23.71 as compared to 05’ it had a ratio of 16.16.The factor which is majorly contributing to this change is reduction in it direct cost. This is showing the managements efficiency in implementing cost reduction techniques. The other reason contributing to the change is increase in sales.

4- RETURN ON INVESTMENT:
This ratio measures the relationship between net profit before interest but after tax and capital employed. The objective of this ratio is to find out the managements efficiency in utilizing the long term fund of the company.

RETURN ON INVESTMENT= NETPROFIT/INVESTMENT*100 YEARS 2005 2006 NET PROFIT 26.61 125.60 INVESTMENT 307.03 307.90

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RETURN ON INVESTMENT 2005=26.61/307.03*100=8.57 RETURN ON INVESTMENT 2006 = 125.60/307.90*100=40.90
In the year 06’ the company had a ratio of 8.57 as compared to the year 05’ it was 40.90.there has been reduction in the current year’s ratio as compared to the previous year. The factor that contributed to this change was the change in the capital employed due to the issue of equity shares and increase in reserves and surpluses of the company

5- RETURN ON EQUITY:
This ratio measures the relationship between profit after tax and shareholder’s fund. This ratio reveals the managements efficiency in utilizing the owners fund. It is used in comparison with other company within the same industry and throws light on the relative performance and strength of the company.

RETURN ON EQUITY= NET PROFIT AVAILABLE TO EQUITY/AVG.EQUITY*100 YEAR NET PROFIT AVAILABLE TO EQUITY AVERAGE EQUITY RETURN ON EQUITY 2005 RETURN ON EQUITY 2006 2005 Nil 12500 2006 Nil 12500

= Nil/12500*100 = Nil = Nil/12500*100 = Nil

In the year 06’ the company had a ratio of Nil and in the year 05’ it had a ratio of Nil. Here we can see that in both years company’s return on equity revealing the efficiency of the management in using the owner’s fund which is same.

6- DEBTORS TURNOVER RATIO:
This ratio supplements the information regarding the liquidity of one item of current assets of the firm. The ratio measures how rapidly debts are collected. A high ratio indicates shorter time lag between credit sales and cash collection. A low ratio indicates debts are not being collected rapidly.

YEARS NET CREDIT SALES AVG. DEBTORS

2005 1632.04 120.04

2006 2007.07 116.62

DEBTORS TURNOVER RATIO2005 =1632.04/120.63=13.53 DEBTORS TURNOVER RATIO2006 =2007.07/116.62=17.21
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In the year 06’ the company had a ratio of 17.21 where as in the year 05’ it had a ratio of 13.53. This shows that there has been an increase in the ratio in the current year as compared to the previous year. This increase is due to the increase in net credit sales of the company. This shows the company’s efficiency in cash collection.

7- CAPITAL TURNOVER RATIOCAPITAL TURNOVER RATIO = COGS/AVG.CAPITAL EMPLOYED AVG. CAPITAL EMPLOYED 2005= EQUITY 2005+EQUITY 2006/2 AVG. CAPITAL EMPLOYED 2006= EQUITY 2005+EQUITY2006/2 AVG. CAPITAL 2005 = (2742.53+2742.53)/2=2742.53 AVG.CAPITAL 2006 = (2742.53+2742.53)/2=2742.53 CAPITAL TURNOVER RATIO2005= 564.26/2742.53=0.20 CAPITAL TURNOVER RATIO2006=784.14/2742.53=0.28

8- CURRENT RATIO:
The current ratio of the firm measures its short term solvency, i.e. its ability to meet short term obligations. It indicates the rupees of current assets available for each rupee of current liability. The higher is the current ratio, the larger is the amount of rupees available per rupee of current liability, the more is the firm’s ability to meet current obligations, and greater is the safety of funds of short-term creditors. Thus current ratio, in a way, is a measure of margin of safety to the creditors.

CURRENT RATIO –CURRENT ASSET/CURRENT LIABILITY YEARS 2005 2006 CURRENT ASSET 1141.53 1637.35 CURRENT LIABILITY 449.71 773.42 CURRENT RATIO2005 =1141.53/449.71 = 2.54 CURRENT RATIO2006 =1637.35/773.42 = 2.12
In the year 05’ the company had a current ratio of 2.54 and in the year 06’ the company had a ratio of 2.12.This shows that there is a comparative decease in the ratio revealing greater margin of safety to the creditors. These changes are due to the increase in current liabilities and considerable amount of decrease in current assets. The decrease in current asset is due to major decrease in sundry debtors and cash and bank balances. This is the main reason for the decrease in the ratio.

THANK YOU

PALLAVI MEHTA, FI-1, ROLL NO.34

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