mac project (1)
TRANSCRIPT
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ANALYSIS ON TELECOM
SECTOR
Presented by
11DCP069- Anurag Rana11DCP088- Piyush Bhandari
11dcp098- Sudhanshu Sharma
11dcp099- Swati Bhargava
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Operating Leverage
It is a multiplication of percentagechanges in sales into even larger changes
in profitability measures.
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Relevance of OperatingLeverage Positive Operating Leverage:
When fixed cost has a greater portion in the total coststructure of the firm / company, a small percentageincrease in sales increases a greater percentage in net
operating income. This concept is known as positiveoperating leverage.
Negative Operating Leverage:A negative operating leverage is a situation where fixedcost has a greater portion in the total cost structure ofthe company and there is a decrease in sales. Such asituation has a negative effect on the revenue of the firmresulting in a greater percentage decrease in net
operating income.
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Operating Leverage
Operating leverage measures a firm's fixed versusvariable costs.
The greater proportion of fixed costs, the greater
the operating leverage.
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Analysis of Operating Leverage
Bharti Airtel maintaining consistently lowoperating leverage throughout the years,meaning less dependent on individual sales
Aircel reporting negative operating leveragefor the last 2 years
Vodafone reporting high operating leverage
towards and increasing trend
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Sales
0
5000
10000
15000
20000
25000
30000
35000
40000
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Bharti Airtel
Idea Cellular
Aircel
Vodafone
Mar-11 Mar-10 Mar-09 Mar-08 Mar-07
Bharti Airtel 38015.8 35609.54 34048.32 25761.11 17851.61
Idea Cellular 15332.8 11850.24 9857.08 6719.99 4366.4
Aircel 13308.71 13554.6 15086.66 14792.05 12756.3
Vodafone 3611.77 3218.04 3749.43 3283.3 4041.83
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Analysis
Although Bharti Airtel is the biggest player inthe business it still reports highest boost insales (28.57% annually)
Sales of Reliance communication havedropped despite of it being the second biggestplayer
Sales of Idea Cellular reporting constantgrowth in sales
Tata Comm. Reporting constant sales, minimalgrowth
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The Break Even Point
The break-even point (BEP) is the point atwhich cost or expenses and revenue areequal: there is no net loss or gain, and one has
"broken even". A profit or a loss has not been made,
although opportunity costs have been paid,and capital has received the risk-adjusted,expected return.
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BEP Percentage
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Bharti Airtel
Idea Cellular
Aircel
Vodafone
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Analysis
Bharti Airtel has reducing BEP as apercentage of sales
Aircel has a a highly increasing trend of BEP
(22% increase in 4 years)
Idea cellular sharpest decline in BEP (15% in4 years)
Vodafone has a relatively stagnant BEP overthe years
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Margin of Safety (MOS)
Margin of safety represents the strength of thebusiness. It enables a business to know whatis the exact amount it has gained or lost and
whether they are over or below the break evenpoint.
margin of safety% = (current output -breakeven output)/current output x 100
High BEP -> less Margin of Safety
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Margin of Safety
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Bharti Airtel Idea Cellular Aircel Vodafone
MOS Percentage
Mar-11
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Analysis of MOS of companies
Bharti Airtel has the highest MOS making itsbusiness very strong
Aircel has the lowest MOS making its business
fragile and the high BEP will make costcoverage difficult in tough times
Idea Cellular and Vodafone have relatively
high MOS and relatively same BEP, butconsidering the trend, Idea Cellular has moredecreasing trend over the years
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Thank you