Corporate Finance – A Study On Idea Cellular

Corporate Finance – A Study on Idea Cellular Beta Analysis, Leverage Analysis, Dividend Policy Analysis and Alternate financing policy analysis for Idea Cellular ( 532822 | IDEA ) Sarang Bhutada, MBA Student at DoMS, IIT Madras Financial Management, under Dr. Thenmozhi [email_address]

Debt Structure Dept. of Management Studies, IIT Madras 2008 2007 2006 2005 Debt 65147.59 42505.04 29156.07 NA Shareholder’s Equity 49525.20 46300.09 28423.68 NA Total Capital 114672.79 88805.13 57579.75 NA EBITDA 22712.65 14859.63 7260.52 NA Interest Expense 4592.27 3293.10 2532.59 2600 EBIT 11168.61+4592.27 = 15760.88 5090.52+3293.10 = 8383.62 1285.05+2532.59 = 3817.64 260.5+2600 = 2860.5 PAT 10443.62 5020.61 1256.03 260.5 Number of shares 2635.36 2592.86 2259.53 2259.53 EPS 3.963 1.936 0.556 0.115

Observations ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Ratio Analysis Debt is being maintained at around 50% levels Earnings convincingly cover the interest charges DSCR = EBITDA / [ Int exp + Loan Repayment/(1-tax rate )] Dept. of Management Studies, IIT Madras 2008 2007 2006 Debt to total capital ratio 65147.59/114672.79 =0.5681 -> 56.81% debt 42505.04/88805.13 = 0.4786 -> 47.86% debt 29156.07/57579.75 = 0.5063 -> 50.63% debt Debt equity ratio 65147.59/49525.20 = 1.3154 42505.04/46300.09 = 0.9180 29156.07/28423.68 = 1.0258 Interest Coverage ratio 22712.65/4592.27 = 4.946 14859.63/3293.10 = 4.512 7260.52/2532.59 = 2.867 Debt Service Coverage ratio 22712.65/(4592.27 + 1.538*65147.59)= 0.2167 14859.63/(3293.10 + 1.538*42505.04) = 0.2164 7260.52/(2532.59 + 1.538*29156.07) = 0.1532

Observations ,[object Object],Industry Comparison Debt/Total Capital = 69879.58 / (161008.16+69879.58) = 30.26 % Thus, Idea has a higher debt factor than the industry. Source: Capitaline, IIT Subscription Dept. of Management Studies, IIT Madras

EBIT – EPS Analysis for 2008 Dept. of Management Studies, IIT Madras EBIT 5000 10000 20000 25000 Interest 4592.27 4592.27 4592.27 4592.27 PBT 407.73 5407.73 15407.73 20407.73 PAT 265.02 3515.02 10015.02 13265.02 N. Shares 2635.36 2635.36 2635.36 2635.36 EPS 0.1 1.334 3.8 5.033 EBIT EPS 5000 0.1 10000 1.334 15760.88 3.963 20000 3.8 25000 5.033

Leverage Analysis ,[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras 2008 2007 2006 2005 EBIT 15760.88 8383.62 3817.64 2860.5 Sales 67199.9 43664 20070.68 16320.4 Calculation DOL For 2008 [ (15760.88 – 8383.62)/15760.88 / (67199.9 – 43664) /67199.9 ] 1.336 For 2007 [ (8383.62 – 3817.64)/8383.62 / (43664 – 20070.68)/43664] 1.08 For 2006 [ (3817.64 – 2860.5)/3817.64 / (20070.68 – 16320.4)/20070.68 ] 1.342

Leverage Analysis ,[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras 2008 2007 2006 2005 EBIT 15760.88 8383.62 3817.64 2860.5 EPS 3.963 1.936 0.556 0.115 Calculation DFL For 2008 [ (3.963 – 1.936)/3.963 ] / [ (15760.88 – 8383.62) / 15760.88 ] 1.092 For 2007 [(1.936 – 0.556) / 1.936] / [ (8383.62 – 3817.64) / 8383.62 ] 1.308 For 2006 [ (0.556 – 0.115) / 0.556 ] / [ (3817.64 - 2860.5) / 3817.64 ] 3.163

Leverage Analysis ,[object Object],[object Object],Dept. of Management Studies, IIT Madras Year DOL DFL DCL = DOL x DFL 2008 1.336 1.092 1.459 2007 1.08 1.308 1.413 2006 1.342 3.163 4.245

Leverage Analysis - Comments ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Dividend Policy Analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Dividend Policy Analysis ,[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras Year 2008 2007 2006 EPS 3.963 1.936 0.556 Share Price 89.31 120.65 Company not listed Earnings Yield 0.0443 0.016 NA P/E 22.536 62.319 NA

Dividend Policy Analysis – Price of Scrip ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Dividend Policy Analysis – Price of Scrip ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Dividend Policy Analysis – Price of Scrip ,[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Dividend Policy Analysis – Price of Scrip ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Dividend Policy Analysis – Comments ,[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Additional Financing Policy Analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras EBIT 15760.88 8383.62 3817.64 2860.5 Growth 46.8% 54.46% 25.07%

Additional Financing Policy Analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Additional Financing Policy Analysis Dept. of Management Studies, IIT Madras

Additional Financing Policy Analysis – Leverage Analysis between alternatives ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Additional Financing Policy Analysis – Plotting Indifference Curves ,[object Object],Dept. of Management Studies, IIT Madras

Additional Financing Policy Analysis – Plotting Indifference Curves ,[object Object],[object Object],Dept. of Management Studies, IIT Madras

Alternate Financing Policy Analysis –Indifference Curve Dept. of Management Studies, IIT Madras

In Conclusion ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Dept. of Management Studies, IIT Madras

Thank You. Comments, requests, feedback and suggestions to [email_address] please Dept. of Management Studies, IIT Madras

Corporate Finance – A Study On Idea Cellular

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