Relative

Valuation
BHARTI AIRTEL LIMITED
Advance Corporate Finance

JULY 19

1
Introduction
I have chosen BHARTI AIRTEL LIMITED, for the project of Relative Valuation. Here is a
brief introduction to the company.

Bharti Airtel Limited is a major telecommunications leader with operations in 18 Asian

and African countries. The group, which is headquartered in New Delhi, India is among
the top three mobile service companies in the world in terms of subscribers.

In India, the company's product offerings include high-speed home broadband, 2G, 3G,
and mobile commerce, 4G wireless services, fixed-line services, DTH, enterprise
services including national & international long-distance services to carriers.

With a pan-India network, the company has a healthy subscription base and sales
market share. While the number of subscribers in India has decreased.

Owing to the launch of minimum recharge plans, revenue market share has increased
to 31% in the quarter ended March 2020.

In this Project, we have to conduct relative valuation for the selected company using
the past financial data for the last 5 years.

For calculating the range of equity and firm, I have used the following ratios:

1. Price to Earning Ratio

2. Price to Sales Ratio

3. Price to Book Value Ratio

4. Enterprise Value/EBIDTA

5. Enterprise Value/Sales

6. Enterprise Value/BV of (Equity and Debt)

2
1. Price to Earning Ratio
The PE ratio shows how much buyers are willing to pay for a share based on its
earnings. The P/E ratio study depicts the direct association between a company's stock
price and its profits.
A high P/E ratio indicates that a stock's valuation is high in comparison to its earnings
and could be overvalued. A low P/E, on the other hand, may mean that the current
stock price is low in comparison to earnings. It is also known as earning multiplier.

2. Price to Sales Ratio

The P/S ratio is determined by dividing the stock price by revenue per share on a per-
unit basis. A sales multiple or income multiple is another name for the P/S ratio.

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3. Price to Book Value Ratio

To compare a company's market capitalization to its asset value, the price-to-book ratio
(P/B ratio) is used. It is determined by dividing the stock price per share by the book
value per share of the company (BVPS). The book value of an asset is the same as its
carrying value on the balance sheet, and firms measure it by subtracting the asset's
accrued depreciation.

4. Enterprise Value/EBIDTA

The EV/EBITDA ratio (also known as the EBITDA multiple or business multiple) is a
commonly used corporate valuation measure that measures a company's total worth
to its operating earning power. The EV/EBITDA ratio is a widely used metric for
determining if a firm is undervalued or overvalued in comparison to industry
competitors.

5. Enterprise Value/Sales

The enterprise value-to-sales (EV/sales) ratio is a financial metric that measures a

company's enterprise value (EV) to its annual sales. The EV/sales multiple provides
investors with a quantifiable formula for valuing a business based on sales and
accounting for both equity and debt.

6. Enterprise Value/BV of (Equity and Debt)

Enterprise Value/BV of (Equity and Debt) is calculated by dividing enterprise value by

BV of Debt and equity. It indicates the business value based on the BV of equity and
debt for the year.

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 Relative valuation:
A relative valuation model is a market valuation approach that assesses a company's
financial worth by comparing its value to that of its rivals or industry peers. Absolute
value models aim to calculate a company's inherent worth based on its projected
future free cash flows discounted to their present value, while relative value models try
to determine a company's intrinsic worth based on its estimated future free cash flows
discounted to their present value, without considering industry average.
Companies are valued using relative valuation formulas, which compare them to other
firms using metrics including EV/Revenue, EV/EBITDA, and P/E ratios. The argument
goes like this: if comparable firms are worth 20 times their earnings, then the business
is priced could be worth 20 times its earnings as well.

Models of Relative Valuation:

There are commonly two types of model for relative valuation;
1. Comparable Company Analysis
2. Precedent Transaction Analysis

Comparable Company Analysis:

It is a method for determining the worth of a company by contrasting it to publicly
listed businesses that have comparable corporate activities. To calculate a P/E ratio, an
investor would equate the actual share price of a public firm to a factor such as its
earnings. It would then use the ratio to calculate the worth of the business it is valuing.

Precedent Transaction Analysis:

It's a form of valuing businesses based on previous sales in which whole businesses
were purchased or sold (mergers and acquisitions). These deals indicate how much an
investor was prepared to pay for the whole company. Ratios like EV/EBTIDA are often
seen in precedents.

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 Workings
For valuation of Bharti Airtel, the following are the required workings from the year
2016-2020:

Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of Equity and
Debt:
For the Year 2016

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Mahanagar Telephone Nigam Ltd. -10.6284153 4.744250035 -0.95389897
Reliance Communications Ltd. -1.136363636 0.375244605 0.015861506
Tata Communications Ltd. 81.60014514 0.043265536 3.602505366
Vodafone Idea Ltd. 1.357823129 6.558626215 0.14510032
       
Industry Average 17.79829733 2.930346598 0.702392056
       
Minimum -10.6284153 0.043265536 -0.95389897
Average 17.79829733 2.930346598 0.702392056
Maximum 81.60014514 6.558626215 3.602505366

Enterprise
Enterprise Value/BV of
Company Name Enterprise Value/EBIDTA Value/Sales (Equity+Debt)
       
Mahanagar Telephone Nigam Ltd. 35.79683048 7.46374E-06 3.183825508
Reliance Communications Ltd. 0.047319226 1.85918E-08 0.003562011
Tata Communications Ltd. 18.44456313 6.73228E-06 3.284949995
Vodafone Idea Ltd. 13.67351435 4.71339E-06 2.497336282
       
Industry Average 16.9905568 4.732E-06 2.242418449
       
Minimum 0.047319226 1.85918E-08 0.003562011
Average 16.9905568 4.732E-06 2.242418449
Maximum 35.79683048 7.46374E-06 3.284949995

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 Equity Price Range
  Earning Per Share Sales Per Share Book Value Per Share
Bharti Airtel Ltd. 19.46 109.7960681 279.5
Minimum -206.8289617 4.750385719 -266.6147621
Average -3681.203358 13.92027663 -187.2680908
Maximum -300386.7283 91.29789122 -674.6343022

Range in (₹) (206.828)-(300386.7283) 4.7503-91.2978 (266.614)-(674.634)

Firm Price Range

  EBIDTA Sales BV of Equity and Debt
Bharti Airtel Ltd. 240619 622763 1625888
Minimum 11385.90494 0.011578292 5791.4306
Average 193452.8645 5.47885E-08 12986.81082
Maximum 6924999.396 4.08927E-13 42661.02414

Range in (₹) 11385.904-6924999.396 11578.2911-408927.2344 5791.4306-42661.02414

Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of Equity and
Debt :
For the Year 2017

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Mahanagar Telephone Nigam Ltd. -1.53526971 4.658094336 -0.576323988
Reliance Communications Ltd. -0.236263736 0.380337948 0.017768595
Tata Communications Ltd. 46.00619835 0.134484502 3.428435056
Vodafone Idea Ltd. -4.125541126 6.027356342 0.144832827
       
Industry Average 10.02728094 2.800068282 0.753678122
       
Minimum -4.125541126 0.134484502 -0.576323988
Average 10.02728094 2.800068282 0.753678122
Maximum 46.00619835 6.027356342 3.428435056

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 Enterprise Enterprise Value/BV
Company Name Value/EBIDTA Enterprise Value/Sales of (Equity+Debt)
       
Mahanagar Telephone Nigam Ltd. -64.85483355 7.934E-06 3.424909245
Reliance Communications Ltd. -0.020773395 5.64524E-08 0.004291714
Tata Communications Ltd. 19.53328197 6.18853E-06 2.913696683
Vodafone Idea Ltd. 25.8448883 4.74704E-06 2.021079921
       
Industry Average -4.874359168 4.73151E-06 2.090994391
       
Minimum -64.85483355 5.64524E-08 0.004291714
Average -4.874359168 4.73151E-06 2.090994391
Maximum 25.8448883 7.934E-06 3.424909245

Equity Price Range

  Earning Per Share Sales Per Share Book Value Per Share
Bharti Airtel Ltd. -24.84 113.3940109
Minimum 102.4784416 15.24973712 -145.9137072
Average -249.0776586 317.5109733 190.8162271
Maximum -1142.793967 683.4661109 868.0111874

Range in (₹) 102.478-(1142.7939) 15.249-683.46611 (145.913)-868.0111

Firm Price Range

  EBIDTA Sales BV of Equity and Debt
Bharti Airtel Ltd. 106220 622763 1634786
Minimum -6888880.419 0.035156442 7016.034179
Average -517754.4308 2.946606837 3418328.357
Maximum 2745244.035 4.940999423 5598993.686

Range in (₹) (6888880.419)-2745244.035 35156.44154-4940999.423 7016.0341-5598993.686

Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of Equity and

8
Debt :
For the Year 2018

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Mahanagar Telephone Nigam Ltd. 2660.5 5.445665932 -0.576323988
Reliance Communications Ltd. -0.351609058 0.427757639 0.017768595
Tata Communications Ltd. -0.045002616 0.213210078 3.428435056
Vodafone Idea Ltd. 118.9529915 6.013781785 0.144832827
       
Industry Average 694.7640949 3.025103858 0.753678122
       
Minimum -0.351609058 0.213210078 -0.576323988
Average 694.7640949 3.025103858 0.753678122
Maximum 2660.5 6.013781785 3.428435056

Enterprise
Enterprise Enterprise Value/BV of
Company Name Value/EBIDTA Value/Sales (Equity+Debt)
       
Mahanagar Telephone Nigam Ltd. -64.72039052 9.30716E-06 3.366590766
Reliance Communications Ltd. -0.020773395 8.94989E-08 0.010634427
Tata Communications Ltd. 19.53413635 6.17459E-06 3.024348585
Vodafone Idea Ltd. 25.90256226 6.03311E-06 1.690809893
       
Industry Average -4.826116327 5.40109E-06 2.023095918
       
Minimum -64.72039052 8.94989E-08 0.010634427
Average -4.826116327 5.40109E-06 2.023095918
Maximum 25.90256226 9.30716E-06 3.366590766

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 Equity Price Range
  Earning Per Share Sales Per Share Book Value Per Share
Bharti Airtel Ltd. 0.2 97.71073118 257.32
Minimum -0.070321812 20.83291264 -148.2996885
Average 138.952819 295.5851099 193.9364545
Maximum 532.1 587.6110153 882.2049085

Range in (₹) (0.070321)-532.1 97.710-587.611 (148.299)-882.2049

Firm Price Range

  EBIDTA Sales BV of Equity and Debt
Bharti Airtel Ltd. 198587 536630 1705930
Minimum -12852628.19 0.048027784 18141.58793
Average -958403.963 2.898386745 3451260.019
Maximum 5143912.131 4.99450332 5743168.186

Range in (₹) (12852628.19)-5143912.131 48027.7836-4994503.32 18141.587-5743168.186

Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of Equity and
Debt :
For the Year 2019

Price to Book Value

Company Name Price to Earning Ratio Price to Sales Ratio Ratio
       
Mahanagar Telephone Nigam Ltd. -5.307917889 5.995106974 -0.209879406
Reliance Communications Ltd. 0.167791707 0.4819547 0.038856632
Tata Communications Ltd. -72.00386598 0.348950508 3.884524472
Vodafone Idea Ltd. -0.480570585 5.879711338 0.134387895

Industry Average -19.40614069 3.17643088 0.961972398

Minimum -72.00386598 0.348950508 -0.209879406

Average -19.40614069 3.17643088 0.961972398
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Maximum 0.167791707 5.995106974 3.884524472

Enterprise
Enterprise Enterprise Value/BV of
Company Name Value/EBIDTA Value/Sales (Equity+Debt)
       
Mahanagar Telephone Nigam Ltd. -36.16214285 9.31683E-06 7.678871672
Reliance Communications Ltd. 0.029961016 9.1978E-08 0.016428068
Tata Communications Ltd. 45.79767491 6.19673E-06 3.65510461
Vodafone Idea Ltd. 23.67959076 6.04447E-06 0.8502831

Industry Average 8.336270959 5.4125E-06 3.050171862

Minimum -36.16214285 9.1978E-08 0.016428068

Average 8.336270959 5.4125E-06 3.050171862
Maximum 45.79767491 9.31683E-06 7.678871672

Equity Price Range

  Earning Per Share Sales Per Share Book Value Per Share
Bharti Airtel Ltd. -4.36 90.32365933 245.92
Minimum 313.9368557 31.51848682 -51.6135436
Average 84.61077339 286.9068607 236.5682522
Maximum -0.731571842 541.5 955.2822581

Range in (₹) 313.936-(0.7315) 31.5184-541.5 (51.6135)-955.282

Firm Price Range

  EBIDTA Sales BV of Equity and Debt
Bharti Airtel Ltd. 209290 496060 983059
Minimum -7568374.876 0.045626625 16149.76031
Average 1744698.149 2.684926782 2998498.901
Maximum 9584995.381 4.621707016 7548783.907

Range in (₹) (7568374.876)-9584995.381 45626.624-4621707.016 16149.7603-7548783.907

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Calculation of P/E ratio, P/S ratio, P/BV ratio, EV/EBITDA, EV/Sales, EV/BV of Equity and
Debt:
For the Year 2020

Company Name Price to Earning Ratio Price to Sales Ratio Price to Book Value Ratio
       
Mahanagar Telephone Nigam Ltd. -0.944736842 5.489792727 -0.170093812
Reliance Communications Ltd. -0.010471521 0.599306811 -0.014524389
Tata Communications Ltd. 150.0068213 0.584886574 3.812057967
Vodafone Idea Ltd. -0.349647757 5.394311707 3.012779553
Industry Average 37.17549129 3.017074455 1.66005483

Minimum -0.944736842 0.584886574 -0.170093812

Average 37.17549129 3.017074455 1.66005483
Maximum 150.0068213 5.489792727 3.812057967

Enterprise Enterprise Value/BV

Company Name Value/EBIDTA Enterprise Value/Sales of (Equity+Debt)
       
Mahanagar Telephone Nigam Ltd. -35.35066542 6.95065E-06 1.7715893
Reliance Communications Ltd. -0.004609746 1.28665E-05 -111.2909924
Tata Communications Ltd. 17.74185413 2.47478E-07 -0.006174684
Vodafone Idea Ltd. -10.39748712 5.54037E-06 3.422380528
Industry Average -7.00272704 6.40124E-06 -26.52579932

Minimum -35.35066542 2.47478E-07 -111.2909924

Average -7.00272704 6.40124E-06 -26.52579932
Maximum 17.74185413 1.28665E-05 3.422380528

Equity Price Range

  Earning Per Share Sales Per Share Book Value Per Share
Bharti Airtel Ltd. -71.08 98.90173036

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  Minimum 2016
67.15189474 2017 57.84629425 2018 2019 -31.51328058
Company
Average Name MPS
-2642.433921 MPS MPS
298.3938842 MPS MPS
307.5583583
Bharti
MaximumAirtel Ltd. 520.9
-10662.48486 528.2 542.95532.1 541.5 706.2599795
Mahanagar Telephone Nigam
Ltd. 19.45 18.5 17.7 18.1
Range in (₹) 67.1518-(10662.484) 57.84629-542.95 (31.513)-706.2599
Reliance Communications
Ltd. 1.75 1.72 1.72 1.74
Tata Communications Ltd. 1124.45 1113.35 1113.4 1117.5 1099.55
Vodafone Idea Ltd.
Firm
9.98
Price Range
9.53 9.66 9.77
  EBIDTA Sales BV of Equity and Debt
Bharti Airtel Ltd. -188050 543171 2131077
Minimum 6647692.633 0.13442287 -237169674.3
Analysis and Interpretation based on ratios:
Average 1316862.82 3.476969652 -56528520.84
Valuation
Maximum of Bharti Airtel using P/E ratio:
-3336355.67 6.988693884 7293356.428

Range in (₹) 6647692.633-(3336355.67) 134422.8701-6988693.884 (237169674.3)-7293356.428

  2016 2017 2018 2019 2020
Company Name P/E Ratio P/E Ratio P/E Ratio P/E Ratio P/E Ratio
Bharti Airtel Ltd. 26.76772867 -21.26409018 2660.5 -124.1972477 -7.638576252

YEAR-2016
In the year 2016, Bharti Airtel Limited’s was Earning Per Share was 19.46, which is far
higher than its industry’s average EPS: about -3681. According to these criteria, Bharti
Airtel Limited's business value is much higher than that of the average of its
competitors. Yearly Market Price Per Share

Bharti Airtel Limited has a P/Earnings ratio of 26.7677, which is much higher than the
industry average of 17.79. According to the equity multiplier, Bharti Airtel Limited's
business value is much higher than the stock valuation of its industry.

Hence, we can say that the stock of Bharti Airtel Limited is overvalued in the year 2016
as compared to the average of the Telecom Services industry.

YEAR-2017
In the year 2017, Bharti Airtel Limited’s was Earning Per Share was -24.84, which is
higher than its industry’s average EPS: about -249.077. According to these criteria,
13
Bharti Airtel Limited's business value is higher than that of the average of its
competitors.

Bharti Airtel Limited has a P/Earnings ratio of -21.264, which is much lower than the
industry average of 10.02. According to the equity multiplier, Bharti Airtel Limited's
business value is much lower than the stock valuation of its industry.
Hence, we can say that the stock of Bharti Airtel Limited is highly undervalued in the
year 2017 as compared to the average of the Telecom Services industry.

YEAR-2018
In the year 2018, Bharti Airtel Limited’s was Earning Per Share was 0.20, which is far
lower than its industry’s average EPS: about 138.952. According to these criteria, Bharti
Airtel Limited's business value is much lower than that of the average of its
competitors.

But, Bharti Airtel Limited has a P/Earnings ratio of 2660.5, which is much higher than
the industry average of 694.764. Though the P/E ratio of Bharti Airtel is higher than its
maximum range i.e. (0.070321)-532.1, According to the equity multiplier, Bharti Airtel
Limited's business value is much higher than the stock valuation of its industry.
Hence, we can say that the stock of Bharti Airtel Limited is highly overvalued in the year
2018 as compared to the average of the Telecom Services industry.

YEAR-2019
In the year 2019, Bharti Airtel Limited’s was Earning Per Share was -4.36, which is far
lower than its industry’s average EPS: about 84.610. According to these criteria, Bharti
Airtel Limited's business value is much lower than that of the average of its
competitors.

Bharti Airtel Limited has a P/Earnings ratio of -124.19, which is much lower than the
industry average of -19.406. According to the equity multiplier, Bharti Airtel Limited's
business value is much lower than the stock valuation of its industry.
Hence, we can say that the stock of Bharti Airtel Limited is undervalued in the year
2019 as compared to the average of the Telecom Services industry.

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YEAR-2020
In the year 2020, Bharti Airtel Limited’s was Earning Per Share was -71.08, which is far
lower than its industry’s average EPS: about -2642. According to these criteria, Bharti
Airtel Limited's business value is much higher than that of the average of its
competitors.

Bharti Airtel Limited has a P/Earnings ratio of -7.63, which is much lower than the
industry average of 37.175. According to the equity multiplier, Bharti Airtel Limited's
business value is much lower than the stock valuation of its industry.
Hence, we can say that the stock of Bharti Airtel Limited is undervalued in the year
2020 as compared to the average of the Telecom Services industry.

Price to Sales Ratio:

BHARTI AIRTEL LTD's price to sales indicator is approximately 5.48 times in the year
2020 which was approximately 4.744 in the year 2016. At present this is 55.05 percent
higher than the Communication Services industry and roughly equal to the Telecom
Services industry. (Which is approximately 3.017 times.)

Price to Book Value ratio:

BHARTI AIRTEL LTD's price to book value indicator is approximately 2.93 times in the
year 2020 which was approximately 1.86 in the year 2016. At present this is 56.65
percent higher than the Communication Services industry and roughly equal to the
Telecom Services industry. (Which is approximately 1.66 times.)

EV/EBITDA Ratio:

15
Bharti Airtel Limited's EV/EBITDA ratio is slightly higher than the industry average
(Mobile Telecommunications) of -7.0027. Bharti Airtel Limited's value is much higher
than the stock valuation of its company based on these financial ratios.
Bharti Airtel Limited's EV/EBITDA ratio is marginally higher than the historical 5-year
average of 7.8. As a result, Bharti Airtel Limited's (current) business value is consistent
with its five-year valuation average.

EV/Sales Ratio:

Bharti Airtel Limited's EV/sales ratio is slightly higher than the industry average (Mobile
Telecommunications) of 6.40124. Bharti Airtel Limited's value is much higher than the
stock valuation of its company based on these financial ratios.
Bharti Airtel Limited's EV/sales ratio is marginally higher than the historical 5-year
average of 5.33. As a result, Bharti Airtel Limited's (current) business value is consistent
with its five-year valuation average.

Enterprise Value/BV of (Equity and Debt):

Bharti Airtel Limited's EV/BV of equity and Debt ratio is slightly lower than the industry
average (Mobile Telecommunications) of -26.525. Bharti Airtel Limited's value is lower
than the stock valuation of its company based on these financial ratios.
Bharti Airtel Limited's EV/BV of equity and Debt ratio is marginally higher than the
historical 5-year average of -3.42. As a result, Bharti Airtel Limited's (current) business
value is inconsistent with its five-year valuation average.

16
Conclusion:
When valuing a business, we face many of the same challenges that we faced when
valuing firms, but on a smaller scale. Data from previous activities provides a shaky,
unpredictable, and unreliable foundation for predicting the future. This cannot use for
valuing growth, but when we have to value a firm using past data of competitor's firms
it will give us a fair valuation. This might not be absolute but we can get a rough about
the valuation of stock and firm.
The issue with relative valuation isn't that there aren't enough models; it's that there
are so many. Choosing the correct method to use in valuation is just as important as
knowing how to use the model to arrive at a fair value.
Since too much valuation is based on the assumption that companies are going
concerns, distressed firms (i.e., firms with negative profits and a high risk of failure)
poses a problem to analysts valuing them.

In the case of BHARTI AIRTEL LIMITED for relative valuation, I have used P/Earning i.e.
equity multiplier to get a fair idea about the company’s position. Whether the firm is
overvalued or undervalued.

17