Transcript Snuil Bharti Mittal

S UNIL B HARTI M ITTAL
Pratap Vijay Simha
2006045
Mayur Wadhwa
2007029
Rajesh Goli
2007044
K Md Feroz Irfan
2007088
Dipankar Datta
2004119
Ramesh Shanbhag
2006048
Sudhir Chandrappa
2006057
B HARTI
INTO
R ETAIL
WITH
WAL -M ART
W HY R ETAIL ?

Late mover

Very limited front end retail stores

Currently, focused on cash & carry
I S THIS HOW S UNIL M ITTAL
OPERATES ?


His approach towards Airtel

Choose speed over perfection

First mover

“Get big fast”
The strategy in retail seems to be different!
A BOUT THE I NDIAN R ETAIL
I NDUSTRY

Largest industry in India – employment of 8% and
contributing to around 10% of the GDP. Currently at $500
billion

The organized retailing sector in India is about 4-5% and
growing.

Next wave of growth expected to be driven by semi-urban
and rural India

Large number of retail players

Weak and fragmented suppliers

Regulation –

100% FDI is allowed in cash-and-carry wholesale formats

51% FDI is allowed in single-brand retailing
C RITICAL S UCCESS FACTORS
What are the critical success factors in retail?

Low cost

Scale

Location(s)

Ability to navigate through the system

Regional and cultural differences
W HAT ' S


R ATIONALE ?
Achieve low cost via

Develop ecosystem of suppliers

Better supply chain management

Logistics

Bargaining power with FMCG manufacturers
Scale


THE
Leverage JV partner
Location

Bharti Realty

Acquisition of 10 million sqft by 2015

Low-key entry in a small way in Ludhiana, Punjab
W HAT ' S
THE
R ATIONALE ?

This JV is a winning combination. Wal-Mart's logistics
skill and Bharti's execution capability will create a potent
force in the Indian market

He needed expertise more than money. Hence, Bharti is
investing $2.5B


Contrast with Singtel: Money & telecom expertise

Contrast with Warburg Pincus: Money & financial
expertise
Contrast with Subiksha

Went for low cost (good strategy, in principle)

Did not have mechanism to achieve low cost

(Assumption: No conspiracy)
A IRTEL DTH
A GAIN ,
NOT TYPICAL

Last mover in DTH.

DTH has adoption problems

Unrelated to Airtel’s existing businesses

What has GSM in common with Satellite DTH from
an infrastructure point of view?
T ELEVISION VIEWING M ARKET
IPTV
0%
DTH
6%
Terrestrial
35%
Cable
59%
Total market - 70 million television homes catering to 400 million
individuals
DTH I NDUSTRY

Big four private DTH players has made a head-start. DishTV, TataSky,
Big TV and Sun Direct

Intense price war

Weak financials (all are in loss)

Lack of exclusive content issue

Foreign Investment cap –

DTH: Foreign equity cap of 49% and within that FDI component
cannot exceed 20%

Cable: Foreign equity cap on cable industry is at 74% with no limit on
FDI

Satellite transponder capacity

Quality of service issue
T HE L OGIC

Current DTH market is 8 million subscribers and expected to
grow to 40 million by 2015

The industry is evolving

Airtel’s DTH strategy


Integrate its operations with mobile phone, internet and TV and
bundle these services

Leverage existing distribution channels and customer service

Provide larger dish antenna to provide higher QoS
Customer switching from existing provider might be difficult


But, what about rural market?
Is it a strong logic for being a late entrant in DTH market? Did
he miss the opportunity at the beginning?
T HE R HETORIC

Airtel wants to be in all three screens

Mobile

PC

TV

Is it strategic or motto driven?

Or is it the market potential (just as in
retail)?
F ORMATIVE BUSINESS YEARS
1976
TO
1984

Very complex import and export policies, industrial licensing regime.
Licenses were required right from manufacturing a pin to manufacturing
a car

People who found favor with the government could get industrial
licenses. The entrepreneurs had to find out small openings in various
government policies and move ahead, every now and then turn lucky.

In 1976, Sunil at age of 18, with a capital of 20K, started making Bicycle
parts. From 1981 to 1984 he took an agency of Suzuki to import
portable generators. Imports became very successful. Made a lot of
money and more importantly, set up a large distribution system across
the country

In 1984 due to lobbying two business houses(who managed to get
licenses to manufacture generators) the government decided to ban
import of generators. No amount of pleading or lobbying by a young
entrepreneur would have made any difference. So overnight there was
no business.
VALUABLE
LESSONS LEARNT
?

Did Sunil learnt his valuable lessons from his initial
ventures ?

“These were the times when entrepreneurs were at
the mercy of government policy, and you always had to
be prepared, sitting in your hot seat, to take a jump and
plunge into something else as soon as the government
hit you with a change in policy.”
E NTRY INTO T ELECOM
W HY
TELECOM ?

Mittal saw the huge gap between potential demand &
supply from state run telecom companies

Reforms in telecom sector began in 1980 followed by
national telecom policy in 1994 & 1999

Technology advances in 1990s led to better quality of
service at lower tariff rates – beginning of a service which
could be marketed to the Indian urban masses, and then
rural masses

NTP 1994 attempted to provide telephone on demand &
telecom services at affordable prices to the Indian
populace, and this policy further encouraged Mittal to get
into telephony.
W HY
TELECOM ?

NTP 1999 further reformed the telecom
sector with guidelines for internet telephony
& broadband

Booming industry in India required high end
services like leased lines, ISDN &
videoconferencing
O UTSOURCING OF N ETWORK AND
IT BY B HARTI A IRTEL
U NCONVENTIONAL WISDOM ?
O UTSOURCING OF N ETWORK

When every one said network is the critical
factor to a telecom service provider Bharti
decides to outsource its networks

Do reverse of conventional Wisdom

Does Sunil know the Telecom Business like
Baba Kalyani knew Forging ?
H OW M UCH D ID A IRTEL
OUTSOURCE ON N ETWORK ?

Sept 07 – Extended the contract with Ericsson
for $2B. This is Ericsson’s biggest contract
award to-date


Ericsson will design, plan, deploy, optimize,
and manage Bharti Airtel's GSM network
across 15 regional "circles" in India, as well as
its pan-India pre-paid platform across 23
circles
Sep ‘07 - Bharti Airtel revealed plans to award
a $900 million GSM network expansion
contract to Nokia Siemens Networks
G OAL IN 2004
R APID G ROWTH

Airtel wanted to grow
From 8.2 million subscribers in 2004
to
25 million by 2007
I NSIGHT: B REAKNECK
GROWTH
MEANS AVERAGE REVENUE FROM
U SERS IS GOING TO GO DOWN
Q UESTION S ET #1

How to drive down operating costs faster than
rate at which ARPU will go down?

Can Bharti Airtel run the network and IT and still
drive down costs?

Should they outsource?

What are the risks?

Is this core, non-core or something else?
Q UESTION S ET #2

If AirTel keeps Network in house, can it deploy
and grow fast enough to keep pace?

Is outsourcing better suited for Growth?
O UTSOURCING : P RACTICE IN
SEARCH OF T HEORY

It is not about “core” vs “non-core”

Rationale

Cost minimization

Resource access

Resource leverage

Risk diversification
O UTSOURCING
D ECISION R ULE

If P market + TC > CP in-house + OC,


If P market + TC < CP in-house + OC,


activities should be conducted in-house and
activities should be outsourced.
Reputation capital can be used as a hedge
against opportunism
R ATIONALE FOR A IRT EL’ S
OUTSOURCING DECISIONS

Cost minimization


Drive costs down faster than ARPU
Resource access

Ability of network vendors and IT majors to
rapidly ramp up capacity (difficult to acquire for
AirTel, might delay time to market)
D ECISION R ULE A PPLIED




P is expected to be competitive.
TC is non-trivial, at least initially

SLAs that are comprehensive

Oversight bodies from AirTel.

Reduced to extent that the vendors also want this
to work.
CP in house is expected to remain above P.
Deciding factor seems to be OC (in house).

Bharti needs to grow employee strength and
network management capacities at break neck
speed. Learning is impediment, may delay growth
and therefore time to market. Vendors are good at
this.
R ISKS AND MITIGATION
STRATEGIES


Risks:

Being held hostage to vendors

If it fails – go back, loss of learning etc.
Mitigation:

Use of reputational capital


Only biggies: IBM, Ericsson, Nokia Siemens, AlcatelLucent.
Oversight bodies

Architecture review board

Watertight SLAs
D ID
IT WORK ?
If P market + TC > CP inhouse + OC,
activities should be
conducted in-house and
If P market + TC < CP inhouse + OC,
activities should be
outsourced.
We think it did : Operating cost as a percentage
of average revenue per user is showing a
steady downward trend.
MTN DEAL
MTN Deal – Attempt I

May 2008 Time frame – First attempt

MTN Group is a South Africa-based multinational mobile
telecommunications company, operating in many African and
Middle Eastern countries.


The structure had envisaged Bharti Airtel becoming a
subsidiary of MTN and exchange of majority shares of
Bharti Airtel held by the Bharti family and Singtel, in
exchange for a controlling stake in MTN
Pulled out because

Structure proposed by the MTN board would not have been
in the interest of Bharti Airtel's minority shareholders and

Obstacle to its plans for growth as an Indian telecom
multinational.
MTN Deal – Second
Attempt


May 2009 Time frame – Second attempt
– $23Bn merger
Create a company with Annual sales of
$20 billion and 200 million subscribers.

MTN would take a 36% stake in Bharti,
which would hold 49% of MTN.

Bharti would have substantial
participatory and governance rights in
MTN enabling it to fully consolidate the
accounts of MTN

Companies continue to operate under
their respective managements
Particulars
BHARTI
MTN
SALES ($bn)
7.25
12.42
PAT ($ bn)
1.66
1.85
MKT CAP ($ bn)
34
27
MTN Deal - Structure

Bharti had said it would acquire approximately 36% of the
currently issued share capital of MTN from MTN
shareholders for a consideration of 86 rand in cash and
0.5 newly issued Bharti shares in the form of Global
Depository Receipts for every MTN share acquired

In combination with MTN shares issued in part
settlement of MTN's acquisition of approximately a 25%
post-transaction economic interest in Bharti, would take
Bharti's stake to 49% of the enlarged capital of MTN.

Each GDR would be equivalent to one share in Bharti and
would be listed on the securities exchange operated by
Johannesburg Stock Exchange.
MTN Deal – Going Global

Indian market at its peak, Boom in telecom sector but
perceived to decline in 2-3 years

BAL as the Indian leader wants to continue to grow

Emerging S Africa Markets very similar to India 6-7 years
back. Mobile telephony is in nascent stage. ARPU Higher.

So, great potential to grow into S Africa and the Middle
east. MTN in 21 countries.

Increase the reach. Be the Biggest telco in the world.

Limited integration risk as the two companies have
almost no overlapping operations
Bharti - Synergies

Combined Co to benefit from economies of scale as it
would become a leading emerging market telecom
operator

MTN's operating experience in

3G and

Number portability

Help him avoid the clutches of Indian telecom regulators

Rows over the matter of spectrum allocation remain
unresolved and the rollout of 3G services is long delayed.

MTN would benefit from Bharti's experience of growing
market Share and maintaining operating margins in a
highly competitive environment – cost efficiencies
MTN Deal – Going
Global - Hurdles

Counter Offers by Competition.

RCom was also bidding for Merger with MTN.

Similar deal in Vodacom, which is owned by
Vodafone

Unions against it in S Africa

Foreign holding stake is 65+% Limit is 75%

$4Bn for the deal. 3G bid also needs this much

Debt Pressures in short term
KEY DATA ABOUT BHARTI
1985 TO 1991 – T ELEPHONE
MANUFACTURING

1985 - Entered into technical tie-up with Siemens AG of
Germany for manufacture of electronic push button
telephones 'Beetel‘ and reached a peak sales of 5
million

1989 - Tied-up with Takacom Corporation, Japan, for
manufacture of telephone answering machines

1990 - Tied-up with Lucky Gold Star International
Corporation of South Korea for manufacture of cordless
telephones

1991 - OEM Contract with Sprint, USA for manufacture
and export of telephone sets
1992 TO 2001 – F ORMATIVE
YEARS OF T ELECOM M AJOR

1992 - Formed a consortium with SFR-France, EmtelMauritius and MSI-UK, to bid for cellular licenses for
metropolitan circles under Bharti Cellular.

1994 - Cellular license for Delhi circle obtained.
Launched AirTel next year. Launched cellular services in
Himachal Pradesh in 1996

1995 - Formed a consortium with Telecom Italia-Italy to
bid for cellular and fixed-line services under Bharti
Telenet.

1996 - Telecom Italia, Italy acquired 20% equity interest
in Bharti Tele-Ventures.
1992 TO 2001 – F ORMATIVE
YEARS OF T ELECOM M AJOR

1997 - British Telecom joined the consortium by
acquiring equity interest in Bharti Cellular. Formed a
joint venture, Bharti BT, for VSAT services. Bharti BT
Internet, for providing ISP services In 1998. BT
consolidated its shareholding in Bharti Cellular to 44%

1998 - First Indian private fixed-line services launched in
Indore, Madhya Pradesh

1999 - Warburg Pincus, invested in in Bharti TeleVentures and acquired a controlling 32.26% effective
equity interest in Bharti Mobile (formerly JT Mobiles),
the cellular operator in Andhra Pradesh and Karnataka
1992 TO 2001 – F ORMATIVE
YEARS OF T ELECOM M AJOR

2000 - SingTel invested in Bharti Telecom and Bharti TeleVentures. Entered into joint venture with SingTel for a
submarine cable landing station between India and Singapore

2001 - SingTel, Warburg Pincus, AIF, IFC, NYLIF and Seejay
Cellular made equity investments, of approximately US$
481.30 million in Bharti Tele-Ventures and through Bharti
Telecom

Acquired licenses for eight cellular circles , four fixed-line
circles , three additional ISP

Restored the Punjab cellular license, Acquired 100% equity
interest of Bharti Mobitel (formerly Spice Cell), the cellular
services operator in Kolkata circle and 95.3% Bharti Mobinet

Acquired back all equity from British Telecom in Bharti
Cellular
2002 TO 2009 – G ROWTH
S TORY

2002 - Bharti Tele-Ventures files for Initial Public
Offering

2003 - Airtel becomes India’s first mobile service to
cross the three million customer mark

2004 – Outsourced IT to IBM, first-of-a-kind business
transformation agreement in global
Telecommunications industry

Bharti migrates all 15 cellular licenses to Unified Access
Service License

Bharti Tele-Ventures crosses Rs. 5,000 crores revenues
for the year - Earns net profit of over Rs. 600 crores for
the year
2002 TO 2009 – G ROWTH
S TORY

2004 - Bharti & Siemens join hands to build & manage
AirTel networks in three circles

2005 - Airtel completes its 23 circle all India footprint

Bharti announces agreement with Vodafone marking
the entry of the World's Largest Telecom Operator into
India

Bharti Enterprises & DE Rothschilds announce a 50:50
JV for export of fresh fruits & vegetables
2002 TO 2009 – G ROWTH
S TORY

2006 – Gets into AXA life and general insurance

2007 - Partnership with Vodafone to roll-out telecom services in Channel
Islands (Europe)

Bharti Airtel awards network expansion contract to Nokia Siemens and
Ericsson

Bharti Enterprises and Wal-Mart join hands in wholesale cash-and-carry
to serve small retailers, manufacturers and farmers

2008 - Airtel makes its television debut - Set to redefine home
entertainment with Airtel digital TV

Bharti Airtel launches Triple Play with Airtel digital TV interactive –
Telephone, Broadband and now TV on a single line

Bharti Airtel and Alcatel-Lucent form Managed Services Joint Venture for
Broadband and Telephone Services

“Hello Sri Lanka” says Airtel
2002 TO 2009 – G ROWTH
S TORY

2009 - Bharti Airtel launches Triple Play with Airtel
digital TV interactive – Telephone, Broadband and now
TV on a single line

Bharti Airtel and Alcatel-Lucent form Managed Services
Joint Venture for Broadband and Telephone Services
Bharti Group
Companies

Bharti Airtel

Bharti Teletech

Telecom Seychelles

Comviva Technologies Ltd

FieldFresh Foods Pvt. Ltd

Bharti Retail

Bharti AXA General Insurance
Bharti Group
Companies

Bharti AXA Life Insurance

Bharti AXA Investment Managers

Centum Learning Limited

Jersey Airtel

Guernsey Airtel

Bharti Foundation

Bharti Realty

Bharti Infratel
R EVENUE B REAKUP AND
R OADMAP
2010-11
2007-08
Bharti Airtel Ltd

Bharti Airtel is India's largest telecommunications company by subscriber base,
which stood at 85.7 million in December 2008, and total revenues, which
were Rs. 270 billion in 2007/08

Started July 07, 1995, as a Public Limited Company

Globally, Bharti Airtel is the 3rd largest in-country mobile operator by
subscriber base, behind China Mobile and China Unicom

In India, the company has a 24.6% share of the wireless services market,
followed by 17.7% for Reliance Communications and 17.4% for Vodafone
Essar.[4]

Bharti Airtel has 5 business segments:

(i) Mobile Services; (ii) Telemedia Services; (iii) Enterprise Services - Carriers;
(iv) Enterprise Services - Coprorates; and (v) Passive Infrastructure Services.
Bharati Org Structure
BAL Org Structure
FINANCIAL PERFORMANCE
(Bharti Airtel)
Stock Perforarmce

BAL has been growing at an exponential rate in terms of
subscriber base, revenues and Net profits
STOCK PERFORMANCE Vs
Sensex
C OMPARISON WITH
C OMPETITORS
SUBSCRIBER & P&L DATA
Annual Data[2]
Units
Total Customer Base
000s
7,141
11,842
20,926
39,013
64,268
Mobile Services
000s
6,504
10,984
19,579
37,141
61,985
Telemedia Services
000s
637
857
1,347
1,871
2,283
Revenue
Rs. million
50,369
81,558
116,641
184,202
270,122
EBITDA
Rs. million
17,055
30,658
41,636
74,407
114,018
Cash Profit from Operations
Rs. million
14,363
28,219
40,006
73,037
111,535
Earnings before Tax
Rs. million
5,527
15,832
23,455
46,784
73,115
Net Profit
Rs. million
5,387
12,116
20,279
40,621
63,954
Return on Equity (ROE)
%
12.00%
23.70%
32.00%
43.10%
38.50%
Earnings per Share (EPS)
Rs. million
3.15
6.53
10.78
21.43
34.23
2004
2005
2006
2007
2008
Based on Statement of Operations
Key Ratios
B HARTI
AS AN
E MPLOYER

In 2004, Bharti Airtel was ranked the No. 2 best
employer in India by Hewitt Associates; in 2006 it
was ranked No. 10 in BusinessWeek's IT 100 list.

The company's other benefits include half days
on birthdays, gifts for anniversaries, no meetings
on weekends, flexible work time, gym, yoga
classes and regular health checks on campus
FRAMEWORKS AND
CONCLUSIONS
F RAMEWORK FOR
D EVELOPING S TRATEGY
New
Market Opportunities
Existing
Develop
Discover
Airtel ’92
Retail?
IPTV
MTN?
Defend
Deepen
Airtel ‘2007
Undersea cable
DTH?
Existing
Competencies
New
A IRTEL’ S VALUE C HAIN
Marketing
and Sales
Operations
IT
HR
Infrastructure
Legend:
In-house
Outsource
Customer
Care
S UNIL M ITTAL :
MANAGEMENT STYLE

Ability to navigate through the socio, legal
processes

Entrepreneur style at the early stages and then
evolved to professional management style

Ability to convince lenders to provide him capital

Hands-on – himself tests out Airtel’s IPTV

Known to routinely travel to remote areas around
India to boost the morale of his sales troops as
well as to experience firsthand how good or poor
his company’s telecom services are
S UNIL M ITTAL :
MANAGEMENT STYLE

Agile decisions: “Speed over perfection”

Sets clear and bold targets for the organization

His ability to rope in big players with deep pockets (like
SingTel, Vodafone, Warburg Pincus & Siemens)

Ability to collaborate - sharing towers, network with
competitors

At the age of 50, he stepped back to delegate operational
control to the professional Managers to lead the various
entities

Ability to attract and retain the best management team

His ability to think big and execute it flawlessl
I NFLEXION P OINTS

BAL has been growing at an exponential rate in terms of
subscriber base, revenues and Net profits
Pan India presence
Outsourcing
MTN
F UTURE OF B HARTI
F UTURE

Enter into Education. Mittal’s vision of building a
knowledgeable society in India

Advocates CSR

Seeking reforms in Insurance and Retail sectors

Grow the diversified businesses

Protect Airtel’s market share

Foray into Global markets

Wants to be the most respected conglomerate by
2020
T HANK Y OU
APPENDIX
F IXED L INE

IN I NDIA
Market Value : The Indian fixed line telecoms market grew by 6.1% in 2007 to reach a value of
$8.9 billion.

Market Value Forecast : In 2012, the Indian fixed line telecoms market is forecast to have a value
of $11.1 billion, an increase of 25.2% since 2007.

Market Volume : The Indian fixed line telecoms market grew by 5.1% in 2007 to reach a volume
of 55.1 million fixed-line phones.

Market Volume Forecast : In 2012, the Indian fixed line telecoms market is forecast to have a
volume of 64.8 million fixed-line phones, an increase of 17.5% since 2007.

Market Segmentation I : Voice only telecoms sales dominate the Indian fixed line telecoms
market with 84% of the market's value.

Market Segmentation II : India generates 5.5% of the Asia-Pacific fixed line telecoms market's
revenue.

Market Share : Bharat Sanchar Nigam Limited (BSNL) generates 46.7% of the Indian fixed line
telecoms market's value.