Fundamental analysis telecom industry: a case study

Abstract

The telecom revolution is doing a lot more than making communications easier for businesses and consumers. It’s also opening up some of the most intriguing global investment opportunities in years. Development of telecommunications is quite slow in India. Number of telephones in India is only 6 per 1000 persons. The potential growth of this industry, therefore, is very high in this industry. This high prospective growth results in a lot of investment opportunities. Only 6 million telephone lines were installed in the last 45 years. Government of India however endeavors raise the installed capacity to 20 million lines by the end of this decade. Because of the limitation of resources and high objectives, telecom sector in India is being rapidly privatized. Telecom in India is in the throes of major changes. So much is happening at such a quick pace that it baffles even veteran observers and known experts on the sector. Initially, the theoretical underpinnings of the fundamental analysis has been examined with some empirical resources done in the western countries. These Analytical Techniques are discussed briefly. We endeavored to apply most to these techniques on the analysis of telecom securities. After a brief discussion of history of Indian telecom sector, we analyzed the structure, players and growth prospects of the industry. The growth prospects and potential profitability of various segments of Telecom sector (e.g. Fiber optic cables, jelly filled telephone cables, telephone instruments, telephone switching equipment and value added services) are analyzed. The influence of these factors on the profit earning power (which decides the fundamentals value) on various companies is also analyzed. The financial statement of various existing players of the industry are analyzed. We focused on few players like Birla Ericsson for an in-depth analysis.