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This is the classic example for all investors who believe that management’s investment decision are always right! Even those managers are humans and can make a mistakes.

If you look around, there is a massive corporate graveyard full of management mistakes and your mind will boggle on how big chunk of investor’s money was lost!

If we rewind and go back seven quarters, this business was sitting at very low debts and rich returns on equity for its shareholders. Management was pitching about tough competition and was looking for opportunities to grow and expand its business overseas. Why not if Tata’s can? Bharti can too. Maybe that was going on in the managements mind!

Well, I won’t go any further but as they revealed their plans to reach Africa, it all looked very rosy! Why won’t investors believe in management, as they have very successful track record.

Expanding business is not always in the favor of its shareholders. But five quarters back when they came out with their financial results of 2011, I was taken back by looking at their debts climbing from ten thousand Crore to fifty six thousand Crore!

There is an old saying that always live in your own means or do not risk too much! The shareholders of this great business had contributed so far 48,000 Crore and now had a debt of 56,000 Crore. It didn’t stop there but there debt levels have climbed to 69,000 Crore in 2012.

Many companies borrow to expand and their intentions are always to grow profits. Also it takes time to turn those businesses into profitable business and management of Bharti came out and said that it will take at least 6 quarters to turn their African venture profitable.

The profits of this business from Rs 9,300 Crore in 2010 have dropped down to Rs 2,200 Crore in 2012. It is also after a long time their quarterly profits have dropped below one thousand Crore!

Is this the bottom of this business? Today if you ask me then I am not comfortable with their debt levels and this company possess greater risk to its profitability in the future.

If you are looking for returns of 15% every year and keep compounding that and have invested in this business two years back then your returns today are -21%. To catch up with your returns, by next financial year end this business should give you 100% returns!

I don’t see that happening in the future year after looking at forecasted intrinsic values by Value operations. 

If you have invested in this business, would appreciate if you give us an insight on your strategy.