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Idea Cellular INDIA

10 July 2008

IDEA IN Outperform Stock price as of 09 Jul 08 Rs 87.65 12-month target Rs 100.00 Upside/downside % +14.1 Valuation Rs 100.00 - DCF (WACC 12.0%, beta 1.0, ERP 6.0%, RFR 9.0%, TGR 3.5%) GICS sector telecommunication services Market cap Rs m 227,264 30-day avg turnover US$ m 32.6 Market cap US$m 5,261 Number shares on issue m 2,593

Investment fundamentals Year end 31 Mar 2008A 2009E 2010E 2011E Total revenue bn 67.2 89.6 111.2 135.1 EBITDA bn 22.5 31.7 40.7 48.6 EBITDA growth % 53.8 40.6 28.6 19.3 EBIT bn 13.7 18.9 24.0 28.6 Adjusted profit bn 10.4 12.6 16.0 18.7 EPS rep Rs 3.96 4.79 6.05 7.09 EPS adj Rs 3.96 4.79 6.05 7.09 EPS adj growth % 107.5 21.1 26.4 17.1 PE adj x 22.2 18.3 14.5 12.4 Total DPS Rs 0.00 0.00 0.00 0.00 ROE % 36.4 23.1 19.5 18.9 EV/EBITDA x 12.7 9.0 7.0 5.9 Net debt/equity % 153.8 88.5 90.1 79.5 Price/book x 6.5 3.1 2.6 2.1

IDEA IN rel SENSEX performance, & rec history

Source: Datastream, Macquarie Research, July 2008 (all figures in INR unless noted)

Analysts Shubham Majumder 91 22 6653 3049 [email protected] Nitin Mohta 91 22 6653 3050 [email protected] Tim Smart 852 2823 3565 [email protected]

Refreshing Idea but rich valuation Event Idea Cellular has acquired Spice Communications (SPCM IN, Rs72.35, Not

rated) to become the fifth-largest Indian wireless operator. We present a comprehensive analysis of the combined entity with detailed pro forma financial statements.

We are reducing our target price to Rs100 from Rs140 due to an increased WACC of 12% (vs 11.5% earlier) and we no longer add the value of Idea’s stake in Indus Towers to arrive at our TP. Given the market’s current low risk appetite we are not factoring in value of tower assets since towers have long duration cashflows with minimal near-term earnings.

Impact Idea-Spice-TMI merger reduces number of players; marks the beginning

of the in-market wireless consolidation. We see this deal as positive for the sector on two counts. It reduces the number of players in the market and TM International’s stake in Idea reduces the threat of TM International’s entry in India as majority player at a later date.

Synergy benefits from the deal will result in EPS accretion. Assuming that the merger will result in savings of Rs500m by cutting Spice’s advertising and promotion costs, we see 3% dilution, 5% and 5% accretion to our pre merger EPS estimate for FY3/09, FY3/10 and FY3/11 estimates respectively. Synergy benefits and interest income generated by the cash infusion in Idea from TM International (TI MK, RM6.9, OP, TP: RM8.8) are the key reasons for EPS accretion. For details please refer to page 2.

Scale is a virtue in Indian wireless, in our view. Our pro forma financials do not include any benefit from ARPU uplift or reduction in network operating costs and there could be a potential uplift in pro forma EPS due to either or both of these factors.

Raising standalone wireless subscriber forecast for Idea. Based on revised India wireless subscriber forecast reaching 475m by March 2010, we are raising our wireless subscriber forecast for Idea by 7% and 12.5% for the next two years. We assume 16%/11% YoY decline in ARPU for Idea in FY09/10, compared to 15%/10% YoY ARPU decline factored in for Bharti.

Earnings revision We have raised our EPS forecasts for standalone Idea by 10% for FY3/09E to

Rs4.8 primarily to account for a year’s delay in the first cash tax payments by Idea. Our revised FY3/10E EPS of Rs6.1 is 2% higher than our previous estimate on the back of a higher subscriber forecast. Our FY3/11E EPS is Rs7.1.

Price catalyst 12-month price target: Rs100.00 based on a DCF methodology. Catalyst: Launch of service in Mumbai and Bihar circles in 2Q FY09 and

spectrum allocation in all nine proposed circles.

Action and recommendation We prefer Bharti and RCOM over Idea due to their better earnings outlook

in next two years and lower relative valuations. (BHARTI IN, Rs747, OP, TP: Rs975) and (RCOM IN, Rs441.00, OP, TP: Rs575).

Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com.au/research/disclosures.

Macquarie Research Equities - Flyer Idea Cellular

10 July 2008 2

Analysis Although we have removed the value of the tower company from our formal target price, this remains a key source of longer-term potential value upside. Key to realising this will be: 1) build-up of third-party tenancy (non-promoter tenants taking up tower space on Indus towers after signing 10–15 year master services agreement) and 2) IPO of Indus Towers.

Key positives of the Idea-Spice-TMI deal Spice has strong presence in two existing circles. Spice is currently operational in the Punjab

and Karnataka circles. Spice Communications is the no.2 wireless operator in Punjab with a subscriber base of 2.73m implying a 22.3% subscriber market share in the state. In Karnataka the company has 1.77m subscribers with 9.8% subscriber market share. Idea is yet to roll out its services in these two circles and as such there is no overlap in the existing operations of the two companies.

Idea’s strength in neighbouring circles strengthens the strategic rationale for the deal. We note that Idea is market leader in two of the four neighbouring states of Karnataka with 24% market share of subscribers in both Maharashtra and Kerala.

Merger accelerates the time line for Idea’s pan Indian presence. With the Spice acquisition and launch of Mumbai and Bihar circles in 2Q FY3/09 and Orissa and Tamil Nadu by Dec’08 we believe Idea will be able to expand its coverage ahead of launch of operations by new greenfield operators.

Economies of scale will result in margin improvements for Idea. EBITDA margins for Spice Communications were 23% for the full year CY07 and 27% for the quarter ending March 2008. We note that merging Spice with a much bigger telco has the potential to create meaningful uplift in the EBITDA margins. However, realisation of these synergy benefits will take some time to materialise and are dependent to a large extent on the execution of the integration process.


10 July 2008 3

Fig 1 Idea is expected to have presence in 18 of the 23 circles by end of 2008

Source: TM International presentation, Macquarie Research, July 2008

900 MHz spectrum asset valuable. Idea currently has 900MHz spectrum in 7 of its 11 operational circles, so the addition of two more circles in the same spectrum band will increase operational synergies on account of lower operating and capital expenditure.

Uncertainty surrounding spectrum in the newly licensed circles. On the conference call post the merger announcement, management noted that as of now there is no clarity on the status of the spectrum that Idea is entitled for in the Punjab and Karnataka circles and Spice is entitled for in the four new circles of Delhi, Haryana, Andhra Pradesh and Maharashtra. Spice has recently been allocated 4.4MHz spectrum for the Andhra Pradesh circle, together with Idea’s existing spectrum of 8.2MHz in the circle this will take the total spectrum holding of the combined entity to 12.6MHz. As per the new subscriber-linked spectrum allocation norms issued by the DoT (please refer to our note New Spectrum policy out finally published on 22 October 2007), a telco should have over 8 million subscribers in a circle to be eligible to hold on to the 12.4 MHz of radio frequencies. Idea management mentioned on the conference call that they will have to return 4.4MHz of spectrum in the Andhra Pradesh circle. Further clarity on this matter will emerge following the DoT’s comments on the merger deal.

Pro forma financials (For details please refer figures 13 to 15) Synergy benefits make up for lower EBITDA margins at Spice. A quick snapshot comparison

of the combined Idea+Spice entity and our standalone Idea estimates is presented in Fig 2 below. Since Spice’s EBITDA margins are lower than Idea’s, the combined entity’s pre synergy margin is lower than our standalone Idea margins. Layering in the synergy benefits from the merger, we expect a slight margin expansion from Idea’s standalone margin estimate.

Idea has strong presence in Maharashtra and Kerala circles, adjoining Spice’s current operations in Karnataka circle

Idea is expected to launch Mumbai and Bihar circles in next three months and Tamil Nadu and Orissa circles within CY09, giving it a near national footprint.


10 July 2008 4

TMI cash infusion will help Idea to reduce total interest cost. A US$1.7bn cash infusion from TMI results in substantial interest income, boosting our pro forma EPS estimate.

Fig 2 Comparison of standalone and pro forma financials Idea+Spice Idea pre merger Change

FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11ERevenue 102,085 125,933 151,838 89,608 111,229 135,077 13.9% 13.2% 12.4% Operating expense (66,812) (80,711) (98,032) (57,956) (70,509) (86,512) 15.3% 14.5% 13.3% EBITDA (pre synergy) 35,273 45,221 53,806 31,652 40,719 48,565 11.4% 11.1% 10.8%EBITDA margin 34.6% 35.9% 35.4% 35.3% 36.6% 36.0% -2.2% -1.9% -1.4% EBITDA 35,773 45,721 54,306 31,652 40,719 48,565 13.0% 12.3% 11.8%EBITDA margin 35.0% 36.3% 35.8% 35.3% 36.6% 36.0% -0.8% -0.8% -0.5% D&A (14,918) (19,107) (22,539) (12,779) (16,692) (19,937) 16.7% 14.5% 13.0%Other income 714 714 714 514 514 514 38.9% 38.9% 38.9% EBIT 21,570 27,329 32,482 19,388 24,541 29,142 11.3% 11.4% 11.5%EBIT margin 21.1% 21.7% 21.4% 21.6% 22.1% 21.6% Net interest income/(cost) (5,188) (4,090) (5,064) (5,413) (6,262) (7,631) -4.2% -34.7% -33.6%Interest income from TMI cash infusion

1,019 2,850 3,032 - - -

Tax (1,370) (2,660) (3,314) (152) (2,326) (2,830) 801.0% 14.4% 17.1% PAT 15,012 20,579 24,103 12,623 15,953 18,681 18.9% 29.0% 29.0%PAT margin 14.7% 16.3% 15.9% 14.1% 14.3% 13.8% EPS 4.64 6.37 7.46 4.79 6.05 7.09 -3.0% 5.2% 5.2%Shares outstanding 3,233 3,233 3,233 2,636 2,636 2,636 22.7% 22.7% 22.7%Source: Macquarie Research, July 2008

Spice cost structure provides opportunity for margin improvement We believe there is scope for Idea management to take costs out of the Spice cost structure and

improve margins. Key areas where scale benefits will help Idea to cut Spice expenditure are: sales and marketing costs (19% of total opex for CY07), operating costs (52% of total opex for CY2007) and administrative costs (10% of total opex for CY07).

A detailed cost breakdown of Spice Communications for the past five quarters is given in Fig 3. We believe there is definitely scope for a reduction in branding and advertisement costs. Our pro forma financials have assumed elimination of advertising and branding costs as the only synergy benefits (Rs500m) and no reduction in the network operating and administrative costs.

Fig 3 Spice cost structure (Rs m) Particulars CY06A CY07A Mar'07A Jun'07A Sep'07A Dec'07A Mar'08A

Expenditure Operating costs 1,580 3,832 915 967 996 953 1,195(% of total opex) 52.6 51.9 54.3 52.1 52.7 49.9 55.1Personnel costs 228 501 140 120 150 91 99(% of total opex) 7.6 6.8 8.3 6.4 7.9 4.8 4.6Revenue sharing licence fees 210 848 188 208 223 229 267(% of total opex) 7.0 11.5 11.2 11.2 11.8 12.0 12.3Administrative costs 421 810 179 194 168 230 227(% of total opex) 14.0 11.0 10.6 10.4 8.9 12.0 10.5Sales and marketing costs 566 1,391 262 367 354 408 382(% of total opex) 18.8 18.8 15.6 19.8 18.7 21.4 17.6 Total opex 3,005 7,382 1,685 1,855 1,891 1,910 2,170Source: Company data, Macquarie Research, July 2008

Scale benefits will help in faster margin expansion for Spice. EBITDA margins of Spice at 27% for the latest March 2008 quarter are significantly below Idea’s margins of 33.5% in the corresponding quarter.


10 July 2008 5

Potential uplift in ARPU profile of Spice subscribers by virtue of being part of wider network. We believe there is scope for synergy benefits on the revenue side as well. By virtue of being part of a wider network Idea can target high ARPU profile customers that are more inclined to be part of a network that has wider coverage and presence than the current two state coverage of Spice in Punjab and Karnataka.

Fig 4 Merger has significant scope for synergies Idea+Spice Jun-07 Sep-07 Dec-07 Mar-08 FY07 FY08

Subscribers (m) 19.30 22.15 24.85 28.21 16.73 28.21Gross ARPU (Rs) 311 282 272 281 324 288Total network minutes 20,421 22,386 26,411 32,303 59,079 101,521Avg. monthly MoUs per subscriber 380 359 375 405 374 391ARPM (Rs) 0.82 0.79 0.73 0.69 0.87 0.74Avg. EBITDA per minute (Rs) 0.27 0.26 0.24 0.23 0.28 0.25

Idea Standalone Subscribers (m) 16.1 18.7 21.1 24.0 14.0 24.0Gross ARPU (Rs) 320 288 279 287 335 295Total network minutes 17,100 18,831 22,457 27,824 45,931 86,212Avg. monthly MoUs per subscriber 381 360 377 411 353 396ARPM (Rs) 0.84 0.80 0.74 0.70 0.95 0.75Avg. EBITDA per minute (Rs) 0.30 0.27 0.25 0.24 0.28 0.25VAS as % of total revenue 8.4 8.3 8.0 8.2 9.1 8.2

Total sales and service 14,773 15,622 17,081 19,724 43,473 67,199Total operating EBITDA 5,128 5,107 5,672 6,606 14,653 22,517EBITDA margin (%) 34.7 32.7 33.2 33.5 33.7 33.5

Spice Standalone Subscribers (m) 3.2 3.5 3.8 4.2 2.7 4.2Gross ARPU (Rs) 264 253 234 249 277 250Total network minutes (m minutes) 3,321 3,555 3,954 4,479 13,148 15,309Avg. monthly MoUs per subscriber 375 356 362 373 470 367ARPM (Rs) 0.70 0.71 0.65 0.67 0.59 0.68Avg. EBITDA per minute (Rs) 0.15 0.18 0.16 0.18 0.13 0.17VAS as % of total revenue na na na na na na

Total sales and service 2,339 2,522 2,556 2,998 7,736 10,415Total operating EBITDA 483 632 644 815 1,748 2,574EBITDA margin (%) 20.6 25.1 25.2 27.2 22.6 24.7Source: Company data, Macquarie Research, July 2008


10 July 2008 6

Our standalone estimate changes tied to our revised subscriber forecast

Fig 5 Idea Cellular – New estimates, old estimates and change in estimates Particulars New Estimates Old Estimates Change (%)

Amount in Rs m, unless otherwise stated FY09E FY10E FY11E FY09E FY10E FY11E FY09E FY10E FY11E

India Wireless Subscribers incl. fixed wireless (m) 375.0 475.0 553.0 362.9 450.0 na 3.3% 5.6% na

Idea Cellular – Key operating metrics Consolidated Idea's Wireless Subscribers (m) 36.5 47.9 57.1 34.1 42.6 na 7.0% 12.5% naIdea's market share (%) 9.7% 10.1% 10.3% 9.4% 9.5% na 3.6% 6.5% naImplied monthly subscriber net additions (m) 1.04 0.95 0.77 0.88 0.71 na 19.1% 34.4% naWireless ARPU (Rs per month) 247 220 214 247 227 na -0.2% -3.2% na 8 original circles Idea's Wireless Subscribers (m) 32.2 40.0 45.4 30.5 36.7 na 5.8% 9.0% naIdea's market share (%) 18.8% 18.7% 18.5% 18.2% 18.1% na 3.0% 3.2% naImplied monthly subscriber net additions (m) 0.84 0.65 0.45 0.73 0.52 na 14.8% 24.3% naWireless ARPU (Rs per month) 252 226 221 252 231 na -0.1% -2.5% na 3 acquired circles Idea's Wireless Subscribers (m) 3.8 5.5 6.8 3.2 4.6 na 18.5% 19.9% naIdea's market share (%) 7.5% 8.3% 8.4% 6.5% 7.3% na 15.2% 13.6% naImplied monthly subscriber net additions (m) 0.16 0.14 0.10 0.10 0.12 na 53.3% 23.1% naWireless ARPU (Rs per month) 206 192 185 200 187 na 2.9% 2.9% na 2 licensed circles Idea's Wireless Subscribers (m) 0.5 1.5 2.4 0.5 1.3 na 8.1% 22.2% naIdea's market share (%) 1.4% 3.4% 4.4% 1.4% 2.9% na 2.9% 15.8% naImplied monthly subscriber net additions (m) 0.09 0.09 0.07 0.04 0.07 na 116.2% 30.8% naWireless ARPU (Rs per month) 193 185 186 186 235 na 3.9% -20.9% na 9 proposed circles Idea's Wireless Subscribers (m) - 0.8 2.6 - 0.0 na na na naIdea's market share (%) 0.0% 0.6% 1.5% 0.0% 0.0% na na na naImplied monthly subscriber net additions (m) 0.00 0.07 0.15 0.00 0.00 na na na naWireless ARPU (Rs per month) 0 190 187 0 51 na na na na

Idea Cellular – Financials Consolidated Idea’s Total Revenues 89,608 111,229 135,077 85,665 104,453 na 4.6% 6.5% naTotal EBITDA 31,652 40,719 48,565 30,834 39,104 na 2.7% 4.1% naEBITDA margin (%) 35.3% 36.6% 36.0% 36.0% 37.4% na -1.9% -2.2% naTotal Capex 69,090 57,457 52,915 47,750 45,537 na 44.7% 26.2% naDiluted EPS (Rs) 4.79 6.05 7.09 4.36 5.91 na 9.8% 2.5% na 8 original circles na naTotal Revenues 82,226 97,776 113,257 78,967 93,298 na 4.1% 4.8% naTotal EBITDA 31,253 38,957 46,854 30,351 37,437 na 3.0% 4.1% naEBITDA margin (%) 38.0% 39.8% 41.4% 38.4% 40.1% na -1.1% -0.7% naTotal Capex 34,590 31,559 25,662 30,844 26,800 na 12.1% 17.8% na 3 acquired circles Total Revenues 6,982 10,683 13,635 6,165 8,703 na 13.2% 22.8% naTotal EBITDA 42 2,079 4,420 529 1,866 na -92.1% 11.4% naEBITDA margin (%) 0.6% 19.5% 32.4% 8.6% 21.4% na -93.0% -9.2% naTotal Capex 9,987 5,921 4,859 4,007 4,840 na 149.3% 22.3% na 2 licensed circles Total Revenues 401 2,296 4,364 534 2,446 na -24.9% -6.1% naTotal EBITDA (743) (1,084) 108 (1,055) (1,197) na -29.6% -9.5% naEBITDA margin (%) -185.4% -47.2% 2.5% -197.7% -48.9% na -6.3% -3.5% naTotal Capex 11,513 3,976 2,953 11,900 2,897 na -3.3% 37.3% na 9 proposed circles Total Revenues - 473 3,822 - 6 na na na naTotal EBITDA - (652) (4,470) - (302) na na na naEBITDA margin (%) - -137.7% -117.0% 0.0% 0.0% na na na naTotal Capex 12,000 15,000 18,606 - 10,000 na na na na Weighted Average Cost of Capital for DCF (%) 12.0 11.5 Source: Macquarie Research, July 2008


10 July 2008 7

Impact of increased wireless subscriber forecast offset by steeper ARPU decline forecast

Raising subscriber forecast. We have revised our India wireless subscriber forecast by 3.3% for FY3/09E and 5.6% for FY3/10E. As a result of our increased wireless subscriber forecast and Idea’s strong net addition run-rate for past three months we have increased standalone Idea’s subscriber estimate by 7% and 12.5% respectively for FY3/09E and FY3/10E.

Downward revision to ARPU. We now forecast 16.4% YoY ARPU decline in FY3/09E followed by another 11% YoY decline in ARPU for FY3/10E. This compares with 15% and 10% ARPU decline that we have assumed for Bharti in FY3/09E and FY3/10E respectively.

Three acquired circles not likely to achieve EBITDA breakeven before 3Q FY3/09E. In the 4Q FY08 earnings call, company management mentioned that they received spectrum in three large districts of Rajasthan and a couple of districts in UP (E) only towards the end of the last quarter. As a result, Idea has now guided to breakeven in these three circles in 3Q FY3/09E, later than its earlier guidance of 1Q FY3/09E. We have also updated our capex assumptions for the three acquired circles to take into account the aggressive roll out plans for recently received spectrum.

Comfortable leverage position will support high capital intensity. Cash infusion of US$640m from the Providence deal has placed Idea in a comfortable position with net debt to equity at 0.76x. Our full-year capex assumption for FY3/09E (excluding the capex for nine proposed circles) is US$1.4bn, in line with management guidance.

Our EPS forecast is in line with consensus EPS In contrast to Bharti and RCOM we see little upside risk to consensus estimates for Idea.

Fig 6 Below consensus on revenues, in line with consensus on EBITDA and EPS (Rs m) Revenue EBITDA EPS

FY3/09E FY09 FY09 FY09 Macquarie Estimate 89,608 31,652 4.8 Consensus Estimate 94,466 31,801 4.8 Macquarie above consensus -5.1% -0.5% -0.6% FY3/10E FY09 FY09 FY09 Macquarie Estimate 111,229 40,719 6.1 Consensus Estimate 121,226 40,275 6.1 Macquarie above consensus -8.2% 1.1% -1.0%Source: Bloomberg, Macquarie Research, July 2008

Valuation: DCF based fair value of Rs100 for the base business ex-towers Revising DCF based core business value to Rs100 from Rs118 earlier. The downward

revision in the core business valuation is due to a higher WACC of 12% (up from 11.5% earlier).

16.5x FY3/10E PER multiple at our target price of Rs100. Based on PER, our target price for Idea Cellular (Rs100) works out to be 20.9x FY3/09E and 16.5x FY3/10E. On an EV/EBITDA basis this implies 10.1x FY3/09E EBITDA and 8.2x FY3/10E EBITDA.

Idea’s stake in Indus Towers valued at Rs22 per share. For arriving at our TP, we are however not factoring in value of tower assets in Idea, given the current low risk appetite in the market since towers have long duration cash flows with minimal near term earnings.

Fig 7 Idea’s stake in Indus Towers valued at Rs22 Details Rs per shareValuation of Indus Towers (Rs m) 614,064Idea Cellular’s stake in Indus Towers (%) 13%Valuation of the tower business (Rs) 22Source: Macquarie Research, July 2008


10 July 2008 8

⇒ Idea’s stake in Indus Towers has come down to 13% from 16% post the deal with Providence Equity Partners (Not listed). Under the deal announced in last week of May, Providence has agreed to purchase 20% stake in Aditya Birla Telecom Limited (ABTL, Not listed) for US$640m. ABTL owns the telecom Unified Access Service (UAS) licence for the Bihar circle and 16% stake in Indus Towers.

⇒ We arrive at an equity valuation of Rs614bn (US$14.3bn) for Indus Towers based on a DCF base analysis. Our two stage DCF assumes a discount rate (WACC) of 10% and terminal growth rate of 3%.

⇒ We arrive at Idea’s Rs22 per share value for 13% stake in Indus Towers after applying a 26% holding company discount.

Pro forma valuation: DCF based fair value of Rs100 for the base business Our pro forma valuation for the base business of the combined Idea+Spice entity also comes in at

Rs100. We have used 12% (same as our standalone Idea model) as the discount rate for our two staged DCF valuation. Please see Fig 12.

Per share contribution of the towers business falls to Rs18 per share due to 22.7% equity dilution.

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Fig 8 Idea Cellular: DCF valuation model for the base business, fiscal year-end March Year-end Mar (Rs m) FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E

EBITDA 31,652 40,719 48,565 60,000 68,506 76,894 85,731 93,851 101,828 109,617 117,385 125,152 Growth (% YoY) 40.6 28.6 19.3 23.5 14.2 12.2 11.5 9.5 8.5 7.6 7.1 6.6 Tax expense (1,352) (2,326) (2,830) (4,606) (6,886) (9,262) (12,333) (15,808) (19,445) (23,475) (25,737) (27,876) Change in working capital 4,128 6,200 6,752 1,689 2,005 2,228 1,769 2,012 1,998 2,364 2,269 2,175 Cashflow from operations 34,428 44,593 52,487 57,083 63,625 69,861 75,168 80,055 84,381 88,505 93,916 99,450 Capital expenditure (69,090) (57,457) (52,915) (38,989) (35,704) (35,292) (34,962) (35,711) (36,551) (37,585) (38,450) (39,489) Free cashflow (34,662) (12,863) (428) 18,094 27,921 34,569 40,206 44,344 47,830 50,921 55,466 59,962 Growth (% YoY) nmf nmf nmf nmf 54.3 23.8 16.3 10.3 7.9 6.5 8.9 8.1 Calculation of WACC of Idea Cellular (%) Discount rate (%) 12.0% Risk free rate of return = Rf (%) 9.00 Equity risk premium 6.00 Beta 1.02 1. Present value of cash flow till 2020

Cost of equity = Re 15.1

Total PV of FCF till 2020 {a} 113,708 Unadjusted cost of debt 10.00 Cost of debt = Rd 8.15 2. Terminal value calculation Equity = We 55.0 Growth from 2020 to perpetuity (%)

3.5% Debt = Wd 45.0

FCF in FY2020 59,962 WACC = Re x We + Rd x Wd 12.0% Exit FCF multiple (X) 12.2 Terminal value 731,081 Sensitivity of 12-month DCF to WACC and Terminal Growth Implied exit EV/EBITDA (X) 5.8 WACC PV of terminal value {b} 204,352 10% 11% 12% 13% 14% 2.5% 138 112 91 75 62 3.0% 146 118 96 78 64 Total company value {a} + {b}

318,061 3.5% 156 124 100 82 67

Net debt/(cash) 54,501 4.0% 167 132 106 86 70 Value to equity holders 263,560

Term

inal

G

row

th

4.5% 180 140 112 90 73 Value to equity holders (Rs/share)

100

Source: Macquarie Research, July 2008

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Fig 9 Idea Cellular+Spice: Pro forma DCF valuation model for the base business, fiscal year-end March Year-end Mar (Rs m) FY09E FY10E FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY20E

EBITDA 35,773 45,721 54,306 66,258 75,188 83,902 93,019 101,418 109,677 117,747 125,794 133,843 Growth (% YoY) na 27.8 18.8 22.0 13.5 11.6 10.9 9.0 8.1 7.4 6.8 6.4 Tax expense (1,370) (2,660) (3,314) (5,459) (7,926) (10,495) (13,774) (17,757) (22,032) (26,939) (29,974) (33,104) Change in working capital 8,929 9,786 9,392 3,875 3,894 4,109 3,528 3,751 3,700 4,158 4,012 3,871 Cashflow from operations 43,333 52,847 60,384 64,675 71,156 77,517 82,774 87,412 91,345 94,967 99,831 104,610 Capital expenditure (73,565) (61,276) (56,147) (41,917) (38,584) (38,227) (37,952) (38,777) (39,688) (40,786) (41,703) (42,829) Free cashflow (30,232) (8,428) 4,236 22,758 32,572 39,290 44,822 48,635 51,657 54,181 58,129 61,781 Growth (% YoY) nmf nmf nmf 437.2 43.1 20.6 14.1 8.5 6.2 4.9 7.3 6.3 Calculation of WACC of Idea Cellular (%) Discount rate (%) 12.0% Risk free rate of return = Rf (%) 9.00 Equity risk premium 6.00 Beta 1.02 1. Present value of cash flow till 2020

Cost of equity = Re 15.1

Total PV of FCF till 2020 {a} 142,329

Unadjusted cost of debt 10.00

Cost of debt = Rd 8.15 2. Terminal value calculation Equity = We 55.0 Growth from 2020 to perpetuity (%)

3.5% Debt = Wd 45.0

FCF in FY2020 61,781 WACC = Re x We + Rd x Wd 12.0% Exit FCF multiple (X) 12.2 Terminal value 753,261 Sensitivity of 12-month DCF to WACC and Terminal Growth Implied exit EV/EBITDA (X) 5.6 WACC PV of terminal value {b} 210,552 10% 11% 12% 13% 14% 2.5% 132 110 92 79 67 3.0% 139 115 96 81 69 Total company value {a} + {b}

352,881 3.5% 147 120 100 84 71

Net debt/(cash) 30,891 4.0% 156 126 104 87 74 Value to equity holders 321,991

Term

inal

G

row

th

4.5% 167 134 109 91 76 Value to equity holders (Rs/share)

100



10 July 2008 11

Expect Bharti and RCOM to bridge the valuation gap Idea’s lower earnings growth does not justify 18% premium to Bharti’s PER. Idea is trading

at PERs of 18.3x FY09E and 14.5x FY10E. This is an 18% premium to Bharti’s multiples despite two year earnings growth of 24% (vs 31% at Bharti). We believe Bharti and RCOM should get premium multiples to Idea for their better earnings growth profile.

Fig 10 Idea’s lower earnings growth does not justify richer valuation multiple

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Fig 11 Idea one year forward rolling EV/EBITDA

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10 July 2008 12

Fig 12 Idea Cellular+Spice Communications – income statement, fiscal year-end March FY09E FY10E FY11E

ParticularsRevenuesIdea 89,608 111,229 135,077 Spice 12,477 14,704 16,761 Total Revenues 102,085 125,933 151,838

Operating ExpensesIdea (57,956) (70,509) (86,512) Spice (8,855) (10,202) (11,520) Total Operating Expense (66,812) (80,711) (98,032) (% of total revenues) 65.4% 64.1% 64.6%

Opex savings on advertisement opex 500 500 500

Total synergy benefit 500 500 500

Idea 31,652 40,719 48,565 Spice 3,621 4,502 5,241 EBITDA (pre synergy benefit) 35,273 45,221 53,806 EBITDA Margin (pre synergy benefit) 34.6% 35.9% 35.4%

EBITDA (post synergy benefit) 35,773 45,721 54,306 EBITDA Margin (pre synergy benefit) 35.0% 36.3% 35.8%Pro-forma vs pre-merger Idea estimate 13.0% 12.3% 11.8%

Idea 514 514 514 Spice 200 200 200 Other Income 714 714 714

Idea (12,779) (16,692) (19,937) Spice (2,139) (2,415) (2,601) Depreciation and amortisation (14,918) (19,107) (22,539)

EBIT 21,570 27,329 32,482 EBIT Margin 21.1% 21.7% 21.4%

Interest Income from new cash infusion 1,019 2,850 3,032 Net interest income/(cost) (5,188) (4,090) (5,064)

Profit Before Taxes (PBT) 16,382 23,238 27,417 Income tax (expense) / benefit (1,370) (2,660) (3,314)

Effective Tax Rate (%) (Current Tax only) 0.0% 10.0% 11.5%Profit After Taxes (PAT) pre minority interest 15,012 20,579 24,103

EPS 4.64 6.37 7.46 Idea standalone diluted EPS 4.79 6.05 7.09 EPS accretion/(dilution) -3% 5% 5%

Shares outstanding at the end of period 3,233 3,233 3,233 Source: Macquarie Research, Company Data, July 2008


10 July 2008 13

Fig 13 Idea Cellular+Spice Communications – balance sheet, fiscal year-end March

FY09E FY10E FY11EParticularsASSETSCash and cash equivalents 61,048 59,244 65,130 Sundry Debtors 4,181 5,166 5,728 Inventories 395 494 574 Loans and Advances 7,370 8,776 11,013 Other Current Asset 2,106 2,636 3,053 Total Current Assets 75,100 76,316 85,498

Property and Equipment, net 183,868 226,037 259,645

Total Assets 294,189 337,574 380,364

LIABILITIES AND STOCKHOLDERS' EQUITYTotal Current Liability 51,661 64,467 77,154

Secured Loans 49,550 49,550 55,550 Unsecured Loans 42,389 52,389 52,389 Total Borrowings 91,939 101,939 107,939

Stockholders' equityTotal stockholders' equity 150,589 171,168 195,271

Total liabilities and stockholders' equity 294,189 337,574 380,364

RatiosRoE (%) na 13% 13%RoCE (%) na 9% 9%

Net debt 30,891 42,695 42,809 Net Debt / Equity 0.21 0.25 0.22 Gross Debt/Equity 0.61 0.60 0.6 Net Debt / EBITDA 0.86 0.93 0.79 Source: Macquarie Research, Company Data, July 2008


10 July 2008 14

Fig 14 Idea Cellular+Spice Communications – cash flow statement, fiscal year-end March

FY09E FY10E FY11EParticulars

Cash Flow from Operating Activities

Net Profit/(Loss) after Tax 15,012 20,579 24,103

Adjustments ForDepreciation, Amortisation of assets (14,918) (19,107) (22,539) Net Interest income/(expense) (5,188) (4,090) (5,064) Provision for Fringe Benefit Tax (170) (336) (165) Provision for Tax (Net of Current Tax, Deferred Tax & MAT Credit) - (2,324) (3,150) Operating profit before working capital changes 35,288 46,436 55,021

Changes in Current Assets and Current Liabilities(Increase)/Decrease in Sundry Debtors (1,158) (986) (562) (Increase)/Decrease in Inventories (70) (99) (79) (Increase)/Decrease in Other Current Assets (372) (529) (417) (Increase)/Decrease in Loans and Advances 741 (1,406) (2,236) Increase /(Decrease) in Current Liabilities 9,788 12,806 12,687

Tax paid (170) (2,660) (3,314) Net cash from operating activities 44,048 53,562 61,098

Cash Flow from Investing ActivitiesCapexTotal (73,565) (61,276) (56,147) Investments in Subsidiaries - - - Proceeds from sale of Fixed assets - - - Sale/ (purchase) of Other Investments ( Net ) - - - Interest and Dividend Received - - - Net cash used in investing activities (73,565) (61,276) (56,147)

Cash Flow from Financing ActivitiesProceeds/ Advance received from issue of Share Capital 72,944 - - Redemption of preference sharesProceeds/(Repayment) from Long term borrowings 11,060 10,000 6,000 Interest paid (5,188) (4,090) (5,064) OthersNet cash from financing activities 78,816 5,910 936

Net increase / (decrease) in cash and cash equivalentCash and cash equivalent at the beginning 13,111 61,048 59,244 Add : 49,298 (1,804) 5,886 Cash and cash equivalent at the end 61,048 59,244 65,130

Source: Macquarie Research, Company Data, July 2008


10 July 2008 15

Fig 15 Key quarterly operating & financial metrics – Wireless business: Idea, Bharti, RCOM

Idea Cellular - Actuals for 4Q08March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08A 1QFY09E 2QFY09E 3QFY09E 4QFY09E

Subscribers (m) 14.01 16.13 18.67 21.05 24.00 27.11 30.26 33.43 36.53 YoY growth (%) na 88.9 80.2 69.2 48.8 45.2 43.7 39.3 34.7 QoQ growth (%) 12.6 15.1 15.8 12.8 14.0 12.9 11.6 10.5 9.3Gross ARPU (Rs) 317 320 288 279 287 271 254 240 228 YoY growth (%) na -15.2 -14.0 -13.4 -9.5 -15.3 -11.6 -13.9 -20.4 QoQ growth (%) -1.6 0.9 -10.0 -3.1 2.9 -5.5 -6.1 -5.6 -5.0Blended Churn 4.2% 4.2% 4.5% 4.7% 4.6% na na na naTotal minutes carried (m) 15,469 17,100 18,831 22,457 27,824 31,800 35,370 38,947 42,476 YoY growth (%) na 111.2 93.4 77.8 79.9 86.0 87.8 73.4 52.7 QoQ growth (%) 22.5 10.5 10.1 19.3 23.9 14.3 11.2 10.1 9.1Avg. monthly MoUs per subscriber 387 381 360 377 411 415 411 408 405 YoY growth (%) na 7.0 4.7 2.2 6.2 8.9 14.2 8.1 -1.5 QoQ growth (%) 4.9 -1.6 -5.5 4.7 9.0 0.9 -0.9 -0.8 -0.7Total Population Centres covered 4,432 6,066 8,413 11,104 13,308 na na na na YoY growth (%) na 167.1 177.6 207.8 200.3 na na na na QoQ growth (%) 22.9 36.9 38.7 32.0 19.8 na na na naWireless Revenues (Rs m) 13,057 14,773 15,622 17,081 19,724 20,788 21,901 22,960 23,960 YoY growth (%) na 65.2 56.1 49.0 51.1 40.7 40.2 34.4 21.5 QoQ growth (%) 13.9 13.1 5.7 9.3 15.5 5.4 5.4 4.8 4.4ARPM (Rs) 0.82 0.84 0.80 0.74 0.70 0.65 0.62 0.59 0.56 YoY growth (%) na -20.8 -17.9 -15.2 -14.8 -22.2 -22.6 -20.3 -19.2 QoQ growth (%) -6.1 2.5 -4.8 -7.5 -5.6 -6.4 -5.3 -4.8 -4.3Avg. EBITDA per minute (Rs) 0.27 0.30 0.27 0.25 0.24 0.22 0.21 0.20 0.20 YoY growth (%) na -16.1 -21.1 -14.0 -12.7 -25.4 -22.2 -21.7 -17.9 QoQ growth (%) -7.3 9.6 -8.9 -7.1 -5.8 -6.3 -5.2 -6.4 -1.3Wireless EBITDA (Rs m) 4,363 5,128 5,107 5,672 6,606 7,326 7,737 7,988 8,601 YoY growth (%) na 69.8 43.9 53.1 51.4 42.9 51.5 40.8 30.2 QoQ growth (%) 17.7 17.5 -0.4 11.1 16.5 10.9 5.6 3.2 7.7EBITDA margin (%) 33.4 34.7 32.7 33.2 33.5 35.2 35.3 34.8 35.9 YoY expansion (basis points) na 93.7 -275.2 88.1 7.9 53.3 263.9 158.4 240.3 QoQ expansion (basis points) 108.8 129.6 -201.9 51.6 28.6 175.0 8.7 -53.8 110.4VAS as % of total revenue 9.0% 8.4% 8.3% 8.0% 8.2% 8.7% 9.0% 9.4% 9.7% YoY growth (%) na -8.7 -13.5 -13.0 -8.9 3.1 9.0 17.5 18.5 QoQ growth (%) -2.2 -6.7 -1.2 -3.6 2.5 5.6 4.5 3.9 3.4Total employees 5,532 5,638 5,865 5,923 6,107 na na na na YoY growth (%) na 27.5 27.6 27.5 10.4 na na na na QoQ growth (%) 19.0 1.9 4.0 1.0 3.1 na na na na

Bharti Airtel - Actuals for 4QFY08March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09E 2QFY09E 3QFY09E 4QFY09E

Subscribers (m) 37.14 42.70 48.88 55.16 61.98 69.33 76.58 83.75 90.73 YoY growth (%) 89.7 85.1 80.6 72.5 66.9 62.3 56.7 51.8 46.4 QoQ growth (%) 16.2 15.0 14.5 12.9 12.4 11.8 10.5 9.4 8.3Gross ARPU (Rs) 406 390 366 358 357 347 328 306 286 YoY growth (%) -8.1 -11.5 -16.5 -16.2 -12.1 -11.2 -10.2 -14.3 -19.9 QoQ growth (%) -4.8 -3.9 -6.3 -2.2 -0.2 -2.9 -5.3 -6.7 -6.6Blended Churn 3.6% 4.0% 3.8% 3.9% 4.3% na na na naTotal minutes carried (m) 49,240 57,125 64,375 73,840 89,058 100,182 112,766 127,817 142,432 YoY growth (%) 112.4 102.6 90.2 78.8 80.9 75.4 75.2 73.1 59.9 QoQ growth (%) 19.2 16.0 12.7 14.7 20.6 12.5 12.6 13.3 11.4Avg. monthly MoUs per subscriber 475 478 469 474 507 509 515 531 544 YoY growth (%) 10.1 8.3 3.9 1.4 6.8 6.4 9.9 12.2 7.3 QoQ growth (%) 1.6 0.7 -1.9 1.1 7.0 0.3 1.3 3.1 2.4Total Population Centres covered 212,003 248,439 294,876 325,525 347,646 na na na na YoY growth (%) 151.2 135.2 85.0 79.7 64.0 na na na na QoQ growth (%) 17.0 17.2 18.7 10.4 6.8 na na na naWireless Revenues (Rs m) 42,431 46,976 50,579 56,105 64,201 68,291 71,883 73,677 74,871 YoY growth (%) 75.8 65.3 53.2 49.3 51.3 45.4 42.1 31.3 16.6 QoQ growth (%) 12.9 10.7 7.7 10.9 14.4 6.4 5.3 2.5 1.6ARPM (Rs) 0.86 0.82 0.78 0.76 0.70 0.68 0.64 0.58 0.53 YoY growth (%) -16.6 -18.3 -19.6 -17.3 -17.7 -16.5 -18.3 -23.7 -25.3 QoQ growth (%) -6.3 -4.5 -4.4 -3.3 -6.7 -3.2 -6.5 -9.6 -8.8Avg. EBITDA per minute (Rs) 0.34 0.33 0.32 0.31 0.26 0.23 0.21 0.19 0.17 YoY growth (%) -10.4 -9.0 -10.3 -9.3 -24.2 -31.3 -34.3 -39.4 -35.1 QoQ growth (%) -1.2 -1.1 -3.5 -3.8 -17.4 -10.4 -7.6 -11.4 -11.6Wireless EBITDA (Rs m) 16,604 19,087 20,728 22,887 22,779 22,956 23,869 23,973 23,629 YoY growth (%) 89.8 84.6 70.2 62.0 37.2 20.3 15.2 4.7 3.7 QoQ growth (%) 17.5 15.0 8.6 10.4 -0.5 0.8 4.0 0.4 -1.4EBITDA margin (%) 39.1 40.6 41.0 40.8 35.5 33.6 33.2 32.5 31.6 YoY expansion (basis points) 289.2 423.4 410.0 319.5 -365.1 -701.7 -777.6 -825.5 -392.1 QoQ expansion (basis points) 153.4 150.0 35.0 -18.8 -531.2 -186.6 -40.9 -66.7 -97.9VAS as % of total revenue 10.1% 9.9% 9.8% 9.3% 9.4% 9.8% 10.3% 10.9% 11.6% YoY growth (%) -5.6 -8.3 -4.9 -10.6 -6.9 -0.9 4.7 17.2 23.1 QoQ growth (%) -2.9 -2.0 -1.0 -5.1 1.1 4.4 4.6 6.2 6.1Total employees 20,314 22,955 23,264 24,703 25,543 na na na na YoY growth (%) na na na 35.6 25.7 na na na na QoQ growth (%) 11.5 13.0 1.3 6.2 3.4 na na na na

Reliance Communications - Actuals for 4QFY08March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09E 2QFY09E 3QFY09E 4QFY09E

Subscribers (m) 28.01 31.87 36.32 40.96 45.79 50.74 55.77 60.94 67.95 YoY growth (%) 38.6 41.5 39.8 36.6 63.5 59.2 53.5 48.8 48.4 QoQ growth (%) -6.6 13.8 14.0 12.8 11.8 10.8 9.9 9.3 11.5Gross ARPU (Rs) 377 375 361 339 317 317 298 279 261 YoY growth (%) -0.5 -1.1 2.0 3.4 -15.9 -15.5 -17.5 -17.8 -17.5 QoQ growth (%) 14.9 -0.5 -3.7 -6.1 -6.5 -0.1 -5.9 -6.5 -6.2Blended Churn nmf nmf 1.5% 1.4% 1.4% na na na naTotal minutes carried (m) 47,057 45,805 50,122 52,054 55,959 61,332 66,657 71,944 78,259 YoY growth (%) na na na na na na na na na QoQ growth (%) na na na na na na na na naAvg. monthly MoUs per subscriber 541 510 490 449 430 424 417 411 405 YoY growth (%) 1.7 3.9 6.3 -1.1 -20.5 -17.0 -14.9 -8.5 -5.9 QoQ growth (%) 19.2 -5.7 -3.9 -8.4 -4.2 -1.5 -1.5 -1.5 -1.5Total Population Centres covered na na na na na na na na na YoY growth (%) na na na na na na na na na QoQ growth (%) na na na na na na na na naWireless Revenues (Rs m) 29,692 33,730 37,230 39,567 41,608 45,860 47,608 48,791 50,533 YoY growth (%) 40.0 38.7 44.6 43.8 40.1 36.0 27.9 23.3 21.5 QoQ growth (%) 7.9 13.6 10.4 6.3 5.2 10.2 3.8 2.5 3.6ARPM (Rs) 0.70 0.74 0.74 0.76 0.74 0.75 0.71 0.68 0.65 YoY growth (%) -2.2 -4.7 -4.1 4.5 5.8 1.7 -3.1 -10.2 -12.4 QoQ growth (%) -3.5 5.5 0.2 2.5 -2.4 1.4 -4.5 -5.0 -4.8Avg. EBITDA per minute (Rs) 0.27 0.29 0.26 0.30 0.30 0.30 0.29 0.28 0.27 YoY growth (%) 6.3 5.2 -4.9 12.5 10.7 2.1 10.0 -7.8 -9.4 QoQ growth (%) 0.2 8.0 -9.9 15.3 -1.4 -0.3 -2.9 -3.3 -3.1Wireless EBITDA (Rs m) 11,511 13,392 14,873 15,819 16,763 18,312 19,315 20,150 21,244 YoY growth (%) 52.0 53.1 60.0 53.7 45.6 36.7 29.9 27.4 26.7 QoQ growth (%) 11.8 16.3 11.1 6.4 6.0 9.2 5.5 4.3 5.4EBITDA margin (%) 38.8 39.7 39.9 40.0 40.3 39.9 40.6 41.3 42.0 YoY expansion (basis points) 306.6 374.1 384.6 257.1 152.0 22.7 62.2 131.8 175.2 QoQ expansion (basis points) 135.9 93.6 24.5 3.1 30.8 -35.7 64.1 72.6 74.2VAS as % of total revenue 6.3% 5.7% 6.2% 6.4% 6.9% 7.5% 8.2% 9.1% 10.1% YoY growth (%) 3.3 -8.1 -1.6 1.6 9.5 32.0 32.1 41.5 46.0 QoQ growth (%) 0.0 -9.5 8.8 3.2 7.8 9.0 8.9 10.5 11.2Total employees na na na na na na na na na YoY growth (%) na na na na na na na na na QoQ growth (%) na na na na na na na na na Source: Company data, Macquarie Research, July 2008


10 July 2008 16

Fig 16 Key annual operating & financial metrics – wireless business: Idea, Bharti, RCOM

Idea Cellular March Year ends; Rs million FY06 FY07 FY08 FY09E FY10E FY11E

Subscribers (m) 7.37 14.01 24.00 36.53 47.90 57.10 YoY growth (%) 45.3 90.2 71.3 52.2 31.1 19.2Gross ARPU (Rs) 391 339 295 247 220 214 YoY growth (%) -5.6 -13.3 -13.1 -16.3 -11.0 -2.4Total minutes carried (m) 20,921 45,931 86,212 na na na YoY growth (%) 61.3 119.5 87.7 na na naAvg. monthly MoUs per subscriber 289 353 395 406 402 399 YoY growth (%) 135,115.0 22.1 11.9 2.9 -1.0 -0.8Total Population Centres covered 1,944 4,432 13,308 na na na YoY growth (%) 76.9 128.0 200.3 na na naWireless Revenues (Rs m) 29,489 43,473 67,199 89,608 111,229 135,077 YoY growth (%) 31.3 47.4 54.6 33.3 24.1 21.4ARPM (Rs) 1.35 0.96 0.75 0.61 0.55 0.54 YoY growth (%) -19.0 -29.0 -22.3 -18.6 -10.2 -1.5Avg. EBITDA per minute (Rs) 0.49 0.29 0.25 0.21 0.19 0.19 YoY growth (%) -21.7 -41.2 -13.4 -17.2 -6.9 -3.2Wireless EBITDA (Rs m) 10,674 14,653 22,517 31,652 40,719 48,565 YoY growth (%) 30.0 37.3 53.7 40.6 28.6 19.3EBITDA margin (%) 36.0 33.6 33.5 35.3 36.6 36.0 YoY expansion (basis points) -40.2 -243.6 -5.0 181.4 128.6 -65.5VAS as % of total revenue 7.5% 9.0% 8.2% 9.2% 9.9% 10.4% YoY growth (%) 0.0 20.0 -8.7 12.3 7.4 4.5Total employees 3,720 5,532 6,107 na na na YoY growth (%) na 48.7 10.4 na na na

Bharti AirtelMarch Year ends; Rs million FY06 FY07 FY08 FY09E FY10E FY11E

Subscribers (m) 19.58 37.14 61.98 90.73 114.37 132.06 YoY growth (%) 78.2 89.7 66.9 46.4 26.1 15.5Gross ARPU (Rs) 474 427 370 315 283 267 YoY growth (%) -7.7 -9.9 -13.3 -15.0 -10.1 -5.5Total minutes carried (m) 70,456 152,583 284,399 na na na YoY growth (%) na 116.6 86.4 na na naAvg. monthly MoUs per subscriber 407 461 483 526 524 527 YoY growth (%) -37.5 13.3 4.9 8.9 -0.4 0.6Total Population Centres covered 84,405 212,003 347,646 na na na YoY growth (%) na 151.2 64.0 na na naWireless Revenues (Rs m) 82,392 141,443 217,861 288,722 348,203 395,293 YoY growth (%) 52.5 71.7 54.0 32.5 20.6 13.5ARPM (Rs) 1.17 0.93 0.77 0.60 0.54 0.51 YoY growth (%) -22.1 -20.5 -17.3 -21.9 -9.7 -6.0Avg. EBITDA per minute (Rs) 0.40 0.34 0.30 0.20 0.17 0.16 YoY growth (%) -2.7 -14.8 -12.4 -34.2 -12.5 -4.2Wireless EBITDA (Rs m) 29,712 53,253 85,481 94,426 110,562 127,909 YoY growth (%) 60.4 79.2 60.5 10.5 17.1 15.7EBITDA margin (%) 36.1 37.6 39.2 32.7 31.8 32.4 YoY expansion (basis points) 177.7 158.8 158.7 -653.1 -95.3 60.6VAS as % of total revenue 10.4% 10.4% 9.6% 10.7% 11.4% 12.0% YoY growth (%) 29.8 -0.1 -7.6 11.3 7.3 4.8Total employees na 20,314 25,543 na na na YoY growth (%) na na 25.7 na na na

Reliance Communications March Year ends; Rs million FY06 FY07 FY08 FY09E FY10E FY11E

Subscribers (m) 20.21 28.01 45.79 67.95 88.57 104.39 YoY growth (%) na 38.6 63.5 48.4 30.3 17.9Gross ARPU (Rs) 401 358 345 286 252 242 YoY growth (%) na -10.7 -3.6 -17.0 -12.0 -4.0Total minutes carried (m) 110,691 150,178 203,940 278,192 372,109 449,566 YoY growth (%) na 35.7 35.8 36.4 33.8 20.8Avg. monthly MoUs per subscriber 538 486 466 413 396 388 YoY growth (%) na -9.6 -4.3 -11.3 -4.0 -2.0Total Population Centres covered na na na na na na YoY growth (%) na na na na na naWireless Revenues (Rs m) 73,643 107,276 152,135 192,791 236,825 280,305 YoY growth (%) na 45.7 41.8 26.7 22.8 18.4ARPM (Rs) 0.75 0.74 0.74 0.69 0.64 0.62 YoY growth (%) na -1.3 0.7 -6.4 -8.3 -2.0Avg. EBITDA per minute (Rs) 0.23 0.27 0.29 0.28 0.27 0.27 YoY growth (%) na 21.3 6.3 -2.4 -4.9 0.1Wireless EBITDA (Rs m) 22,490 39,846 60,847 79,021 100,507 121,600 YoY growth (%) na 77.2 52.7 29.9 27.2 21.0EBITDA margin (%) 30.5 37.1 40.0 41.0 42.4 43.4 YoY expansion (basis points) na 660.4 285.2 99.2 145.2 94.2VAS as % of total revenue 5.9% 6.3% 6.3% 8.6% 11.3% 12.1% YoY growth (%) na 6.5 1.1 36.0 30.7 7.4Total employees na na na na na na YoY growth (%) na na na na na na Source: Company Data, Macquarie Research, July 2008

Macquarie R


Idea C

ellular

10 July 2008 17

Fig 17 Macquarie – Global emerging market telecom valuation Macquarie - Global Emerging Market Telecom Valuation

EV/EBITDA byBloomberg Rec Price EBITDA EV/EBITDA EBITDA CAGR EPS PER PEG ROE EBITDA CAGR EPS CAGR

Company Name Ticker lcy FY09E FY10E FY11E FY09E FY10E FY11E FY2008-10E FY09E FY10E FY11E FY09E FY10E FY11E FY2008-10E (FY09E, %) (FY08-10E, %) (FY08-10E, %)Bharti Airtel BHARTI IN OP 746.4 156161 194713 228955 9.7 7.7 6.6 0.3 47.9 60.4 69.8 15.6 12.3 10.7 0.5 33.9 30.9 30.8Reliance Comms RCOM IN OP 440.8 123123 157810 189635 8.5 6.7 5.5 0.2 32.3 41.7 49.3 13.7 10.6 8.9 0.5 23.0 38.7 29.8Idea Cellular IDEA IN OP 87.8 31652 40719 48565 9.0 7.0 5.9 0.3 4.8 6.1 7.1 18.3 14.5 12.4 0.8 23.1 34.5 23.6

China Mobile 941 HK UP 104.2 229481 252257 263673 7.3 6.4 5.9 0.5 5.7 6.2 6.4 16.0 14.7 14.3 0.8 28.7 14.0 20.5China Unicom 762 HK OP 15.1 34492 75329 80311 5.3 3.7 3.4 0.1 0.6 0.8 0.9 22.0 16.5 14.9 1.0 8.3 51.1 21.6Indosat ISAT IJ OP 6,600.0 9419075 10236152 11225540 5.1 5.3 5.0 0.6 423 458 465 15.6 14.4 14.2 3.3 13.4 8.4 4.7SK Telecom 017670 KS OP 194,500.0 3990817 4510547 4900232 4.9 4.4 4.1 0.8 18769 22711 26002 10.4 8.6 7.5 0.6 13.0 5.9 16.8KT Freetel 032390 KS N 27,200.0 1586003 1832182 2035215 3.6 3.0 2.6 0.5 1331 2255 2938 15.6 13.4 11.9 0.5 5.7 7.6 34.2LG Telecom 032640 KQ OP 8,150.0 753896 854766 953175 3.9 3.1 2.4 0.3 1068 1302 1437 7.7 6.8 6.2 0.5 15.8 12.4 14.5Digi.Com DIGI MK OP 23.6 2288 2430 2699 7.7 7.0 6.1 1.0 1.7 1.8 2.0 14.2 13.1 11.7 1.7 61.0 7.3 8.6Telekom Malaysia International TI MK OP 6.2 4984 5838 6592 5.8 5.0 4.4 0.1 0.4 0.5 0.6 13.8 12.0 10.9 0.1 22.9 76.5 126.4Globe GLO PM OP 1,080.0 40463 42105 43250 4.2 3.9 3.6 1.8 103.7 115.3 120.5 10.4 9.4 9.0 1.4 24.1 2.3 7.3Far EasTone 4904 TT OP 47.2 26231 26022 24858 5.6 5.5 5.6 na 3.2 3.4 3.5 14.8 13.9 13.6 2.3 13.7 -1.9 6.4Taiwan Mobile 3045 TT OP 53.3 30780 31695 32131 5.6 5.3 5.2 2.2 5.4 5.7 5.5 9.9 9.4 9.6 0.2 37.7 2.5 59.8AIS ADVANC TB UP 89.5 44386 45830 47680 6.4 6.2 5.9 2.7 5.5 5.9 6.1 16.2 15.3 14.6 5.3 22.1 2.4 3.1TAC DTAC TB N 50.5 23604 25723 27490 5.9 5.2 4.6 0.4 4.2 4.7 5.1 12.1 10.8 9.9 0.3 17.4 16.7 36.6MobileOne M1 SP N 1.8 307 300 292 6.0 6.0 6.1 na 0.2 0.2 0.2 11.2 11.5 11.9 na 71.9 -2.8 -6.7MTN Group Ltd MTN SJ OP 12,710.0 42453 48653 55343 6.0 5.3 4.7 0.3 9.3 11.8 14.9 13.7 10.8 8.5 0.4 31.9 19.7 31.4Orascom Telecom Holding ORTE EY NR 63.2 2570 2892 3200 8.6 7.6 6.9 0.9 1.1 1.3 13.3 10.9 9.0Vivo Participacoes Sa VIVO3 BZ NR 11.0 3776 4447 4954 5.5 4.6 4.2 0.3 0.6 0.9 37.8 17.2 12.3America Movil Sab De C-Ser L AMXL MM NR 26.2 147106 163258 177842 8.6 7.7 7.1 1.9 2.4 2.8 13.8 10.7 9.4Etihad Etisalat Co EEC AB NR 50.8 3952 4484 4729 9.5 8.4 7.9 3.6 4.6 5.1 14.0 11.0 10.0Saudi Telecom Co STC AB NR 59.0 19706 20069 20456 6.6 6.5 6.4 6.4 6.3 6.6 9.3 9.3 9.0Qatar Telecom (Q-Tell) Q.S.C QTEL QD NR 181.7 6713 7372 7661 7.4 6.8 6.5 15.4 18.3 20.7 11.8 9.9 8.8Average 6.5 5.8 5.3 14.6 12.0 10.8Average (ex-China Mobile) 6.5 5.7 5.2 14.6 11.8 10.7 Source: Bloomberg, Macquarie Research, July 2008. Prices as of 9 July 2008

Fig 18 Macquarie – India high growth stocks valuation Macquarie - India High Growth Stocks Valuations

EV/EBITDA byBloomberg Rec Price EBITDA EV/EBITDA EBITDA CAGR EPS PER PEG ROE EBITDA CAGR EPS CAGR

Company Name Ticker lcy FY09E FY10E FY11E FY09E FY10E FY11E FY2008-10E FY09E FY10E FY11E FY09E FY10E FY11E FY2008-10E (FY09E, %) (FY08-10E, %) (FY08-10E, %)Bharti Airtel BHARTI IN OP 746.4 156161 194713 228955 9.7 7.7 6.6 0.3 47.9 60.4 69.8 15.6 12.3 10.7 0.5 33.9 30.9 30.8Reliance Comms RCOM IN OP 440.8 123123 157810 189635 8.5 6.7 5.5 0.2 32.3 41.7 49.3 13.7 10.6 8.9 0.5 23.0 38.7 29.8Idea Cellular IDEA IN OP 87.8 31652 40719 48565 9.0 7.0 5.9 0.3 4.8 6.1 7.1 18.3 14.5 12.4 0.8 23.1 34.5 23.6

Bharat Heavy Electricals BHEL IN OP 1,575.3 55322 83199 104917 12.6 8.4 6.6 0.3 82.0 122.0 153.2 19.2 12.9 10.3 0.4 32.2 48.5 44.5Dabur DABUR IN OP 83.8 5188 6023 7239 13.4 11.5 9.6 0.7 4.8 5.6 6.8 17.3 15.0 12.4 1.0 55.6 19.5 16.5Hindustan Unilever HUVR IN UP 215.6 24243 27224 30526 18.3 16.3 14.6 1.5 11 12 13 20.3 18.1 16.1 1.6 108.4 12.6 12.9ICICI Bank ICICIBC IN OP 621.9 76810 102253 138327 8.6 6.4 4.8 0.2 52 68 90 11.9 9.2 6.9 0.3 12.0 42.2 34.8Infosys Technologies INFO IN OP 1,821.1 66140 84453 108840 14.5 11.4 8.8 0.5 99 116 151 18.4 15.6 12.1 0.9 33.1 27.0 19.5ITC Ltd ITC IN OP 183.5 53101 66948 79741 12.1 9.6 8.1 0.5 10 12 15 19.1 15.2 12.5 0.8 27.4 22.7 22.5Jaiprakash Associates JPA IN OP 173.3 19556 23358 28766 15.6 13.1 10.6 0.9 5.7 7.2 9.6 30.5 24.0 18.0 0.6 11.7 17.3 52.5Kotak Mahindra Bank KMB IN OP 520.0 19755 26350 0 9.0 6.7 nmf 0.3 39.2 52.9 0.0 13.3 9.8 nmf 0.4 20.7 35.0 35.9Larsen & Toubro LT IN OP 2,513.0 51770 70949 89485 15.3 11.2 8.9 0.4 119.0 162.3 203.6 21.1 15.5 12.3 0.5 35.6 43.5 46.5Marico MRCO IN OP 53.5 3138 3918 4865 10.9 8.7 7.0 na 3.1 4.0 5.0 17.2 13.2 10.6 0.7 60.4 21.5 24.9NIIT Ltd NIIT IN OP 102.0 1741 2442 3211 10.5 7.5 5.7 0.2 8.3 12.0 15.8 12.3 8.5 6.5 0.2 29.2 49.5 51.2Pantaloon PF IN OP 389.3 4910 7298 10742 13.3 9.0 6.1 0.2 13.1 20.7 35.1 29.8 18.8 11.1 0.4 17.6 54.7 72.3Reliance Industries Ltd RIL IN OP 1,978.6 290346 408033 412146 11.3 8.0 7.9 0.3 112.5 163.6 168.4 17.6 12.1 11.7 0.6 15.9 32.8 30.0Tata Consultancy Services TCS IN OP 826.7 78818 98667 135845 10.3 8.2 5.9 0.4 66.2 77.6 106.9 12.5 10.6 7.7 na 52.9 28.9 23.0Average 11.9 9.3 7.7 18.1 13.9 11.3 Source: Bloomberg, Macquarie Research, July 2008. Prices as of 9 July 2008


10 July 2008 18

Fig 7 Idea Cellular – Income statement, fiscal year-end March Particulars (Rs m except EPS) FY07 FY08 FY09E FY10E FY11E

Revenues Service Revenue 43,473 67,199 89,608 111,229 135,077Sales of Trading Goods 191 - - - -Total Revenues 43,664 67,199 89,608 111,229 135,077 Operating Expenses Cost of Trading Goods (52) (0) - - -(% of revenues from trading goods) 27.1% Personnel Expenditure (2,609) (3,464) (4,436) (5,340) (6,141)(% of total revenues) 6.0% 5.2% 5.0% 4.8% 4.5%Network Operating Expenditure (5,336) (10,470) (11,371) (13,159) (16,935)(% of total revenues) 12.2% 15.6% 12.7% 11.8% 12.5%License and WPC Charges (4,487) (6,851) (9,269) (11,457) (13,778)(% of total revenues) 10.3% 10.2% 10.3% 10.3% 10.2%Roaming & Access Charges (7,321) (11,334) (13,302) (16,154) (17,560)(% of total revenues) 16.8% 16.9% 14.8% 14.5% 13.0%Subscriber Acquisition & Servicing Expenditure (5,532) (6,978) (8,513) (12,791) (16,885)(% of total revenues) 12.7% 10.4% 9.5% 11.5% 12.5%Advertisement and Business Promotion Expenditure (2,118) (2,671) (4,161) (5,005) (6,619)(% of total revenues) 4.8% 4.0% 4.6% 4.5% 4.9%Administration & other Expenses (1,558) (2,914) (6,904) (6,603) (8,594)(% of total revenues) 3.6% 4.3% 7.7% 5.9% 6.4%Total Operating Expense (29,011) (44,682) (57,956) (70,509) (86,512)(% of total revenues) 66.4% 66.5% 64.7% 63.4% 64.0% EBITDA 14,653 22,517 31,652 40,719 48,565EBITDA Margin 33.6% 33.5% 35.3% 36.6% 36.0%Other Income 209 175 514 514 514Depreciation (5,579) (7,784) (11,062) (15,091) (18,337)Amortisation of Intangible Assets (1,139) (984) (1,717) (1,602) (1,601)Amortisation of Miscellaneous Expenditure - 0 0 0 0 EBIT 8,144 13,924 19,388 24,541 29,142 EBIT Margin 18.7% 20.7% 21.6% 22.1% 21.6% Interest Income 53 1,282 1,675 1,214 997Interest and Financing Charges (3,104) (4,058) (7,087) (7,476) (8,628) Profit Before Taxes (PBT) 5,093 11,147 13,975 18,279 21,511Income tax (expense) / benefit (70) (725) (1,352) (2,326) (2,830)Exceptionals (83) 0 0 0 0Profit After Taxes (PAT) 4,939 10,422 12,623 15,953 18,681 Adjusted Net Profit (pre-exceptionals) 5,022 10,422 12,623 15,953 18,681Diluted EPS 2.15 3.96 4.79 6.05 7.09 YoY Growth (%) Service Revenues 47.4 54.6 33.3 24.1 21.4Total Revenues 47.2 53.9 33.3 24.1 21.4Personnel Expenditure 46.5 32.8 28.1 20.4 15.0Network Operating Expenditure 68.9 96.2 8.6 15.7 28.7License and WPC Charges 48.6 52.7 35.3 23.6 20.3Roaming & Access Charges 47.5 54.8 17.4 21.4 8.7Subscriber Acquisition & Servicing Expenditure 69.0 26.1 22.0 50.3 32.0Advertisement and Business Promotion Expenditure 69.0 26.1 55.8 20.3 32.2Administration & other Expenses 6.9 87.0 137.0 (4.4) 30.2Operating Expenses 52.8 54.0 29.7 21.7 22.7EBITDA 37.3 53.7 40.6 28.6 19.3Net Profit After Taxes 137.2 107.5 21.1 26.4 17.1Diluted EPS 129.4 84.2 20.9 26.4 17.1Source: Company data, Macquarie Research, July 2008


10 July 2008 19

Fig 8 Idea Cellular – balance sheet, fiscal year-end March Particulars (Rs m) FY07 FY08 FY09E FY10E FY11E

ASSETS Cash and cash equivalents 18,199 12,095 12,730 7,555 8,521Sundry Debtors 1,525 2,299 3,291 4,118 4,533Inventories 179 325 395 494 574Loans and Advances 4,000 5,098 5,903 7,047 9,042Other Current Asset 758 1,734 2,106 2,636 3,053Total Current Assets 24,660 21,550 24,426 21,850 25,723 Gross Block 70,627 110,141 179,031 236,288 289,003Less: Depreciation (26,372) (31,242) (42,304) (57,394) (75,731)Property and Equipment, net 44,254 78,899 136,728 178,894 213,272 Acquired intangible assets, net 11,776 17,890 16,373 14,971 13,570Capital Work in progress 5,069 10,372 10,372 10,372 10,372Other fixed assets 16,845 28,262 26,745 25,343 23,942 Goodwill 61 61 61 61 61Investments 12 9,056 9,056 9,056 9,056Deferred taxes (net) - 661 661 661 661Total Assets 85,834 138,489 197,676 235,865 272,715 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Sundry Creditors 16,109 27,389 33,757 42,557 52,216Bank overdraft 665 1,442 1,688 2,128 2,429Advances from Customers 2,565 4,768 6,582 8,236 10,002Deposits from Customers 570 1,593 2,278 2,850 3,461Other Liabilities 1,066 2,162 2,954 3,724 3,555Interest accrued but not due 18 - - - -Total Current Liability 20,993 37,355 47,259 59,495 71,664 Provisions 538 534 534 534 534 Total Current Liabilities 21,531 37,889 47,793 60,029 72,198 Secured Loans 35,398 35,398 35,398 35,398 41,398Unsecured Loans 7,107 29,756 40,816 50,816 50,816Total Borrowings 42,505 65,154 76,214 86,214 92,214 Stockholders' equity Equity Share Capital 25,928.6 26,391 26,391 26,391 26,391Preference Share Capital - - 25,600 25,600 25,600Share Capital 25,928.6 26,391 51,991 51,991 51,991Advance against Share capital - - - - -Reserves and Surplus 20,371 23,134 23,134 23,134 23,134Profit and Loss Account (24,502) (14,079) (1,456) 14,497 33,178Total stockholders' equity 21,798 35,446 73,669 89,622 108,303Total liabilities and stockholders' equity 85,834 138,489 197,676 235,865 272,715 Key Ratios RoE (%) 30% 36% 23% 20% 19%RoCE (%) 11% 12% 12% 11% 11% Net debt 24,958 45,445 68,846 79,286 85,587Net Debt / Equity 1.14 1.28 0.93 0.88 0.79Gross Debt/Equity 1.95 1.84 1.03 0.96 0.9Net Debt / EBITDA 1.7 2.0 2.2 1.9 1.8Working Capital ex cash/Revenues (%) -33% -42% -40% -41% -40%Net working capital days <Days of Gross Sales> -121.5 -151.5 -144.9 -148.3 -147.2Source: Company data, Macquarie Research, July 2008


10 July 2008 20

Fig 9 Idea Cellular – cash flow statement, fiscal year-end March Particulars (Rs m) FY07 FY08 FY09E FY10E FY11E

Cashflow from operating activities Net Profit/(Loss) after Tax 4,939 10,422 12,623 15,953 18,681 Adjustments For Depreciation, Amortisation of assets 6,718 8,768 12,779 16,692 19,937Interest charge and Forex 3,104 4,468 7,087 7,476 8,628Profit on sale of current investment 0 0 0 0 0Provision for Bad & Doubtful Debts/Advances 0 0 0 0 0Provision for Gratuity, Leave Encashment & ARO 244 -4 0 0 0Provision for Fringe Benefit Tax 79 74 152 315 141Provision for Tax (Net of Current Tax, Deferred Tax & MAT Credit) -9 652 1,200 2,011 2,689Dividend income 0 0 0 0 0Interest received -53 -1,697 -1,675 -1,214 -997(Profit)/ Loss on sale of fixed assets/ assets discarded 0 0 0 0 0Operating profit before working capital changes 15,023 22,683 32,166 41,234 49,080 Changes in current assets and current liabilities (Increase)/Decrease in Sundry Debtors -217 -774 -993 -827 -415(Increase)/Decrease in Inventories -65 -146 -70 -99 -79(Increase)/Decrease in Other Current Assets -79 -976 -372 -529 -417(Increase)/Decrease in Loans and Advances -1,606 -1,099 -805 -1,144 -1,995Increase /(Decrease) in Current Liabilities 7,499 11,281 6,368 8,800 9,659 Cash generated from operations 20,555 30,969 36,295 47,434 55,832Tax paid ( FBT & TDS ) -70 -1,386 -1,352 -2,326 -2,830Net cash from operating activities 20,484 29,583 34,942 45,108 53,002 cashflow from investing activities Purchase of Fixed assets (including CWIP ) -29,018 -54,521 -69,090 -57,457 -52,915Investments in Subsidiaries 0 0 0 0 0Proceeds from sale of Fixed assets 0 28 0 0 0Sale/ (purchase) of Other Investments ( Net ) -12 -9,044 0 0 0Interest and Dividend Received 53 1,697 1,675 1,214 997Net cash used in investing activities -28,977 -61,841 -67,416 -56,243 -51,918 Cashflow from financing activities Proceeds/ Advance received from issue of Share Capital 25,000 3,188 0 0 0Redemption of preference shares -7,563 0 25,600 0 0Proceeds from Long term borrowings 35,398 0 0 0 0Repayment of Long Term Borrowings -15,709 0 0 0 6,000Proceeds from Short Term Loan 0 25,051 11,060 10,000 0Repayment of Short Term Loan -10,040 -2,402 0 0 0Proceeds from borrowings- Net 1,506 5,099 3,536 3,436 2,510Short Term Loan from / to subsidiary & other Body Corporates 0 0 0 0 0Dividends including dividend tax 0 0 0 0 0Interest Paid -3,094 -4,486 -7,087 -7,476 -8,628Others 611 0 0 0 0Net cash from financing activities 26,109 26,450 33,109 5,961 -117 Net increase / (decrease) in cash and cash equivalent 17,616 -5,808 635 -5,175 966Cash and cash equivalent at the beginning 1,493 18,199 12,391 13,027 7,852Add : Cash and cash equivalents taken over on acquisition 0 0 0 0 0Cash and cash equivalent at the end 18,199 12,391 13,027 7,852 8,818Source: Company data, Macquarie Research, July 2008


10 July 2008 21

Idea Cellular (IDEA IN, Outperform, Target price: Rs100.00)Quarterly Results 4Q/08A 1Q/09E 2Q/09E 3Q/09E Profit & Loss 2008A 2009E 2010E 2011E

Revenue m 19,724 20,788 21,901 22,960 Revenue m 67,200 89,608 111,229 135,077Gross Profit m 11,051 12,776 13,556 14,308 Gross Profit m 38,574 55,666 70,459 86,804Cost of Goods Sold m 8,673 8,012 8,345 8,652 Cost of Goods Sold m 28,626 33,942 40,769 48,273EBITDA m 6,606 7,326 7,737 7,988 EBITDA m 22,513 31,652 40,719 48,565Depreciation m 2,218 2,304 2,626 2,899 Depreciation m 7,405 11,062 15,091 18,337Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0Other Amortisation m 379 428 433 437 Other Amortisation m 1,363 1,717 1,601 1,601EBIT m 4,009 4,593 4,679 4,652 EBIT m 13,744 18,873 24,028 28,628Net Interest Income m -1,206 -1,320 -1,537 -1,204 Net Interest Income m -2,771 -5,413 -6,262 -7,631Associates m 0 0 0 0 Associates m 0 0 0 0Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0Other Pre-Tax Income m 129 129 129 129 Other Pre-Tax Income m 176 514 514 514Pre-Tax Profit m 2,932 3,402 3,271 3,576 Pre-Tax Profit m 11,149 13,975 18,280 21,511Tax Expense m -165 -328 -334 -341 Tax Expense m -725 -1,352 -2,326 -2,830Net Profit m 2,767 3,074 2,937 3,235 Net Profit m 10,424 12,623 15,954 18,681Minority Interests m 0 0 0 0 Minority Interests m 0 0 0 0

Reported Earnings m 2,767 3,074 2,937 3,235 Reported Earnings m 10,424 12,623 15,954 18,681Adjusted Earnings m 2,767 3,074 2,937 3,235 Adjusted Earnings m 10,424 12,623 15,954 18,681

EPS (rep) 1.05 1.17 1.11 1.23 EPS (rep) 3.96 4.79 6.05 7.09EPS (adj) 1.05 1.17 1.11 1.23 EPS (adj) 3.96 4.79 6.05 7.09EPS Growth YoY (adj) % 43.0 -0.4 33.2 36.6 EPS Growth (adj) % 107.5 21.1 26.4 17.1

PE (rep) x 22.2 18.3 14.5 12.4 PE (adj) x 22.2 18.3 14.5 12.4

EBITDA Margin % 33.5 35.2 35.3 34.8 Total DPS 0.00 0.00 0.00 0.00EBIT Margin % 20.3 22.1 21.4 20.3 Total Div Yield % 0.0 0.0 0.0 0.0Earnings Split % 26.5 24.4 23.3 25.6 Weighted Average Shares m 2,635 2,636 2,636 2,636Revenue Growth % 50.7 40.7 40.2 34.4 Period End Shares m 2,636 2,636 2,636 2,636EBIT Growth % 54.1 41.7 50.9 37.0

Profit and Loss Ratios 2008A 2009E 2010E 2011E Cashflow Analysis 2008A 2009E 2010E 2011E

Revenue Growth % 53.9 33.3 24.1 21.4 EBITDA m 22,513 31,652 40,719 48,565EBITDA Growth % 53.8 40.6 28.6 19.3 Tax Paid m -1,386 -1,352 -2,326 -2,830EBIT Growth % 73.6 37.3 27.3 19.1 Chgs in Working Cap m 8,286 4,128 6,200 6,752Gross Profit Margin % 57.4 62.1 63.3 64.3 Net Interest Paid m -4,468 -7,087 -7,476 -8,628EBITDA Margin % 33.5 35.3 36.6 36.0 Other m 4,640 7,602 7,990 9,142EBIT Margin % 20.5 21.1 21.6 21.2 Operating Cashflow m 29,584 34,942 45,108 53,002Net Profit Margin % 15.5 14.1 14.3 13.8 Acquisitions m 0 0 0 0Payout Ratio % 0.0 0.0 0.0 0.0 Capex m -54,521 -69,090 -57,457 -52,915EV/EBITDA x 12.7 9.0 7.0 5.9 Asset Sales m 28 0 0 0EV/EBIT x 20.8 15.1 11.9 10.0 Other m -7,347 1,675 1,214 997

Investing Cashflow m -61,841 -67,416 -56,243 -51,918Balance Sheet Ratios Dividend (Ordinary) m 0 0 0 0ROE % 36.4 23.1 19.5 18.9 Equity Raised m 3,188 25,600 0 0ROA % 12.3 11.2 11.1 11.3 Debt Movements m 27,748 14,596 13,436 8,510ROIC % 27.5 19.0 15.1 14.6 Other m -4,486 -7,087 -7,476 -8,628Net Debt/Equity % 153.8 88.5 90.1 79.5 Financing Cashflow m 26,450 33,109 5,961 -117Interest Cover x 5.0 3.5 3.8 3.8 Price/Book x 6.5 3.1 2.6 2.1 Net Chg in Cash/Debt m -5,806 635 -5,175 966Book Value per Share 13.4 28.0 34.0 41.1

Balance Sheet 2008A 2009E 2010E 2011E Cash m 12,095 12,730 7,555 8,521 Receivables m 2,299 3,291 4,118 4,533 Inventories m 325 395 494 574 Investments m 9,056 9,056 9,056 9,056 Fixed Assets m 107,161 163,472 204,237 237,214 Intangibles m 61 61 61 61 Other Assets m 7,493 8,670 10,344 12,756 Total Assets m 138,489 197,676 235,865 272,715 Payables m 27,389 33,757 42,557 52,216 Short Term Debt m 1,442 1,688 2,128 2,429 Long Term Debt m 65,154 76,214 86,214 92,214 Provisions m 534 534 534 534 Other Liabilities m 8,524 11,814 14,810 17,019 Total Liabilities m 103,043 124,007 146,243 164,412 Shareholders' Funds m 35,446 73,669 89,622 108,303 Minority Interests m 0 0 0 0 Other m 0 0 0 0 Total S/H Equity m 35,446 73,669 89,622 108,303 Total Liab & S/H Funds m 138,489 197,676 235,865 272,715

All figures in INR unless noted. Source: Macquarie Research, July 2008


10 July 2008 22

Important disclosures: Recommendation definitions Macquarie – Australia/New Zealand Outperform – return >5% in excess of benchmark return (>2.5% in excess for listed property trusts) Neutral – return within 5% of benchmark return (within 2.5% for listed property trusts) Underperform – return >5% below benchmark return (>2.5% below for listed property trusts) Macquarie – Asia Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Macquarie – Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return Macquarie – USA Outperform (Buy) – return >5% in excess of benchmark return Neutral (Hold) – return within 5% of benchmark return Underperform (Sell)– return >5% below benchmark return Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Volatility index definition* This is calculated from the volatility of historic price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Australian/NZ stocks only

Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 30 June 2008 AU/NZ Asia RSA USA CA Outperform 41.88% 66.96% 66.13% 50.82% 71.01% Neutral 42.96% 16.30% 22.58% 44.26% 24.64% Underperform 15.16% 16.74% 11.29% 4.92% 4.35%

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July 08

Research Head of Equity Research Stephen O’Sullivan (852) 2823 3566

Automobiles/Auto Parts Claire Ding (China) (852) 2823 3578 Deepak Jain (India) (9122) 6653 3157 Kenneth Yap (Indonesia) (6221) 515 7343 Toshisuke Hayami (Japan) (813) 3512 7873 Eunsook Kwak (Korea) (822) 3705 8644 Linda Huang (Taiwan) (8862) 2734 7539

Banks and Non-Bank Financials Ismael Pili (Asia) (65) 6231 2840 Nick Lord (Asia, China, Hong Kong) (852) 2823 4774 Seshadri Sen (India) (9122) 6653 3053 Ferry Wong (Indonesia) (6221) 515 7335 Young Chung Mok (Korea) (822) 3705 8668 Chin Seng Tay (Malaysia, S’pore) (65) 6231 2837 Matthew Smith (Taiwan) (8862) 2734 7514 Alastair Macdonald (Thailand) (662) 694 7741

Basic Materials Andrew Dale (Asia) (852) 2823 3587 Rakesh Arora (India) (9122) 6653 3054 Scott Weaver (Taiwan) (8862) 2734 7512

Chemicals/Textiles Scott Weaver (Taiwan) (8862) 2734 7512 Jal Irani (India) (9122) 6653 3040 Christina Lee (Korea) (822) 3705 8670 Sunaina Dhanuka (Malaysia) (603) 2059 8993

Conglomerates Gary Pinge (Asia) (852) 2823 3557 Leah Jiang (China) (8621) 2412 9020 Kenneth Yap (Indonesia) (6221) 515 7343 Ashwin Sanketh (Singapore) (65) 6231 2830

Consumer Jessie Qian (China, Hong Kong) (852) 2823 3568 Charles Yan (China) (8621) 2412 9033 Unmesh Sharma (India) (9122) 6653 3042 Sarina Lesmina (Indonesia) (6221) 515 7339 Duane Sandberg (Japan) (813) 3512 7867 Toby Williams (Japan) (813) 3512 7392 Heather Kang (Korea) (822) 3705 8677 HongSuk Na (Korea) (822) 3705 8678 Woochang Chung (Korea) (822) 3705 8667 Edward Ong (Malaysia) (603) 2059 8982 Alex Pomento (Philippines) (632) 857 0899 Linda Huang (Taiwan) (8862) 2734 7539

Emerging Leaders Hiu-Lui Ko (China) (852) 2823 4704 Minoru Tayama (Japan) (813) 3512 6058 Robert Burghart (Japan) (813) 3512 7853 Heather Kang (Korea) (822) 3705 8677 Woochang Chung (Korea) (822) 3705 8667 Nadine Javellana (Philippines) (632) 857 0890 Scott Weaver (Taiwan) (8862) 2734 7512

Industrials Bin Liu (China) (8621) 2412 9006 Inderjeetsingh Bhatia (India) (9122) 6653 3166 Christopher Cintavey (Japan) (813) 3512 7432 Janet Lewis (Japan) (813) 3512 7475 Sunaina Dhanuka (Malaysia) (603) 2059 8993

Insurance Makarim Salman (Japan) (813) 3512 7421

Media Jessie Qian (China, Hong Kong) (852) 2823 3568 Shubham Majumder (India) (9122) 6653 3049 Prem Jearajasingam (Malaysia) (603) 2059 8989 Alex Pomento (Philippines) (632) 857 0899

Metals and Mining Andrew Dale (Asia) (852) 2823 3587 YeeMan Chin (China) (852) 2823 3562 Rakesh Arora (India) (9122) 6653 3054 Adam Worthington (Indonesia) (6221) 515 7338 Polina Diyachkina (Japan) (813) 3512 7886 Christina Lee (Korea) (822) 3705 8670

Oil and Gas David Johnson (Asia, China) (852) 2823 4691 Scott Weaver (Taiwan) (8862) 2734 7512 Jal Irani (India) (9122) 6653 3040 Christina Lee (Korea) (822) 3705 8670 Edward Ong (Malaysia) (603) 2059 8982 Sunaina Dhanuka (Malaysia) (603) 2059 8993 Ashwin Sanketh (Singapore) (65) 6231 2830 Trevor Buchinski (Thailand) (662) 694 7728

Pharmaceuticals Abhishek Singhal (India) (9122) 6653 3052 Naomi Kumagai (Japan) (813) 3512 7474 Christina Lee (Korea) (822) 3705 8670

Property Matt Nacard (Asia) (852) 2823 4731 Eva Lee (China, Hong Kong) (852) 2823 3573 Corinne Jian (China) (852) 2823 4077 Unmesh Sharma (India) (9122) 6653 3042 Chang Han Joo (Japan) (813) 3512 7885 Hiroshi Okubo (Japan) (813) 3512 7433 Tuck Yin Soong (Singapore) (65) 6231 2838 Elaine Cheong (Singapore) (65) 6231 2839 Patti Tomaitrichitr (Thailand) (662) 694 7727

Technology Warren Lau (Asia) (852) 2823 3592 Kishore Belai (India) (9122) 6653 3046 Damian Thong (Japan) (813) 3512 7877 David Gibson (Japan) (813) 3512 7880 George Chang (Japan) (813) 3512 7854 Yoshihiro Shimada (Japan) (813) 3512 7862 Do Hoon Lee (Korea) (822) 3705 8641 Michael Bang (Korea) (822) 3705 8659 Patrick Yau (Singapore) (65) 6231 2835 Andy Kung (Taiwan) (8862) 2734 7534 Chia-Lin Lu (Taiwan) (8862) 2734 7526 Daniel Chang (Taiwan) (8862) 2734 7516 James Chiu (Taiwan) (8862) 2734 7517 Nicholas Teo (Taiwan) (8862) 2734 7523

Telecoms Tim Smart (Asia, China) (852) 2823 3565 Shubham Majumder (India) (9122) 6653 3049 Kenneth Yap (Indonesia) (6221) 515 7343 Nathan Ramler (Japan) (813) 3512 7875 Prem Jearajasingam (Malaysia) (603) 2059 8989 Ramakrishna Maruvada (Philippines, Singapore, Thailand) (65) 6231 2842

Transport & Infrastructure Anderson Chow (Asia, China) (852) 2823 4773 Jonathan Windham (Asia, China) (852) 2823 5417 Tim Bacchus (Asia, China) (852) 2823 3586 Wei Sim (China, Hong Kong) (852) 2823 3598 Eunsook Kwak (Korea) (822) 3705 8644 Sunaina Dhanuka (Malaysia) (603) 2059 8993

Utilities Carol Cao (China, Hong Kong) (852) 2823 4075 Deepak Jain (India) (9122) 6653 3157 Adam Worthington (Indonesia) (6221) 515 7338 Prem Jearajasingam (Malaysia) (603) 2059 8989 Dante Tinga (Philippines) (632) 857 0815

Commodities Jim Lennon (4420) 7065 2014 Adam Rowley (4420) 7065 2013 Jonathan Butcher (4420) 7065 5938 Max Layton (4420) 7065 2000 Bonnie Liu (8621) 2412 9008 Henry Liu (8621) 2412 9005 Rakesh Arora (9122) 6653 3054

Data Services Andrea Clohessy (Asia) (852) 2823 4076 Henry Hon (Asia) (852) 2823 3593

Economics Bill Belchere (Asia) (852) 2823 4636 Richard Gibbs (Australia) (612) 8232 3935 Paul Cavey (China) (852) 2823 3570 Richard Jerram (Japan) (813) 3512 7855

Quantitative Martin Emery (Asia) (852) 2823 3582 Viking Kwok (Asia) (852) 2823 4735 George Platt (Australia) (612) 8232 6539 Raelene de Souza (Australia) (612) 8232 8388 Tsumugi Akiba (Japan) (813) 3512 7560

Strategy/Country Tim Rocks (Asia) (852) 2823 3585 Daniel McCormack (Asia) (852) 2823 4073 Desh Peramunetilleke (Asia) (852) 2823 3564 Stewart Ferns (Asia) (852) 2823 4068 Jake Lynch (China) (8621) 2412 9007 Seshadri Sen (India) (9122) 6653 3053 Ferry Wong (Indonesia) (6221) 515 7335 Chris Hunt (Japan) (813) 3512 7878 Peter Eadon-Clarke (Japan) (813) 3512 7850 Eugene Ha (Korea) (822) 3705 8643 Prem Jearajasingam (Malaysia) (603) 2059 8989 Edward Ong (Malaysia) (603) 2059 8982 Alex Pomento (Philippines) (632) 857 0899 Tuck Yin Soong (ASEAN, Singapore) (65) 6231 2838 Daniel Chang (Taiwan) (8862) 2734 7516 Alastair Macdonald (Thailand) (662) 694 7741 Find our research at Macquarie: www.macquarie.com.au/research Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx Email [email protected] for access

Sales Regional Heads of Sales Peter Slater (Boston) (1 617) 217 2103 Michelle Paisley (China, Hong Kong) (852) 2823 3516 Ulrike Pollak-Tsutsumi (Frankfurt) (49) 69 7593 8747 Thomas Renz (Geneva) (41) 22 818 7712 Ajay Bhatia (India) (9122) 6653 3200 Stuart Smythe (India) (9122) 6653 3200 Chris Gray (Indonesia) (6221) 515 7304 K.Y. Nam (Korea) (822) 3705 8607 Derek Wilson (London) (N Asia) (44) 20 7065 5856 Julien Roux (London) (44) 20 7065 5887 Lena Yong (Malaysia) (603) 2059 8888 Gino C Rojas (Philippines) (632) 857 0761 Greg Norton-Kidd (New York) (1 212) 231 2527 Luke Sullivan (New York) (1 212) 231 2507

Regional Heads of Sales cont’d Scot Mackie (New York) (1 212) 231 2848 Sheila Schroeder (San Francisco) (1 415) 835 1235 Giles Heyring (Singapore) (65) 6231 2888 Mark Duncan (Taiwan) (8862) 2734 7510 Angus Kent (Thailand) (662) 694 7601 Michael Newman (Tokyo) (813) 3512 7920 Charles Nelson (UK/Europe) (44) 20 7065 2032 Rob Fabbro (UK/Europe) (44) 20 7065 2031

Sales Trading Adam Zaki (North Asia) (852) 2823 3528 Duncan Rutherford (ASEAN, India) (65) 6231 2888 Mona Lee (Hong Kong) (852) 2823 3519

Sales Trading cont’d Stuart Goddard (Europe) (44) 20 7065 2033 Brendan Rake (India) (9122) 6653 3204 Edward Robinson (London) (44) 20 7065 5883 Robert Risman (New York) (1 212) 231 2555 Isaac Huang (Taiwan) (8862) 2734 7582 Jon Omori (Tokyo) (813) 3512 7838

Alternative Strategies Convertibles - Roland Sharman (852) 2823 4628 Depository Receipts - Robert Ansell (852) 2823 4688 Derivatives - Tim Connolly (852) 2249 3380 Futures - Tim Smith (852) 2823 4637 Hedge Fund Sales - Darin Lester (852) 2823 4736 Structured Products - Andrew Terlich (852) 2249 3225

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