nomura report on bharti infratel ipo - 101212

Key company data: See page 2 for company data and detailed price/index chart.

Bharti Airtel BRTI.NS BHARTI IN

TELECOMS

EQUITY RESEARCH

Tower IPO – another sentiment driver?

Unlocking value…not realizing value

December 10, 2012

Rating Remains

Reduce

Target price Remains

INR 290

Closing price December 5, 2012

INR 330

Potential downside -12.1%

Bharti Infratel IPO Bharti Infratel (BIL) is expected to list this month. With 81k towers, it will be the largest listed towerco globally. The indicative price range as reported in recent press reports (Reuters reported dated 30 Nov 2012), is INR210-240/share, vs our implicit valuation of INR202. Given what we consider strong interest in global towercos currently (60% average share price increase this year in listed global tower stocks), along with BIL’s limited 10% free float and EV/EBITDA of 12x (based on the indicative price range), or a 40% discount to our global peer average estimate, we expect decent investor interest in the IPO.

We are relatively more bullish on towercos… Relative to those of the operators, cashflow, churn and margins of the towercos are more appealing, in our view. Towercos also have lower technology obsolescence and capex risks. Tenancies should rise moderately given data and voice growth along with limited spectrum – we expect BIL’s tenancies to rise to 2.2x by FY15F vs. 1.9x now.

…but not every towerco is the same – are Indians different? 1) Avg monthly rental in India of USD800 is well below USD1.5-2k in Indonesia and the US; 2) India’s supply is much higher – 387k towers vs. 70k in Indonesia and 150k in the US (spectrum in India is much less, too); 3) tenancies in India of 1.8x are similar to Indonesia but much lower than 2.7x in the US; 4) BIL's revenue and EBITDA growth of 8-12% in FY14F is below the 20% towerco peer average; 5) BIL’s gearing of 0.8x is well below the peer average of 4.6x; and 6) we estimate average payback in India at 8 years vs. 4 years in Indonesia. There is a step-down clause for incremental tenants in India, which is not common in Indonesia.

31 Mar FY12 FY13F FY14F FY15F

Currency (INR) Actual Old New Old New Old New

Revenue (mn) 714,508 796,524 796,524 857,097 857,097 923,354 923,354

Reported net profit (mn) 42,594 39,828 39,828 54,495 54,495 66,794 66,794

Normalised net profit (mn) 47,890 39,828 39,828 54,495 54,495 66,794 66,794

FD normalised EPS 12.61 10.49 10.49 14.35 14.35 17.59 17.59

FD norm. EPS growth (%) -27.3 -16.8 -16.8 36.8 36.8 22.6 22.6

FD normalised P/E (x) 25.9 N/A 31.1 N/A 22.8 N/A 18.6

EV/EBITDA (x) 8.3 N/A 7.9 N/A 6.7 N/A 5.8

Price/book (x) 2.5 N/A 2.3 N/A 2.1 N/A 1.9

Dividend yield (%) 0.3 N/A 0.3 N/A 0.7 N/A 1.4

ROE (%) 8.6 7.6 7.6 9.6 9.6 10.7 10.7

Net debt/equity (%) 132.4 120.5 120.5 101.1 101.1 79.7 79.7

Source: Company data, Nomura estimates

Anchor themes

Domestic pricing trends, regulations and African performance will be the key drivers of the stock.

Nomura vs consensus

Our target price is 10% below consensus due to operational and regulatory concerns.

Research analysts

India Telecoms

Sachin Gupta, CFA - NSL [email protected] +65 6433 6968

Neeraja Natarajan - NSL [email protected] +65 6433 6961

Pankaj Suri - NSFSPL [email protected] +91 22 4053 3724

Gopakumar Pullaikodi - NSFSPL [email protected] +91 22 4053 3733

Shweta Dixit - NSFSPL [email protected] +91 22 672 35457

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.

Nomura | Bharti Airtel December 10, 2012

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Key data on Bharti Airtel Income statement (INRmn) Year-end 31 Mar FY11 FY12 FY13F FY14F FY15FRevenue 595,383 714,508 796,524 857,097 923,354Cost of goods sold -123,054 -147,960 -177,170 -181,777 -189,331Gross profit 472,329 566,548 619,353 675,320 734,022SG&A -373,677 -463,106 -521,693 -558,476 -603,978Employee share expense 0 0 0 0 0Operating profit 98,652 103,442 97,661 116,844 130,044

EBITDA 200,718 237,123 249,373 282,297 313,466Depreciation -102,066 -133,681 -151,712 -165,453 -183,422Amortisation 0 0 0 0 0EBIT 98,652 103,442 97,661 116,844 130,044Net interest expense -21,813 -38,185 -38,195 -35,657 -30,617Associates & JCEs 0 0 0 0 0Other income -57 -74 0 0 0Earnings before tax 76,782 65,183 59,465 81,188 99,427Income tax -17,790 -22,602 -19,029 -25,980 -31,817Net profit after tax 58,992 42,581 40,436 55,208 67,610Minority interests 1,475 13 -609 -712 -816Other items 5,397 5,296 0 0 0Preferred dividends 0 0 0 0 0Normalised NPAT 65,864 47,890 39,828 54,495 66,794Extraordinary items -5,397 -5,296 0 0 0Reported NPAT 60,467 42,594 39,828 54,495 66,794Dividends -3,797 -3,797 -3,550 -8,174 -16,699Transfer to reserves 56,670 38,797 36,277 46,321 50,096

Valuation and ratio analysis

Reported P/E (x) 20.5 29.1 31.1 22.8 18.6Normalised P/E (x) 18.8 25.9 31.1 22.8 18.6FD normalised P/E (x) 18.8 25.9 31.1 22.8 18.6FD normalised P/E at price target (x) 17.0 23.4 28.1 20.6 16.8Dividend yield (%) 0.3 0.3 0.3 0.7 1.4Price/cashflow (x) 7.4 6.4 6.3 5.7 4.9Price/book (x) 2.5 2.5 2.3 2.1 1.9EV/EBITDA (x) 9.6 8.3 7.9 6.7 5.8EV/EBIT (x) 19.5 19.1 20.1 16.3 14.0Gross margin (%) 79.3 79.3 77.8 78.8 79.5EBITDA margin (%) 33.7 33.2 31.3 32.9 33.9EBIT margin (%) 16.6 14.5 12.3 13.6 14.1Net margin (%) 10.2 6.0 5.0 6.4 7.2Effective tax rate (%) 23.2 34.7 32.0 32.0 32.0Dividend payout (%) 6.3 8.9 8.9 15.0 25.0Capex to sales (%) 38.9 25.7 22.3 18.8 17.7Capex to depreciation (x) 2.3 1.4 1.2 1.0 0.9ROE (%) 13.4 8.6 7.6 9.6 10.7ROA (pretax %) 9.4 6.9 6.2 7.4 8.2

Growth (%)

Revenue 52.5 20.0 11.5 7.6 7.7EBITDA 25.2 18.1 5.2 13.2 11.0EBIT

Normalised EPS -24.9 -27.3 -16.8 36.8 22.6Normalised FDEPS -24.8 -27.3 -16.8 36.8 22.6

Per share

Reported EPS (INR) 15.94 11.22 10.49 14.35 17.59Norm EPS (INR) 17.36 12.61 10.49 14.35 17.59Fully diluted norm EPS (INR) 17.35 12.61 10.49 14.35 17.59Book value per share (INR) 128.44 133.29 142.78 156.20 172.20DPS (INR) 1.00 1.00 0.94 2.15 4.41Source: Company data, Nomura estimates

Relative performance chart (one year)

Source: ThomsonReuters, Nomura research

(%) 1M 3M 12M

Absolute (INR) 22.5 31.1 -12.9

Absolute (USD) 18.1 31.3 -18.1

Relative to index 20.1 23.2 -34.1

Market cap (USDmn) 22,327.8

Estimated free float (%) 32.1

52-week range (INR) 400.95/215.8

3-mth avg daily turnover (USDmn)

29.80

Major shareholders (%)

Bharti Telecom Ltd 45.3

Singapore Telecom 15.6

Source: Thomson Reuters, Nomura research

Notes

Earnings volatility should remain high and valuations aren’t inexpensive yet


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Cashflow (INRmn) Year-end 31 Mar FY11 FY12 FY13F FY14F FY15FEBITDA 200,718 237,123 249,373 282,297 313,466Change in working capital 120,566 -3,054 6,036 -1,436 -1,475Other operating cashflow -154,584 -41,169 -57,819 -62,449 -60,445Cashflow from operations 166,700 192,900 197,589 218,412 251,546Capital expenditure -231,819 -183,609 -177,363 -160,815 -163,150Free cashflow -65,119 9,291 20,227 57,597 88,395Reduction in investments 57,079 -11,908 0 0 0Net acquisitions -372,676 0 0 0 0Reduction in other LT assets 0 0 0 0 0Addition in other LT liabilities 0 0 0 0 0Adjustments -57,079 11,908 0 0 0Cashflow after investing acts -437,795 9,291 20,227 57,597 88,395Cash dividends -3,794 -3,797 -3,797 -3,550 -8,174Equity issue 0 0 0 0 0Debt issue 578,290 -2,830 0 -20,000 -30,000Convertible debt issue 0Others -141,029 8,061 0 0 0Cashflow from financial acts 433,467 1,434 -3,797 -23,550 -38,174Net cashflow -4,328 10,725 16,430 34,047 50,221Beginning cash 13,903 9,575 20,300 36,730 70,776Ending cash 9,575 20,300 36,730 70,776 120,997Ending net debt 607,133 669,932 653,502 599,456 519,235Source: Company data, Nomura estimates

Balance sheet (INRmn) As at 31 Mar FY11 FY12 FY13F FY14F FY15FCash & equivalents 9,575 20,300 36,730 70,776 120,997Marketable securities 6,224 18,132 18,132 18,132 18,132Accounts receivable 54,929 63,735 70,944 72,628 74,471Inventories 2,139 1,308 1,373 1,442 1,514Other current assets 39,210 44,609 44,609 44,609 44,609Total current assets 112,077 148,084 171,788 207,588 259,724LT investments 0 0 0 0 0Fixed assets 651,426 674,932 675,444 655,288 619,766Goodwill 0 0 0 0 0Other intangible assets 637,317 660,889 690,889 710,889 730,889Other LT assets 64,244 86,711 87,043 87,288 87,556Total assets 1,465,064 1,570,616 1,625,164 1,661,053 1,697,935Short-term debt 84,370 193,078 143,078 143,078 143,078Accounts payable 197,947 190,913 213,575 214,149 217,860Other current liabilities 87,528 104,882 95,530 95,273 92,001Total current liabilities 369,845 488,873 452,183 452,500 452,939Long-term debt 532,338 497,154 547,154 527,154 497,154Convertible debt 0 0

Other LT liabilities 46,650 50,781 55,380 59,295 66,301Total liabilities 948,833 1,036,808 1,054,717 1,038,948 1,016,394Minority interest 28,563 27,695 28,304 29,016 29,832Preferred stock 0 0 0 0 0Common stock 116,472 116,739 116,739 116,739 116,739Retained earnings 357,446 395,682 431,713 482,658 541,278Proposed dividends 0 0 0 0 0Other equity and reserves 13,750 -6,308 -6,308 -6,308 -6,308Total shareholders' equity 487,668 506,113 542,144 593,089 651,708Total equity & liabilities 1,465,064 1,570,616 1,625,164 1,661,053 1,697,935

Liquidity (x)

Current ratio 0.30 0.30 0.38 0.46 0.57Interest cover 4.5 2.7 2.6 3.3 4.2

Leverage

Net debt/EBITDA (x) 3.02 2.83 2.62 2.12 1.66Net debt/equity (%) 124.50 132.37 120.54 101.07 79.67

Activity (days)

Days receivable 24.3 30.4 30.9 30.6 29.1Days inventory 3.9 4.3 2.8 2.8 2.8Days payable 325.3 481.0 416.7 429.4 416.4Cash cycle -297.1 -446.3 -383.0 -396.0 -384.5Source: Company data, Nomura estimates

Notes

Cash flow outlook is strong, but spectrum renewal payment structure is unclear

Notes

Gearing levels are high at 2.6x relative to regional telcos


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Tower IPO – another sentiment driver? • Global towercos are up 60% YTD and have outperformed their respective local

markets by 45% on an average. There is plenty of market activity in this space:

– Tower acquisitions by Indonesian towercos TBIG (from Indosat) and Protelindo (from CI and MKP domestically, and KPN in Netherlands);

– Acquisitions in the US, namely Crown Castle’s acquisition of T-Mobile’s towers and SBAC’s acquisition of Towercos assets;

– A 16% sell down by Protelindo’s parent, followed by a 4% sell-down by TBIG’s; and

– The upcoming IPO by Bharti Infratel.

• With the Bharti Infratel (BIL) listing expected in the next few days, we believe investor sentiment towards Bharti shares could improve. Although Bharti will not realise any cash gains from this IPO (its shareholding will be diluted to 79% post listing vs. 86% earlier), the listing will lead to a market-driven valuation for this business, which is the first of its kind and of this magnitude in India, in our view.

• BIL is already one of the largest tower companies globally, with 81k towers and 154k tenancies (average tenancy 1.9x) as of Sep-12.

– Bharti Infratel has 34k of its own towers (average tenancy of 1.8x) and a 42% share of Indus’s (unlisted) 111k towers (average tenancy of 2.0x).

– BIL (consolidated) generated revenue of INR96bn, EBITDA of INR36.8bn and NPAT of INR7.5bn in FY12. It contributed to 12-15% of revenue / EBITDA for Bharti in FY12.

– The US tower companies have smaller portfolios, with towers in the range of 13-51k, although with much higher tenancy of 2.7x.

– In comparison, Indonesian players have smaller portfolios with 6-18k towers, and tenancy ratio of 1.8x.

Fig. 1: BIL – IPO structure

Source: Company reports, BIL IPO prospectus

Bharti Airtel Financial Investors

Bharti Infratel

Vodafone IndiaAditya Birla

telecom

Bharti Infratel Ventures Indus Towers

79%11%

100%

42% 42% 16%

IPO10%

Non-Institutional Buyers

Retail Individual

QIBs

Fresh issue (146mn) and an offer for sale (43mn)


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Valuation comparison

• USD8-9bn implied market cap. As per recent press articles (including Reuters, Bharti Infratel IPO band set at 210-240 rupees/share, 30 November 2012), the BIL IPO price range of INR210-240 per share implies a market cap of USD8-9bn, or EV per tower of USD98-112k and EV/EBITDA of 11-12x (based on an annualized FY13F EBITDA).

• Our current implied EV for Bharti Infratel is USD7.6bn or INR202 per share (see Figure 3).

• Based on the IPO prospectus, the company is planning to raise INR40-45bn (USD730-835mn). The issue consists of a fresh issue of shares (146mn or 8% of the final outstanding share count) and an offer for sale (43mn or 2%).

• Use of funds (based on the IPO prospectus): a) installation of 4,813 new towers – for INR11bn; b) upgrading and replacement on existing towers – for INR12bn; c) undertaking green initiatives at tower sites – for INR6bn; and d) general corporate purposes.

Fig. 2: Implied valuation for Infratel as per an IPO price range of INR210-240 per share

Source: Press articles (Reuters, Bloomberg), Nomura research

Low-end High end

Share price (INR) 210 240

Shares outstanding post IPO (mn) 1,889 1,889

Implied market cap (INR mn) 396,606 453,264

Implied market cap (USD mn) 7,932 9,065

(Discount ) / Premium to Nomura v aluation 4% 19%

Consolidated tow ers (as of Sep-12) 80,656

FY13F EBITDA (INR mn) 37,714

Implied EV/tow er (USD k) 98 112

Implied EV/EBITDA (FY13F) 10.5x 12.0x

Bharti's current market cap (INR mn) 1,230,228 1,230,228

Bharti's current market cap (USD mn) 24,605 24,605

Implied value per Bharti share (INR) 82.5 94.3

% value contribution to Bharti 25% 29%


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Fig. 3: Nomura’s Infratel valuation

Note : For NPV, we assume WACC of 10% and growth rate of 2-3%, with cash flows discounted back to FY17F. Source: Nomura estimates

INFRATEL VALUATION BREAKDOWN

NPV (INR mn) 417,105

Infratel 176,901

Indus @ 42% 240,203

NPV (US$ mn) 8,342

Infratel 3,538

Indus @ 42% 4,804

Debt 36,354

Infratel -

Indus @ 42% 36,354

Equity 380,750

(in USD mn) 7,615

SHO at Infratel (mn) after lisiting 1,889

Infratel per share value (INR) 202

Contribution to Bharti

Value of minority stake of 21% (Rs mn) 79,958

Value of minority stake of 21% (US$ mn) 1,599

Bharti SHO (mn) 3,797

Implied value for Infratel per Bharti share (INR) 79


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Fig. 4: Estimated single tower payback period for Indian / and Indonesian tower companies

Source: Protelindo, Bharti Infratel prospectus, Nomura research

INDIA INDONESIAN TOWERS

Capex assumptions Capex assumptions

Initial cost of tow er (USD) 60,000 Initial cost of tow er (USD) 100,000

Initial cost of tow er (INR) 3,000,000

Revenue assumption Revenue assumption

Sharing rev enue per operator per month (INR) 35,000 31,500 Sharing rev enue per operator per month (IDR 000s) 16,477 16,477

Stepdown with incremental tenancy -10% Stepdown with incremental tenancy 0%

Sharing rev enue per operator per month (USD) 700 630 Sharing rev enue per operator per month (USD) 1,713 1,713

Cost assumptions Cost assumptions

Land/site rental cost per tow er site p.a. (INR 000s) 113 147 Land/site rental cost (not included in opex ) per tow er (IDR mn) 16.8 19.3

Increase in rents 30% Increase from inflation 15%

Land/site rental cost per tow er site p.a. (USD ) 2,262 2,941 Site maintanence per tow er p.a. (IDR mn) 18.5 22

Employ ee costs as % of sales 10% Increase in rents 20%

Increase from inflation 30% Site maintanence per tow er p.a (USD ) 1,924 2,308

SG&A and other 20% Other costs as % of sales 1% 1%

Increase from inflation 30% Increase from inflation 20%

SG&A 12%

Increase from inflation 20%

SINGLE TOWER FINANCIALS SINGLE TOWER FINANCIALS

Income statement (USD) Income statement (USD)

Sharing factor 1.0 2.0 Sharing factor 1.0 2.0

Rental rev enues pa 8,400 15,120 Rental rev enues 20,553 41,106

Costs Costs

Rent 2,262 2,941 Site maintanence 1,924 2,308

Employ ee 840 1,092 Others 206 493

SG&A and others 452 588 Selling and marketing ex penses 2,446 2,935

EBITDA 4,845 10,499 EBITDA 15,978 35,369

Margin % 58% 69% Margin % 78% 86%

Cash flow Cash flow

Annualized rev enue per tow er 8,400 16,800 Annualized rev enue per tow er 20,553 41,106

D&A 3,000 3,000 D&A 5000 5000

Tax 554 2,250 Land/site rental cost (not included in opex ) 1,744 2,006

Tax rate 30% 30% Tax 2,745 7,592

Tax rate 25% 25%

Net operating cash flow 4,292 8,249 Net operating cash flow 11,489 25,771

Maintanence capex @5% of sales 420 840 Maintanence capex @5% of sales 1,028 2,055

FCF 3,872 7,409 FCF 10,462 23,716

Pay back period 15.5 8.1 Pay back period 9.6 4.2


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How does BIL’s indicative valuation compare with global peers?

Based on the indicative price published in the aforementioned press report, we arrive at the following valuation comparisons between BIL and its global peers.

• On EV/EBITDA, we estimate that BIL would be valued at around a 35% discount to the US and Indonesian towercos.

• On EV/tower and EV/tenant, we estimate that BIL would be valued at an 80% discount to peers.

• BIL’s estimated FCF yield of 4% compares to around 3% for peers.

• However, on an indicative P/E basis, BIL’s valuation implies a 30% premium.

Why such a differential? – Lower rentals – The average monthly rental in India of USD800 is significantly lower

than USD1,500-2,000 in Indonesia and the US. However, the upfront investment capex for towers in Indonesia is around USD100k compared to around USD40-60k in India, as per discussions with operators and BIL’s prospectus.

– There is a step-down clause for incremental tenants in India, which is not common in Indonesia.

– Supply in India is much higher – with 387k towers vs. 70k in Indonesia and 150k in the US. This is due to lower entry barriers or topography challenges in other countries, or zoning regulations. Also, spectrum in India is far less per operator too, hence needs more towers.

– Tenancies in India are an average 1.8x, which is similar to Indonesia vs 2.7x in the US.

– Revenue growth – we believe the revenue/EBITDA growth of BIL and Indus has lagged that of their Indonesian peers in the past year. On a consolidated basis, Infratel’s rental revenue rose by 9% and EBITDA by 13% in FY12. In 1H13, we estimate Infratel’s rental revenue and EBITDA rose by 3% and 7% y-y, respectively. In comparison, average revenue/EBITDA growth for Indonesians was 20%/50% last year. For FY13F, we forecast 30-50% growth in revenue and EBITDA for Indonesian tower cos.

– While we continue to see room for tenancies to rise in India, our cautiousness is around the timing given: 1) uncertain operator landscape in next 12-24 months where we could see consolidation and we are already seeing various operators scale back their aspirations; 2) upgrade to 3G has added only incremental 0.3x tenancy per tower; and 3) operators are likely to take a demand-driven approach for further 3G capacity upgrades and data take-up is still 12-24 months away from its inflection point.

– Estimated gearing level for BIL of 0.8x is significantly lower than that of its global players at 3-7x net debt to EBITDA, which explains the implied EV/EBITDA discount, in our view. We think, potentially, Infratel could be geared up and pay dividends to Bharti over time, although this has not been indicated by the company.

– We estimate the average payback time in India is eight years vs. four years for Indonesia (at 2x tenancy). See Figure 4 for a more detailed breakdown or our estimate.

– Uncertain regulatory risks – increasingly, the Indian regulator wants to bring towercos as well under the licensing regime.

•


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Fig. 5: Implied current EV/tower of comparables (USDk)

Source: Company reports, Nomura research

Fig. 6: Implied current EV/tenant of comparables (USDk)


Fig. 7: Valuations – Average estimated premium for BIL versus global peers

Source: BIL prospectus, company reports, Nomura research

Fig. 8: Revenue and EBITDA growth outlook for the US and Indonesian tower cos

Source: Company reports, Nomura estimates

Note : For BIL, YE is March. Growth metric under 2012F/ 2013F refers to FY13F/ FY14F for BIL.

-

200

400

600

800

1,000

1,200

BIL

(I

NR

210)

BIL

(I

NR

240)

TO

WR

TB

IG

AM

T

SB

AC

CC

I

-

50

100

150

200

250

300

350

400

450

BIL

(I

NR

210)

BIL

(I

NR

240)

TO

WR

TB

IG

AM

T

CC

I

SB

AC

-100% -80% -60% -40% -20% 0% 20% 40% 60%

EV/ tower (USD k)

EV/ tenant (USD k)

EV/ EBITDA (x)

P/E (x)

FCF yield

Avg. premium for BIL vs Indonesian peers Avg. premium for BIL vs US peers

IPO price reflects discount IPO price reflects premium

2012F 2013F 2012F 2013F 2012F

American tower cos.

AMT 17% 9% 18% 10% 3.9x

CCI 17% 4% 18% 4% 6.9x

SBAC 36% 24% 35% 28% 8.9x

Indonesian tower cos

Protelindo 33% 25% 31% 25% 3.2x

TBIG 55% 46% 55% 46% 5x

Indian tower cos

BIL 5% 8% 2% 12% 0.8x

Revenue growth EBITDA growth Net debt/ EBITDA


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Fig. 9: Valuation comparison

Bloomberg consensus for NR companies. BIL numbers are our estimates. Prices as on 6 December 2012. Source: Company reports, Bloomberg, Nomura estimates.

Fig. 10: Expected for utilisation of net proceeds by BIL

Source: Bharti Infratel prospectus

Bloomberg Local Mkt Cap

ticker price (USDmn) 11 12F 13F 11 12F 13F 11 12F 13F 11 12F 13F 11 12F 13FGlobal Tower CosATC AMT US NR USD 75 29,644 77.8 46.5 34.0 1.5 2.0 2.9 22.9 19.6 17.6 n/a n/a n/a 3.6% 4.1% 4.8%Crown Castle CCI US NR USD 67 19,712 129.7 80.7 163.4 n/m 5.2 1.7 19.8 19.5 18.9 n/a n/a n/a 3.9% 4.4% 4.5%SBA Commns SBAC US NR USD 68 8,637 n/m n/m n/m n/m n/m n/m 24.6 22.6 18.6 n/a n/a n/a 3.5% 4.6% 5.5%SMN TOWR IJ BUY IDR 20,550 2,182 65.5 35.9 24.4 1.0 1.0 1.2 18.9 14.8 11.8 0% 0% 0% -0.6% -3.1% -0.5%Tower Bersama TBIG IJ NEUTRAL IDR 5,800 2,750 54.1 44.5 31.0 1.5 1.4 1.9 38.5 28.2 19.9 0% 0% 0% -3.2% -12.8% -1.0%STP SUPR IJ NR IDR 4,875 371 na na na na na na na na na na na na na na naBIL Not listed NR INR 225 7,791 56.6 45.0 38.0 na na na 12.4 12.1 10.8 0.9% 1.2% 1.4% 2.9% 3.3% 4.1%GTL Infra GTlI IN NR INR 9 324 n/a n/a n/a na na na 19.1 na na na na na na na naAverage 76.7 50.5 58.1 1.4 2.4 1.9 22.3 19.5 16.3 1.7% 0.1% 2.9%Regional TelcosAIS ADVANC TB Buy THB 216 20,939 24.2 18.0 15.7 1.0 1.9 2.6 11.2 10.2 9.5 3.9% 5.6% 6.4% 6.8% 4.8% 5.9%Axiata Group AXIATA MK Buy MYR 6.0 16,557 20.0 17.7 16.6 2.0 2.2 1.7 7.7 7.2 6.8 3.2% 3.9% 4.5% 2.2% 4.5% 6.7%Bharti Airtel BHARTI IN Reduce INR 325 22,701 25.7 31.0 22.6 3.9 1.0 1.3 8.0 7.6 6.7 0.3% 0.3% 0.7% 0.8% 1.6% 4.7%China Mobile 941 HK Neutral HK$ 89 252,106 12.5 12.1 11.6 3.3 1.8 1.7 4.8 4.7 4.5 3.5% 3.5% 3.7% 5.2% 5.9% 7.0%Digi.com Digi MK Neutral MYR 4.9 12,384 26.0 23.6 22.2 3.2 7.1 10.4 13.5 12.6 12.1 3.6% 4.5% 5.8% 4.7% 4.6% 4.6%Far EasTone 4904 TT Neutral NT$ 72 8,007 26.3 20.3 17.3 1.1 1.2 1.5 11.0 9.7 9.0 3.4% 4.4% 5.2% 5.0% 6.4% 6.9%Globe Telecom GLO PM Neutral PHP 1,154 3,736 15.3 14.8 14.2 3.9 2.6 4.1 6.0 5.8 5.7 5.5% 5.7% 6.0% 4.3% -1.1% 9.6%Idea Cellular IDEA IN Reduce INR 98 5,964 42.8 26.1 20.2 0.9 1.3 1.9 8.8 7.3 6.5 0.0% 0.0% 0.0% -4.5% 2.6% 2.7%Maxis Maxis MK Reduce MYR 6.4 15,862 22.0 22.2 22.2 n/m 8.8 4.3 12.2 12.5 12.3 6.2% 6.2% 6.2% 5.2% 5.1% 5.4%MobileOne M1 SP Buy S$ 2.7 2,020 15.0 17.0 15.8 n/m 2.8 3.9 8.9 9.5 9.0 5.3% 5.5% 5.5% 6.5% 5.0% 5.7%PT XL Axiata EXCL IJ Neutral IDR 5,950 5,267 15.7 15.2 14.3 3.3 2.1 1.7 6.5 6.1 5.7 2.2% 2.6% 3.5% 3.5% 1.1% 3.2%Reliance Com RCOM IN Neutral INR 74 2,809 32.8 23.1 16.6 0.8 1.0 1.0 8.3 7.9 7.3 0.7% 0.5% 0.7% n/a n/a n/aSK Telecom 017670 KS Buy KRW 153,000 11,399 6.7 10.6 9.5 n/m 1.0 n/m 4.0 4.4 4.1 6.1% 6.1% 6.1% 32.6% 17.4% 11.3%Taiwan Mobile 3045 TT Buy NT$ 107 13,977 21.7 18.9 17.4 1.9 1.8 2.1 15.3 14.3 13.7 4.2% 4.8% 5.2% 4.2% 5.1% 5.1%DTAC DTAC TB Buy THB 87 6,736 17.2 18.0 19.2 n/m n/m n/m 8.2 8.3 8.2 20.4% 5.6% 5.2% 10.1% 4.7% 2.7%China Telecom 728 HK Neutral HK$ 4.0 45,216 17.2 15.9 13.7 1.5 1.1 1.1 4.0 3.9 3.7 2.0% 2.2% 2.2% 9.8% 7.0% 11.0%China Unicom 762 HK Buy HK$ 12 40,848 60.1 29.6 16.4 0.7 0.4 0.2 5.9 4.9 4.0 0.9% 1.0% 1.8% -3.6% -10.5% 1.1%Chunghwa 2412 TT Neutral NT$ 94 25,061 15.5 16.3 16.4 n/m 27.0 7.2 7.6 7.6 7.6 5.8% 5.5% 5.5% 3.7% 6.4% 6.4%KT Corp 030200 KS Neutral KRW 37,350 8,999 6.8 7.7 8.4 n/m n/m n/m 3.8 3.7 3.6 5.4% 5.4% 5.4% 8.9% 5.8% 11.2%LG Uplus 032640 KS Buy KRW 7,380 3,505 10.8 55.3 10.3 5.2 0.3 n/m 5.3 5.3 3.9 2.0% 1.4% 3.4% -34.0% -7.7% 4.0%PLDT TEL PM Neutral PHP 2,610 13,662 13.0 15.3 14.6 n/m 2.6 3.8 7.9 7.9 7.4 7.2% 6.5% 4.8% 7.9% 6.1% 7.4%PT Indosat ISAT IJ Buy IDR 6,150 3,477 20.9 22.3 25.0 n/m n/m 4.2 5.3 4.7 5.7 1.2% 0.7% 2.0% 3.8% 4.9% 7.9%PT Telkom TLKM IJ Neutral IDR 8,900 18,288 14.8 13.3 12.5 1.6 2.3 2.8 5.1 4.7 4.4 3.5% 4.8% 5.2% 9.9% 8.1% 9.4%SingTel ST SP Buy S$ 3.3 43,165 14.3 14.7 13.6 6.0 2.1 2.1 8.3 8.1 7.7 4.8% 5.2% 5.5% 6.5% 5.8% 6.1%StarHub STH SP Reduce S$ 3.8 5,266 21.1 18.7 18.9 n/m n/m n/m 10.1 9.7 9.7 5.3% 5.3% 5.3% 6.7% 6.2% 5.9%TM T MK Neutral MYR 5.5 6,376 31.7 22.0 21.0 1.4 2.7 2.3 7.0 7.0 6.2 9.1% 4.1% 4.3% 8.7% 3.0% 5.1%Telstra TLS AU Neutral A$ 4.4 56,826 15.4 14.2 14.5 4.9 6.3 2.3 6.6 6.3 6.4 6.4% 6.4% 6.4% 9.7% 9.6% 9.5%True TRUE TB Neutral THB 5.1 2,412 n/m n/m n/m n/m n/m n/m 8.3 8.5 6.5 n/m n/m n/m -27.4% -4.9% -19.0%Average 19.4 18.7 16.6 2.6 3.5 2.9 7.8 7.5 7.1 4.5% 4.0% 4.3% 3.6% 4.0% 5.5%Median 17.2 18.0 16.4 2.3 2.1 2.2 7.8 7.4 6.6 4.2% 4.5% 5.2% 5.0% 5.0% 5.9%

EV/EBITDA (x)PEG FCF Yield (%) CurrencyRating

PE (x) Div Yield (%)

(INRmn) Total FY14F FY15F FY16F

Installation of 4,813 new tow ers 10,866 5,071 4,253 1,541

Upgradation and replacement on existing tow ers 12,141 5,049 5,307 1,785

Green initiatives at tow er sites 6,394 2,991 2,768 634


11

The appeal of towers

• Relative to operators, towercos’ cashflow, churn, margins, and maintenance costs are more appealing, in our view. They also have lower technology obsolesce and capex risks.

• Adjusted margin for BIL was 59% (1H13), we estimate, vs. 82% for Indonesian and 64% for the US counterparts (9M12).

• Data has a long way to go in India (15% take-up) and voice usage is still rising. This, along with limited spectrum, should see tenancies rise. We estimate 2.2x tenancies (for Infratel on a consolidated basis) by FY15F vs. 1.9x now.

Fig. 11: Bharti Infratel (consolidated) estimates summary (INR mn)

Source: Company reports, Bharti Infratel prospectus, Nomura estimates

P&L 2011 2012 2013E 2014E 2015E

No. of Towers 78,442 79,064 81,194 83,775 85,996

Average no. of towers 76,182 78,753 80,129 82,484 84,885

No. of tenants 135,583 146,242 159,653 172,892 186,163

Average Tenancy ratio 1.78 1.86 1.99 2.10 2.19

Sharing Revenue/Operator/Month 34,724 34,625 33,180 33,133 33,038

- % Change 1.6% -0.3% -4.2% -0.1% -0.3%

Revenue/Operator/Month (US$) 778 764 664 690 688

Revenue

Revenue from tenants 55,608 60,661 63,568 68,741 73,807

Chg% y-y 22% 9% 5% 8% 7%

Energy and other disbursements 29,473 33,860 35,465 38,595 41,522

Chg% y-y 18% 15% 5% 9% 8%

as a % rental revenue 53% 56% 56% 56% 56%

Other Income 1,177 1,450 1,450 1,450 1,450

Total Revenue 86,258 95,971 100,483 108,786 116,779

Chg% y-y 21% 11% 5% 8% 7%

EBITDA 32,465 36,841 37,714 42,160 46,914

Chg% y-y 29% 13% 2% 12% 11%

Margins 38% 38% 38% 39% 40%


12

Fig. 12: Tower and tenancy assumptions for Indus and Infratel

Source: Company reports, Bharti Infratel prospectus, Nomura estimates

Fig. 13: BIL (consolidated) – Tower trends

Source: Company data, Nomura research

Fig. 14: BIL (consolidated) – Tenants trends


Fig. 15: BIL (consolidated) – Sharing revenue per sharing operator per month (INR)


2011 2012 2013E 2014E 2015E

INFRATEL Towers 32,775 33,147 34,647 36,892 38,777

additions 2,211 372 1,500 2,245 1,885

Average INFRATEL Towers 31,670 32,961 33,897 35,770 37,835

Average Tenancy Ratio (Infratel) 1.70 1.79 1.84 1.95 2.05

0.19 0.09 0.05 0.11 0.10


- % Change -3% 0% 0% 0% 0%

Revenue/Operator/Month (US$) 829 815 738 769 769

INDUS (STANDALONE)

2011 2012 2013E 2014E 2015E

Total Indus Towers 108,732 109,325 110,825 111,625 112,425

additions 5,502 593 1,500 800 800

Average Indus Towers 105,981 109,029 110,075 111,225 112,025

Average tenancy ratio 1.79 1.90 2.09 2.20 2.30

Incremental tenancy 0.17 0.11 0.19 0.11 0.10


- % Change 8% 3% -2% -1% -1%

73,9

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FY10 FY11 FY12 1H13

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13

Fig. 16: BIL (cons.) – EBITDA margins


Fig. 17: Indus – EBITDA margins


Some uncertainties to note…

• Given BIL’s 42% holding in Indus, if Indus were ever to list (42% owned by Bharti with total 111k towers), we think BIL could attract a holding company discount.

• Post-IPO, we estimate BIL’s free-float will be 10%, with the balance 79% owned by Bharti and 11% owned by financial institutions and corporate bodies. Further sell-downs cannot be ruled out, in our view.

• Operator consolidation could be a perceived positive for operators, but would be a negative for towercos, in our view.

Our views on Indian telcos

• Since the recent lacklustre spectrum auctions, Bharti’s share price has recovered by 17% vs. the market up by 4%. The BIL listing could be another sentiment driver, in our view.

• Notwithstanding recent sentiment drivers, we remain cautious on Indian operators for the following reasons:

– Volatile domestic trends – we don’t dismiss the real potential for price hikes for 1-2 quarters (given adjustments are being made at the second derivative level), but we struggle to see them being sticky beyond that. We will continue to observe the next few quarterly trends.

– Regulations are still uncertain – it is still the same government, same regulators and same fiscal deficit problems, so we don’t expect a complete U-turn on spectrum prices. Reserve prices will likely be reduced, we believe, which essentially could see more competition.

– High valuations in the 19-31x FY13-15 P/E range for the operators we cover. •

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14

Fig. 18: Indian telcos – Share price performances (YTD)

Source: Bloomberg

Fig. 19: Tower and tenancy outlook

Source: Bharti Infratel prospectus (estimates as per Analysys Mason)

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Fig. 20: Implied value for Bharti based on reported IPO pricing

Source: Press articles (Reuters, Bloomberg), Nomura research

Fig. 21: Implied value for Bharti based on Nomura estimates

Note : For NPV, we assume WACC of 10% and growth rate of 2-3%, with cash flows discounted back to FY17F. Source: Nomura estimates

Fig. 22: BIL – P&L (INRmn)


Low-end High end

Share price (INR) 210 240

Shares outstanding post IPO (mn) 1,889 1,889

Implied market cap (INR mn) 396,606 453,264

Implied market cap (USD mn) 7,932 9,065

(Discount ) / Premium to Nomura v aluation 4% 19%

Consolidated tow ers (as of Sep-12) 80,656

FY13F EBITDA (INR mn) 37,714

Implied EV/tow er (USD k) 98 112

Implied EV/EBITDA (FY13F) 10.5x 12.0x

Bharti's current market cap (INR mn) 1,230,228 1,230,228

Bharti's current market cap (USD mn) 24,605 24,605

Implied value per Bharti share (INR) 82.5 94.3

% value contribution to Bharti 25% 29%

INFRATEL VALUATION BREAKDOWN

NPV (INR mn) 417,105

Infratel 176,901

Indus @ 42% 240,203

NPV (US$ mn) 8,342

Infratel 3,538

Indus @ 42% 4,804

Debt 36,354

Infratel -

Indus @ 42% 36,354

Equity 380,750

(in USD mn) 7,615

SHO at Infratel (mn) after lisiting 1,889

Infratel per share value (INR) 202

Contribution to Bharti

Value of minority stake of 21% (Rs mn) 79,958

Value of minority stake of 21% (US$ mn) 1,599

Bharti SHO (mn) 3,797

Implied value for Infratel per Bharti share (INR) 79

P&L Account 2008 2009 2010 2011 2012 H1 2013

Revenue from Operations 7,051 50,506 70,387 85,081 94,521 49,720

Other Income 6 1,267 901 1,177 1,450 1,189

Total Income 7,057 51,773 71,288 86,258 95,971 50,909

Chg % y-y 634% 38% 21% 11%

Power & Fuel 2,582 19,464 25,252 30,151 33,583 18,490

Rent 708 5,268 8,800 9,773 10,581 5,280

Employee benefit expense 176 1,309 2,404 2,854 2,977 1,575

Other Expense 1,004 9,363 9,748 11,015 11,989 5,937

Total Costs 4,468 35,403 46,203 53,793 59,130 31,282

EBITDA 2,589 16,370 25,086 32,465 36,841 19,627

EBITDA Margin 37% 32% 35% 38% 38% 39%

D&A 1,632 12,372 17,617 20,191 21,462 10,935

D&A as a % of Revenue 23% 24% 25% 23% 22% 21%

Interest 341 1,145 3,540 4,326 4,072 1,882

PBT 616 2,853 3,928 7,947 11,307 6,810

Tax 212 901 1,399 2,433 3,799 2,205

PAT 404 1,952 2,530 5,515 7,507 4,605

Chg % y-y 384% 30% 118% 36%


16

Indian tower overview • We are relatively more optimistic on the stable and consistent growth profile for

towers in India versus service businesses. Structural drivers for tower/tenancy demand from voice/data remain intact, in our view.

• Voice is still growing and data is still in infancy stage. India has in the past been a spectrum-starved market. Although more spectrum will likely be made available over time, as we have seen in the past three years, this is a tough and with an uncertain regulatory battle. Less spectrum means more towers and, hence, should be good for towercos, in our view.

• However, smaller operators are clearly scaling back their operations, which we believe could adversely impact demand.

• Moreover, if investors are optimistic about consolidation in the operator market, that could also raise questions over towers.

• Based on the Bharti Infratel IPO prospectus, Indian tower industry tenancies are expected to rise from 685k currently to 937k in FY16F, implying an 11% CAGR.

Fig. 23: Overview of various tower players in the market

Source: Bharti Infratel red herring prospectus

Potential growth drivers

• Data growth — Internet penetration is at around 10% in India (Source: Internet World Stats), and pure data is still 5% of revenue, with Bharti reporting 2% take-up of 3G by its users only (although 22% data users in its base). A larger chunk of this growth will likely be via wireless networks, for which coverage/capacity is essential.

• Voice traffic is also likely to grow at ~15% pa for the next three years for incumbent carriers, we estimate, especially as we see new entrants scale back their aspirations for this market— network advantage is important to manage churn.

• The incremental rollout is happening at 1800-2100Mhz, where capex cost can be1.5-3.0x higher than for the 900 MHz rollout (higher operating cost, too), in our view.

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Fig. 24: Indian telcos – Total minutes trends

Source: Company reports

Fig. 25: Indian telcos – Data as a % of mobile revenue

Source: Company reports

Fig. 26: India – Tower outlook


Fig. 27: India – Outlook for tenancies


Some concerns regarding BIL and the growth outlook

• Lack of clarity on spectrum and spectrum prices.

• Exit and scale back of smaller operators.

• Return-focused approach on data, which implies tenancies/towers could rise slowly.

• Regulatory decisions such as imposing license fee for tower companies could see impact on margins.

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18

Fig. 28: India – Tower and tenant market share (FY12)

Source: Bharti Infratel prospectus, company reports

Fig. 29: India –tower transactions (historical, and expected)

Source: Company data, Nomura estimates

Viom

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19

A regional comparison of towercos One of the key differences between Indian tower companies and peers in Indonesia and the US, we find, is in rental revenue. This results in estimated payback for Indian towers to be twice as long as that for Indonesian peers with implications for the ROIC profile, too. We believe this could be one of the drivers behind valuation differentials between Indian companies and Indonesian companies.

On rental revenue… • Indian tower companies generate INR30-35k in rent per month per tenant or USD700.

In comparison, Indonesian tower companies charge an average USD1,500 per month or USD2,000 for the US peers (see Figure 30).

• We note that, in the past 11 quarters, tower rentals have remained flattish for Infratel but appear to have risen slightly for Indus (see Figure 31).

Fig. 30: Global towercos – Revenue/tower and revenue/tenant

Source: Company data, Bharti Infratel prospectus, Nomura research

Fig. 31: Rental revenue trend for Infratel and Indus

Source: Bharti Infratel prospectus

On cost structure and margins… • EBITDA margin for BIL and Indus (adjusted for energy related pass-through) is around

50-60%, we estimate, based on company data. This compares to ~65% for the US and ~80% for Indonesian towercos.

– Such a big difference may seem appealing for Indonesian towercos; however, we expect some of this difference can be attributed to the fact that BIL, Indus and the US

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Revenue/ tower Revenue/ tenant

Global avg. for revenue/ tower Global avg. for revenue/ tenant

USD/ month

Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12

INFRATEL

Sharing Revenue (INR)/ Month 36,878 36,290 38,041 37,859 36,599 36,203 37,117 37,623 37,277 36,532 36,839

Chg % y-y 0% 4% -1% -1% 0% -2% -1% 2% 1% -1%

Sharing Ratio 1.62 1.65 1.65 1.68 1.73 1.77 1.79 1.81 1.82 1.82 1.81

INDUS

Sharing Revenue (INR)/ Month 29,674 30,379 31,389 30,847 30,501 31,963 31,112 32,272 32,563 30,139 31,711

Chg % y-y 5% 21% 9% 3% 5% -1% 5% 7% -6% 2%

Sharing ratio - Indus 1.71 1.75 1.78 1.80 1.83 1.87 1.89 1.91 1.94 1.97 1.96


20

players add land lease costs to their operating expenses, while Protelindo doesn't. TBIG includes amortization of leases to cost of operations, but adds back this amortization number before reporting EBITDA.

• Rental costs (we assume most of this is for land / roof-top leases) for BIL and Indus are around 17% of rental income. This metric is 5pp higher for the Americans. The Indonesians amortize this expense over the length of the term; hence the number recorded is just ~5% pa, on average.

• Indian towercos appear to be managing SGA as % of sales better than global counterparts, in our view – Indus reports this metric at 4%; and we expect the number for BIL to be similar. Protelindo and the US towercos record this at 10% of sales, on average.

• Employee expenses as a % of sales are broadly similar for India and Indonesia. We don't have this cost item reported separately by the US companies.

Fig. 32: Global towercos – EBITDA margins (period ended Sep’12)

Source: Company data, Nomura research Note: We have adjusted BIL and Indus numbers for energy-related pass-through revenue/costs and other income.

Fig. 33: Global towercos – Rental expenses as a % of sales (period ended Sep’12)

Source: Company data, Nomura research Note: We have used SMN: amortization of insurance and site rentals; TBIG: land lease and license cost amortization; and ATC: rental and management costs. We have adjusted BIL and Indus revenue for energy-related pass-through and other income.

Fig. 34: Global towercos – SG&A as a % of sales (period ended Sep’12)

Source: Company data, Nomura research Note: We have used BIL: other expenses. We have adjusted BIL and Indus revenue for energy-related pass-through and other income.

Fig. 35: Global towercos – Employee cost as a % of sales (period ended Sep’12)

Source: Company data, Nomura research Note: We have adjusted BIL and Indus revenue for energy-related pass-throughand other income.

0%

10%

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us

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Indus SMN BIL consolidated

TBIG


21

On payback period… • We estimate that the lower rentals prevalent in the Indian tower market results in twice

as long payback periods as those in other markets, which increases the risk for Indian towercos, in our view.

Fig. 36: Estimated single tower payback period for Indian / and Indonesian tower companies

Source: Protelindo, Bharti Infratel prospectus, Nomura research

INDIA INDONESIAN TOWERS

Capex assumptions Capex assumptions

Initial cost of tow er (USD) 60,000 Initial cost of tow er (USD) 100,000

Initial cost of tow er (INR) 3,000,000

Revenue assumption Revenue assumption

Sharing rev enue per operator per month (INR) 35,000 31,500 Sharing rev enue per operator per month (IDR 000s) 16,477 16,477

Stepdown with incremental tenancy -10% Stepdown with incremental tenancy 0%

Sharing rev enue per operator per month (USD) 700 630 Sharing rev enue per operator per month (USD) 1,713 1,713

Cost assumptions Cost assumptions

Land/site rental cost per tow er site p.a. (INR 000s) 113 147 Land/site rental cost (not included in opex ) per tow er (IDR mn) 16.8 19.3

Increase in rents 30% Increase from inflation 15%

Land/site rental cost per tow er site p.a. (USD ) 2,262 2,941 Site maintanence per tow er p.a. (IDR mn) 18.5 22

Employ ee costs as % of sales 10% Increase in rents 20%

Increase from inflation 30% Site maintanence per tow er p.a (USD ) 1,924 2,308

SG&A and other 20% Other costs as % of sales 1% 1%

Increase from inflation 30% Increase from inflation 20%

SG&A 12%

Increase from inflation 20%

SINGLE TOWER FINANCIALS SINGLE TOWER FINANCIALS

Income statement (USD) Income statement (USD)

Sharing factor 1.0 2.0 Sharing factor 1.0 2.0

Rental rev enues pa 8,400 15,120 Rental rev enues 20,553 41,106

Costs Costs

Rent 2,262 2,941 Site maintanence 1,924 2,308

Employ ee 840 1,092 Others 206 493

SG&A and others 452 588 Selling and marketing ex penses 2,446 2,935

EBITDA 4,845 10,499 EBITDA 15,978 35,369

Margin % 58% 69% Margin % 78% 86%

Cash flow Cash flow

Annualized rev enue per tow er 8,400 16,800 Annualized rev enue per tow er 20,553 41,106

D&A 3,000 3,000 D&A 5000 5000

Tax 554 2,250 Land/site rental cost (not included in opex ) 1,744 2,006

Tax rate 30% 30% Tax 2,745 7,592

Tax rate 25% 25%

Net operating cash flow 4,292 8,249 Net operating cash flow 11,489 25,771

Maintanence capex @5% of sales 420 840 Maintanence capex @5% of sales 1,028 2,055

FCF 3,872 7,409 FCF 10,462 23,716

Pay back period 15.5 8.1 Pay back period 9.6 4.2


22

Appendix Fig. 37: Global tower deals


Date Buyer Seller CountryNumber of

sitesDeal value

USDmnImplied value per

tower USDK

Dec-07 Investor group Bharti 49,000 1,184 219 Dec-07 Investor group RCOM 23,000 310 271 Dec-07 Quippo Spice 875 134 152 Apr-09 Viom Tata 13,000 1,475 113 Apr-09 Viom Quippo 5,000 880 176 May-09 ATC Xcel Telecom 1,700 155 92 Oct-09 ATC Transcend Infra 325 20 65 Jan-10 GTL Infra Aircel 17,500 1,870 107 Jan-10 Viom Tata Tele 2,535 295 116 Aug-10 ATC Essar Telecom 4,600 415 90

2002 ATC NIHD Mexico, Brazil 811 131 162 2003 ATC Iusacell Mexico 143 32 223 2003 AAT Communications SBA Communications US 784 197 251 2004 National Grid Crown Castle UK 3,487 2,003 574 2005 ATC SpectraSite US 7,800 3,800 487 2005 Crown Castle TrinTel US 467 145 310 2006 Crown Castle Mountain Union US 551 310 562 2006 SBA Communications AAT Communications US 1,855 1,003 541 2007 Crown Castle Global Signal US 10,749 5,800 540 2007 Private Equity National Grid Wireless US 350 290 829 2008 SBA Communications OptaSite US 528 433 821 2008 SBA Communications Light Tower US 340 224 659 2008 SBA Communications TowerCo US 423 346 817 2009 ATC XCEL Telecom India 1,730 98 57 2009 ATC Tower Portfolio Brazil 230 51 223 2009 ATC Insight India 366 19 53 2009 ATC Cincinnati Bell US 196 100 510 2010 ATC Essar Telecom India 4,629 421 91 2010 SBA Communications Stake in ExteNet (DAS) US 32 2010 SBA Communications Tower Portfolio Panama 102 20 200 2010 ATC Telefonica Chile 278 40 143 Aug-10 ATC Telefónica del Peru Peru 475 88 185 Oct-10 ATC Telefónica Colombia Colombia 500 72 144 2010 Crown Castle New Path (DAS) US 128 2010 ATC Telefonica Colombia 500 72 144 2010 ATC Cell C South Africa 3,200 430 134 2010 ATC MTN Ghana 1,856 513 277 Feb-11 ATC VTR Chile 180 20 111 2011 ATC Tower Portfolio Brazil 666 585 879 Jul-11 ATC Millicom Colombia 2,126 182 86 2011 ATC Telefonica Mexico 2,362 416 176 2011 ATC Telefonica Chile 558 95 170 2011 ATC MTN Uganda 962 172 178 2011 Crown Castle NextG (DAS) US 1,000 2012 SBA Communications Mobiltie US 2,325 1,093 470 2012 ExteNet SBA Communications (DAS) US 125 2012 SBA Communications TowerCo II US 3,252 1,450 446 2012 Crown Castle T-Mobile Towers US 7,200 2,800 389 Dec-11 ATC Telefónica Colombia Colombia 125 18 140 Dec-11 ATC Telefónica Moviles Chile 558 95 170

Dec-11 ATC Colombia Telecom Colombia 198 33 168

Dec-11 ATC Telefónica’s Mexico Mexico 584 122 209 Dec-11 ATC Telefónica’s Mexico Mexico 1,422 294 207 Dec-11 ATC na US 179 83 463 Nov-12 ATC KPN Towers Germany 2,000 503 252

Nov-10 ATC Cell C South Africa 3,200 430 134

Aug-11 ATC-MTN JV MTN Ghana Ghana 770 206 267 May-11 ATC-MTN JV MTN Ghana Ghana 400 115 287

Dec-11 ATC-MTN JV MTN Uganda Uganda 1,000 175 175

Dec-11 ATC-MTN JV MTN Ghana Ghana 686 195 285

2006 TBIG Mobile 8 344 24.8 72 2008 STP Bakrie Telecom 540 35 65 2008 Protelindo Flexi 53 na na2008-10 Protelindo Hutch 3,603 486 135 2008-09 Protelindo Mobile 8 578 na na2010 TBIG SKP 1,380 na na2010 Protelindo Hutch 1,000 110 110 2011 Inti Bangun Smartfren 705 45.6 65

Jun-11 TBIG Mitrayasa Sarana Informasi (Infratel) 263 21.1 80

2011 Mitratel Telkomsel 2,800 na na2011 Mitratel Telkom 1,500 na naJul-12 SMN CI and MKP 200 39.8 199 Oct-12 Carlyle Stake in Solusi Tunas Pratama 25% stake in STP 235 2012 TBIG Indosat 2,500 519 208 Nov-12 Protelindo KPN Netherlands 261 97 375

INDIA

AMERICAS

AFRICA

INDONESIA


23

Fig. 38: BIL – Balance sheet

Source: Company data, Bharti Infratel Prospectus

Fig. 39: BIL – Cash flows (INRmn)

Source: Company data, Bharti Infratel Prospectus

Balance Sheet 2008 2009 2010 2011 2012 H1 2013

Fixed Assets 119,409 171,841 179,400 179,549 169,132 167,849

Other Non-current Assets 3,238 7,375 13,241 20,250 23,469 25,570

Non- Current Assets 122,647 179,216 192,641 199,799 192,601 193,419

Cash & Bank 1,478 2,092 6,814 137 481 1,994

Other Current Assets 36,536 25,969 25,667 32,958 41,660 40,622

Current Assets 38,013 28,061 32,481 33,095 42,140 42,615

Total Assets 160,660 207,277 225,122 232,894 234,741 236,034

LT Borrowings 30,256 13,770 39,660 37,170 23,888 26,565

Other non current liabilities 8,509 21,655 24,109 28,686 31,006 29,140

Non Current Liabilities 38,765 35,425 63,769 65,856 54,894 55,705

ST Borrowings 1,092 12,066 3,248 5,468 7,704 5,604

Othe current Liabilities 18,252 56,269 21,830 21,621 26,900 31,676

Current liabilities 19,343 68,335 25,078 27,089 34,605 37,280

Total Liabilities 58,108 103,760 88,846 92,945 89,499 92,985

Shareholders' fund 102,553 103,517 136,276 139,949 145,242 143,049

Cash Flow 2008 2009 2010 2011 2012 H1 2013

PBT 616 2,853 3,928 7,947 11,307 6,810

Non cash Adjustments 1,866 11,673 19,089 22,095 23,061 11,036

Changes in Working Capital (1,088) (8,291) 8,222 3,445 1,268 (101)

Tax paid -65.7 -1724.5 -2122.9 -4770.5 -3627.1 -2793.2

Cash flow from operations 1,328 4,510 29,116 28,716 32,009 14,952

Capex (19,109) (60,238) (38,969) (24,309) (15,724) (8,705)

Other Inv esting activ ities (31,925) 29,839 146 (5,397) (4,432) 2,959

Cash flow from Investing (51,033) (30,400) (38,824) (29,706) (20,156) (5,747)

FCF (17,780) (55,728) (9,853) 4,407 16,285 6,246

LT borrow ings taken - 13,770 34,860 2,310 - 29,190

Repay ments of LT Borrow ings - - (7,770) (6,000) (9,870) (27,301)

Proceeds from ST borrow ings 1,092 10,974 (8,818) 2,220 2,236 (2,100)

Other Financing activ ities 50,090 1,759 (3,844) (4,227) (3,876) (7,482)

Cash flow from financing activities 51,182 26,503 14,428 (5,697) (11,510) (7,693)

Net increase/(decrease) in Cash &

cash Equivalents1,477 614 4,721 (6,687) 343 1,512

Opening cash & cash equivalents 0.5 1477.4 2091.1 6812 125.2 468.3

Closing cash & cash equivalents 1,477 2,091 6,812 125 468 1,981


24

Appendix A-1

Analyst Certification

I, Sachin Gupta, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more Nomura Group companies.

Materially mentioned issuers Issuer Ticker Price Price date Stock rating Sector rating Disclosures Bharti Airtel BHARTI IN INR 330 05-12-2012 Reduce Not rated

Bharti Airtel (BHARTI IN) INR 330 (05-12-2012) Rating and target price chart (three year history)

Reduce (Sector rating: Not rated)

Date Rating Target price Closing price 28-Nov-12 290.00 326.70 22-Aug-12 Reduce 248.65 22-Aug-12 210.00 248.65 08-Aug-12 280.00 274.35 02-May-12 295.00 317.95 30-Apr-12 290.00 310.50 08-Feb-12 382.00 354.00 10-Jan-12 390.00 330.35 26-Jul-11 Neutral 424.60 26-Jul-11 430.00 424.60 04-May-11 412.00 369.75 09-Feb-11 Buy 332.15 09-Feb-11 400.00 332.15 11-Nov-10 332.00 316.75 30-Sep-10 344.00 366.30 04-Aug-10 330.00 323.15 11-May-10 320.00 284.70 22-Jan-10 335.00 322.15

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology We derive a DCF-based valuation of INR290, assuming a WACC of 9.5% and growth rate of 3%, with cash flows discounted back to FY17F. Risks that may impede the achievement of the target price Key upside risks: Greater-than-expected stability in pricing in India, and faster-than-expected turnaround in Africa. Tower divestment could be an upside catalyst, too.


25

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