sector: telecom bharti airtel - business...

Bharti Airtel

Detailed Report

SECTOR: TELECOM

Out of turbulenceShobhit Khare ([email protected]); Tel: +91 22 3982 5428

Nirav Poddar ([email protected]); Tel: +91 22 3982 5444

Bharti Airtel

220 September 2010

Contents

Page No.

US$10b free cash by FY14 ............................................................................... 4-6

Domestic business bouncing back ................................................................. 7-14

Turnaround in Africa business would be key ............................................... 15-18

Regulatory uncertainty, MNP, high gearing/forex exposurepose challenges ............................................................................................. 19-20

Raising price target to Rs430; maintain Buy .............................................. 21-23

Financials and valuation ............................................................................... 24-25

Bharti Airtel

STOCK DATA

52-W High/Low Range (Rs) 467/230

Major Shareholders (as of June 2010) (%)

Promoter 45.4

Domestic Inst 8.8

Foreign 39.5

Others 6.2

Average Daily Turnover

Volume ('000 shares) 9,942.6

Value (Rs million) 3,212.8

1/6/12 Month Rel. Performance (%) 5/8/-35

1/6/12 Month Abs. Performance (%) 13/20/-17

KEY FINANCIALS

Shares Outstanding (m) 3,793.9

Market Cap. (Rs b) 1,357.8

Market Cap. (US$b) 29.0

Past 3 years Sales Growth (%) 31.2

Past 3 years NP Growth (%) 28.2

Dividend Payout (%) 4.2

Dividend Yield (%) 0.3

Y/E MARCH 2009 2010 2011E 2012E

Net Sales (Rs b) 369.6 418.5 600.9 716.3

EBITDA (Rs b) 151.7 167.6 214.7 269.3

NP (Rs b) 84.7 89.8 69.4 86.3

EPS (Rs) 22.3 23.7 18.3 22.7

EPS Growth (%) 26.4 5.9 -22.7 24.3

BV/Share 83.0 117.9 137.1 157.2

P/E (x) 16.0 15.1 19.6 15.7

P/BV (x) 4.3 3.0 2.6 2.3

EV/EBITDA (x) 9.4 8.2 9.1 7.0

EV/Sales (x) 3.9 3.3 3.2 2.6

RoE (%) 31.4 23.6 14.4 15.5

RoCE (%) 26.6 18.9 10.0 8.9

STOCK PERFORMANCE (1 YEAR)

SECTOR: TELECOM

320 September 2010

Out of turbulence

US$10b free cash by FY14: Bharti has been impacted by competitive

pressures in the domestic market and uncertainty on Africa acquisition

and 3G spectrum payouts. However, with peak coverage capex and

3G payments through, Bharti's India business is poised to generate

substantial free cash. While the acquired Africa business would remain

in an investment mode, we expect it to be self-sustaining. Bharti is

set to enter a period of sustained high FCF - we expect >US$10b

cumulative free cash generation by FY14 and estimate FCF of Rs28/

share in FY12 and Rs37/share in FY13 from India and South Asia.

Domestic business bouncing back: While Bharti has been impacted

by high competition, it has been able to defend domestic revenue

market share as well as win back subscribers. While risk of another

price war remains, we expect pricing pressure to be relatively benign.

Bharti would be soon launching 3G services; incremental 3G revenue

is likely to contribute ~5% to mobile segment by FY13. We estimate

mobile revenue CAGR of 14% over FY10-12 v/s 7% growth in FY10.

Turnaround in Africa business would be key: Bharti would soon

launch Airtel brand, finalize outsourcing arrangements (IT outsourcing

deal with IBM announced recently) and complete integration process

for Africa business. While there is low risk of negative surprises, the

extent of improvement in cost structure and market elasticity will

determine the achievement of US$5b revenue/US$2b EBITDA target

set out for FY13 (we model US$4.4b revenue/US$1.6b EBITDA).

Regulatory uncertainty, MNP, high gearing/forex exposure pose

challenges: The final policy on government levies and 2G spectrum

allocation is awaited and remains an overhang. While competitive

intensity has declined, there could be aggressive marketing by new

GSM entrants post MNP implementation (in 3QFY11). Bharti's relatively

high gearing at net debt/equity of 1.4x and net debt/annualised EBITDA

of 3.4x makes it vulnerable to potential interest rate increases and

forex fluctuations. Assuming ~US$10b forex exposure, Bharti gets

impacted by Rs2.6/share for every Re1 depreciation in INR v/s USD.

Raising price target to Rs430; maintain Buy: We upgrade our SOTP-

based target price to Rs430 - Rs488/share for India & SA business

(8.7x FY12E EBITDA; 15% discount to average 5-year EV/EBITDA of

10.2x) plus Rs84/share for Africa business (7x proportionate FY12E

EBITDA) less Rs141/share FY12E net debt of Rs533b. Our valuation

implies a negative value of Rs55/share for the Africa business. Bharti

trades at an EV of ~9.4x FY11E and ~7.3x FY12E proportionate

EBITDA. Maintain Buy.

Rs358 BuyBSE SENSEX S&P CNX BLOOMBERG REUTERS19,595 5,885 BHARTI IN BRTI.BO

200

280

360

440

520

Sep-09 Dec-09 Mar-10 Jun-10 Sep-10

Bharti Airtel Sensex - Rebased

Bharti Airtel

420 September 2010

US$10b free cash by FY14

Bharti has been impacted by competitive pressures in the domestic market and uncertaintyon Africa acquisition and 3G spectrum payouts. However, with peak coverage capex and3G payments through, Bharti's India business is poised to generate substantial free cash.While the acquired Africa business would remain in an investment mode, we expect it tobe self-sustaining. Bharti is set to enter a period of sustained high FCF - we expect>US$10b cumulative free cash generation by FY14 and estimate FCF of Rs28/share inFY12 and Rs37/share in FY13 from India and South Asia.

FCF generation to be strong

We believe that Bharti is entering a phase of strong FCF generation in its domestic business,as peak coverage capex is behind, enhanced tower sharing has supported capex savings,and acquisition of 3G spectrum in 13 circles will enhance capacity in the urban centers.We believe FCF would be a key metric for Bharti, going forward. We expect Bharti'sIndia and South Asia business (excluding the 3G spectrum payments and Africa businessacquisition) to generate FCF of Rs22/share in FY11 and Rs28/share in FY12.

BHARTI: FCF (EX-AFRICA BUSINESS AND 3G SPECTRUM OUTLAY)

Significant FCF generation

as growth rebounds and

peak capex behind

Bharti's domestic operations

to generate FCF of ~Rs28/

share in FY12E

BHARTI: FCF/SHARE (EX-AFRICA BUSINESS AND 3G SPECTRUM OUTLAY) - RS

Source: Company/MOSL

178 187 204 218

-94 -80 -64 -58

84 107140 161

FY11E FY12E FY13E FY14E

OCF (Rsb) Capex ex-3G payment (Rsb) FCF (Rsb)

22

28

37

42


Bharti Airtel

520 September 2010

FY11: US$14b investment in high growth potential areas

FY11 is a year of significant investments for Bharti, which is pursuing two key growthdrivers: (1) geographical expansion to Africa by acquiring Zain Africa at an EV of US$10.7b,and (2) securing 3G/BWA spectrum in 16/22 circles for a consideration of ~US$3.3b. TillFY10, Bharti had been primarily focusing on growing in the domestic market and hadbeen operating near FCF breakeven levels for several years. We expect Bharti'sconsolidated capex/sales to decline from 20-22% in FY10/FY11 to ~16% in FY12 and 10-12% in FY13/14. Bharti's capital employed has increased by more than 100% due to ZainAfrica acquisition and 3G spectrum payments. With investments already made in two highgrowth areas, Bharti is poised for a growth sequel, led by data in the domestic market andrelative under-penetration and usage elasticity in Africa.

BHARTI: CAPITAL EMPLOYED JUMPS >100% ON ZAIN AFRICA ACQUISITION/3G SPECTRUM PAYOUT (RS B)

Investing for growth -

significant increase in

capital employed

Capex intensity headed

sharply lower due to

minimal coverage capex,

benefits from tower sharing,

and 3G spectrum

Bharti Africa

constitutes ~20% of

mobile subscriber base

BHARTI: CAPEX TO DECLINE GOING FORWARD (RS B)

BHARTI: TOTAL SUBSCRIBER BASE OF ~250M BY FY12 (M)


338 452602

1,239 1,353

67

106

9

34 33

FY08 FY09 FY10 FY11E FY12E

Capital Employed YoY (%)

89 138 140 83 94 80 64 58

3735

31 35

48

38

20 2216

12 10

51

FY

07

FY

08

FY

09

FY

10

FY

11E

FY

12E

FY

13E

FY

14E

Capex - India & SA Capex - Africa Capex/Sales (%)

128160 178 193 205

4368

89109

FY10 FY11E FY12E FY13E FY14E

Bharti (ex-Africa) Bharti Africa

128

203

246281

314

Bharti Airtel

620 September 2010

BHARTI: EXPECT REVENUE CAGR OF 16% OVER FY11E-13; AFRICA TO CONSTITUTE ~24% (RS B)

BHARTI: EXPECT EBITDA CAGR OF 20% OVER FY11E-13; AFRICA TO CONSTITUTE ~20% (RS B)

BHARTI: AFRICA MARGINS TO REACH ~40% BY FY14 (%)

Revenue growth to be

driven by Africa, 3G,

and rural markets

Expect EBITDA CAGR of

17% over FY11-14

Africa margins to improve;

domestic margins to be

maintained

We expect Africa acquisition

to be dilutive in FY11 and

FY12, marginally accretive

in FY13

BHARTI: ZAIN AFRICA ACQUISITION TO BE EPS DILUTIVE IN FY11/FY12 (RS)


418 472 541 598 660

129175

204233



168 180213 235 254

35

5676

93



3938 39 39

28

32

37

40

3638

40

39


Bharti (ex-Africa) Bharti Africa Consolidated

32.4

35.5

29.526.0

21.923.7

29.9

22.7

18.3


Bharti (ex-Africa) Consolidated

418

601

716803

893

168

215

269311

348

Bharti Airtel

720 September 2010

Domestic business bouncing back

While Bharti has been impacted by high competition in the domestic business, it has beenable to defend revenue market share as well as win back subscribers and traffic. Whilerisk of another price war remains, we expect pricing pressure to be relatively benign.Bharti would be soon launching 3G services; incremental 3G revenue is likely to contribute~5% of mobile revenue by FY13. We estimate mobile revenue CAGR of 14% over FY10-12 v/s 7% growth in FY10.

Back to growth

After a lean patch in CY09, Indian wireless revenue growth has bounced back during thelast two quarters. In CY09, revenue growth was impacted by a spate of new launches inthe GSM market starting with RCom (January 2009) and accentuated by "per second"plans launched by Tata DOCOMO and "Simply Reliance" plans by RCom in 2Q/3Q FY10.

Over the last two quarters, traffic growth for incumbents has improved to double digits(QoQ), led by usage elasticity as well as re-capturing traffic share/subscribers from newentrants. We note that the growth over the past two quarters also has a one-off component,as it was likely propelled by higher discounting in the market.

RCom, which had been relatively aggressive in driving down the pricing, cut the discountedminutes on its network by almost 50% during 1QFY11. The revenue per minute for thefour major private operators - Bharti, Idea, RCom, and Vodafone - has now converged atRs0.44-0.45.

AGR GROWTH HAS PICKED UP

Sharp rebound in AGR

growth after four

lean quarters

Double digit QoQ traffic

growth for GSM incumbents

in last two quarters

INCUMBENTS REPORTED ROBUST TRAFFIC GROWTH (%)

Source: TRAI/Company/MOSL

0 0 0

0

447

8 9

2

-5

6

154 160 171 185 184 184200 205 205 204 195 206 215

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

QoQ AGR grow th (%) Adjusted Gross Revenue (Rsb)

8

2

7

13

10

19

1110 10

3

1514 13

10 10

7

4

11

1

5 5

1

8 910

6

9

13

10

67

10

18

10

6

12

1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

Bharti Idea RCOM Vodafone-India

Bharti Airtel

820 September 2010


Bharti is going strong

Bharti reached its peak subscriber and AGR market share (~25% and 34%, respectively)in 3QFY09. In the six subsequent quarters, while Bharti's subscriber share has declined~350bp to ~22% largely due to multi-SIM usage/subscriber duplication, its AGR marketshare has remained almost steady at 33%+. This is commendable, given the hypercompetition and tariff wars, in our view. We believe that the worst is behind in terms ofcompetitive intensity. Sustaining market share should not be difficult for Bharti.

BHARTI: SUBSCRIBER AND AGR MARKET SHARE

RPM HAS LARGELY CONVERGED; TRAJECTORY FLATTENING (RS)

Current RPM at

Rs0.44-0.45; MNP is

a threat to pricing

Source: TRAI/MOSL

On-net calls constitute ~55% of local traffic - advantage incumbents

TRAI data indicates that intra-network (on-net) calls constitute ~55% of the local trafficin India. High on-net share is due to attractive tariff plans and regional dominance ofoperators. Currently, termination charges are fixed at Rs0.2/min, which is significant giventhe RPM of Rs0.44-0.45/min. We believe that high on-net traffic gives a key incumbencyadvantage to Bharti.

Bharti has maintained

revenue market share

despite hyper competition

0.40

0.47

0.53

0.60

0.66

2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11

Bharti Idea RCOM Vodafone-India

22.923.724.324.324.224.123.823.6

25.125.024.6

22.1 21.7

33.332.933.233.433.4

32.731.2

29.929.829.8

28.2

33.834.0

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

Subscriber market share (%) AGR market share (%)

Steady 33%+ market share

Bharti Airtel

920 September 2010

Source: TRAI/MOSL

Rural penetration remains low; Bharti leads in coverage

While the urban penetration in India has crossed 100%, rural penetration still remains lowat <25%. Bharti has a strong market share of rural subscribers and would be a keybeneficiary of potential increase in rural wireless penetration given its advantage of superiordistribution and coverage.

With urban areas already being saturated (penetration in excess of 100%), the wirelessindustry expects further subscriber net addition from rural areas. Bharti would be a keybeneficiary as it has been maintaining a strong rural market share of ~25% (more than itsoverall subscriber market share of 21.5%). Bharti has also been witnessing an upwardtrend in rural subscriber mix. Bharti covers ~84% of India's population with a distributionnetwork spanning ~1.5m outlets.

RURAL PENETRATION REMAINS LOW

Incumbents like Bharti have

a significant advantage

given high on-net calling

INTRA-NETWORK (ON-NET) TRAFFIC CONSTITUTES ~55% OF LOCAL CALLS

RURAL INDIA CONSTITUTES ~33% OF INDIA'S OVERALL WIRELESS SUBSCRIBER BASE

Significant headroom for

rural penetration to move up

Source: TRAI/MOSL

51%

53% 53% 53% 53%54%

55%56%

57% 57%58% 58% 58%

55%55%

2QF

Y07

3QF

Y07

4QF

Y07

1QF

Y08

2QF

Y08

3QF

Y08

4QF

Y08

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

8795

103112

9 11 11 14 15 17 20 23

8174

6664


Urban w ireless penetration (%) Rural w ireless penetration (%)

71 91 93 112 126 142 165 191

224 254280 301

330361

393

216


Rural subscribers (m) Urban subscribers (m)

287 315347

392427

472525

584

Bharti Airtel

1020 September 2010

Source: TRAI/MOSL

3G to be a growth driver in the medium term

Bharti has won 3G spectrum in 13/22 circles across India and expects to launch commerciallyby the end of 2010. We expect 3G to be a significant growth driver over the medium-termgiven low VAS revenue share and broadband penetration in India.

Non-voice revenue for Indian wireless operators constitutes only 10-13% of the mix v/s25-30% in developed markets with 3G. GSM operators like Bharti, Vodafone and Ideahave been showing strong growth in non-voice revenue over the past several quarters.We expect growth to accelerate post the launch of 3G services.

NON-VOICE REVENUE AT 10-13%

Bharti leads in rural

coverage, with ~50m rural

subscribers

BHARTI: RURAL SUBSCRIBERS CONSTITUTE ~38% OF OVERALL MIX

Indian non-voice revenues

are low due to lack of 3G

services, spectrum

constraints, and lower

maturity of subscribers

Non-voice revenue mix

showing an uptrend

NON-VOICE REVENUE AS % OF WIRELESS REVENUE (%)


34

38

43

48

33.034.8

36.437.7

1QFY10 2QFY10 3QFY10 4QFY10

Rural subscribers Rural subscribers (% of total)

1012

13

15

17

17

28

29

29

29

3045

Vodafone Essar

Bharti

Idea

MTN-South Africa

Vodafone-Africa and Central Europe

Vodafone-Asia Pac and Middle East

China Unicom

Vodafone-Europe

AT&T (US)

China Mobile

Verizon (US)

NTT-DOCOMO (Japan)

7

9

11

13

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

1QF

Y11

Idea Bharti Vodafone Essar

Bharti Airtel

1120 September 2010

Bharti's 3G footprint covers 65-70% of its revenue/subscriber base

Bharti has won 3G spectrum in 13/22 circles and BWA spectrum in 4/22 circles for a totaloutlay of ~Rs156b. Bharti's 3G footprint covers ~70% of its revenue base and ~65% of itssubscriber base. Among the metro and A circles, Bharti did not secure 3G spectrum inKolkata, Maharashtra and Gujarat circles. However, it has won BWA (broadband wirelessaccess) spectrum in Kolkata and Maharashtra.

BHARTI: DETAILS OF 3G AND BWA SPECTRUM WON

3G WINNING BWA AGGRE- AGR AGR SUBS- SUBS AGR SUBS-

PRICE WINNING GATE 1QFY11 MARKET CRIBERS MKT COVERAGE CRIBERS

(RSB) PRICE 3G+BWA (RS B) SHARE JUL-10 SHARE IN 3G COVE-

(RSB) PRICE (RSB) (%) (M) (%) CIRCLES (%) RAGE

Delhi 33.2 33.2 6.3 39.6 6.8 21.3 8.8 4.9

Mumbai 32.5 32.5 2.8 21.2 3.2 10.7 3.9 2.3

Kolkata 5.2 5.2 1.5 27.6 2.9 16.2

Maharashtra 9.2 9.2 3.2 20.0 7.1 14.9

Gujarat 2.3 19.3 5.8 16.2

A.P. 13.7 13.7 7.9 42.0 14.1 28.0 11.0 10.1

Karnataka 15.8 15.4 31.2 8.5 52.8 13.4 32.5 11.8 9.6

T.N. (incl. Chennai) 14.6 14.6 6.8 34.0 11.5 19.4 9.5 8.3

Kerala 1.5 15.9 3.2 12.5

Punjab 3.3 3.3 3.2 38.5 5.1 22.5

Haryana 0.7 17.2 1.6 9.9

U.P. (W) 5.1 5.1 1.7 17.5 4.8 13.9 2.3 3.4

U.P. (E) 4.3 30.0 10.3 20.6

Rajasthan 3.2 3.2 4.8 49.7 10.9 30.4 6.8 7.8

M.P. 3.0 30.6 7.4 21.4

W.B. & A&N 1.2 1.2 2.0 29.4 6.6 22.8 2.8 4.7

H.P. 0.4 0.4 0.7 45.3 1.4 25.0 1.0 1.0

Bihar 2.0 2.0 5.5 49.8 12.3 29.6 7.7 8.8

Orissa 1.9 41.6 4.8 27.7

Assam 0.4 0.4 1.3 36.5 2.6 27.2 1.7 1.9

N.E. 0.4 0.4 0.8 35.0 1.6 27.6 1.1 1.1

J&K 0.3 0.3 0.9 36.9 1.9 39.8 1.3 1.3

Aggregate (Rs b) 123.0 33.1 156.1 71.5 33.3 139.2 21.5 69.7 65.4

No. of circles 13.0 4.0 16.0

Source: DoT/MOSL

While 3G will take time to ramp-up, we expect incremental 3G revenue to contribute ~5%of Bharti's mobile revenue in India by FY13. Increase in 3G subscriber base and higherdata usage should result in higher ARPU although voice ARPU is likely to continuedeclining. Including 3G, we expect ARPU to start increasing as subscriber addition slowsand data revenues pick-up.

3G REVENUE TO MOBILE REVENUE TREND

Incremental 3G revenue to

constitute ~5% of mobile

revenue by FY13


4.8%

10.1%

2.5%

FY12E FY13E FY14E

Bharti Airtel

1220 September 2010

ARPU uplift to be led by

lower incremental

subscriber additions and

contribution from data

3G LAUNCH LIKELY TO BRING IN MEANINGFUL ARPU UPLIFT


Balance sheet constraints might prevent irrational pricing

Significant tariff pressures, new rollouts, 3G spectrum payments and acquisitions (Bharti)have resulted in increase in leverage for most operators. The top-4 operators (Bharti,Idea, RCom, and Vodafone) have an estimated gearing >3x on a net debt/EBITDA basis.We believe that high gearing would prevent operators from pricing aggressively.

FY11E NET DEBT/EBITDA (X)

195

223

199201

209

215212

215


2G ARPU (Rs/ month) ARPU incl. 3G (Rs/ month)

FY11E NET DEBT/EQUITY (X)

2.2

1.51.2

1.0

0.8

TataTeleservices

Uninor Bharti Idea RCom Vodafone

N.A.

4.5 4.3

3.22.8

RCom Vodafone Idea Bharti TataTeleservices

Uninor

-ve/marginal EBITDA

-ve EBITDA


Bharti Airtel

1320 September 2010

New greenfield entrants facing significant challenges

In January 2008, the government issued new licences to greenfield operators like Uninor,Sistema, Etisalat, Videocon, S Tel and Loop Telecom. The new entrants have togethergarnered just ~2.5% subscriber market share and even lower revenue market share on apan-India basis. We continue to believe that greenfield operators are unviable and industryconsolidation is the only option in the medium term.

MONTHLY NET SUBSCRIBER ADDITIONS BY NEW ENTRANTS (M)

Most operators have

stretched balance sheets

Greenfield operators have

been unable to make a

significant dent in the

market despite aggressive

discounts

Source: TRAI/MOSL

Case study: Uninor - cash loss of Rs55b in CY10

Uninor's reported financials and guidance confirm our thesis. The company has been themost visible and aggressive player amongst the new entrants. However, Uninor has beenfacing significant customer churn even in the initial phase (within six months) and is currentlyreporting an ARPU of Rs85/month on active subscribers and Rs50/month on reportedsubscriber base - a 60-80% discount to Bharti's current ARPU of Rs215/month.

UNINOR: ESTIMATED ARPU (RS/MONTH)


According to the guidance from parent Telenor, Uninor is likely to incur an EBITDA lossof Rs35b-39b and capex of Rs16b-20b in CY10. This implies aggregate cash loss of~Rs55b in CY10. While CY10 is the first year of commercial rollout for Uninor, webelieve a turnaround would be challenging, given low tariffs and significant discountsbeing offered by Uninor.

0.85

0.48

0.01

0.84

0.10

-0.5

0.0

0.5

1.0

1.5

Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10

Uninor Sistema Shyam Etisalat Videocon S Tel

50

85

53

92

1QCY10 2QCY10

Mobile ARPU - reported subs Mobile ARPU - active subs

Bharti Airtel

1420 September 2010

7.0 7.6 8.5

-37

28.5

5.6 2.7

18

-35.5

-13.2 -11.2

-55CY09 1QCY10 2QCY10 CY10G

EBITDA loss (Rsb) Capex (Rsb) Simple FCF (Rsb)

UNINOR: SIGNIFICANT CASH BURN


Case study: Sistema Shyam - EBITDA loss of US$80-85m per quarter

Sistema Shyam provides CDMA based mobile services under the MTS brand in 12 circlesand is planning to launch in three more circles by the year end. Among the greenfieldoperators, Sistema was the first to do a commercial rollout due to readily available spectrumin the CDMA band. Sistema currently has a subscriber base of ~5.6m implying a subscribermarket share of less than 1% on a pan-India basis. The company is incurring an EBITDAloss of US$80-85m per quarter while the current revenue run-rate is ~US$23m. Currentmobile ARPU of ~Rs80 is at a 60% discount to market leader Bharti Airtel.

SISTEMA SHYAM: QUARTELY FINANCIALS (US$M)

4 5 714

-28-41

-71-80 -77

-85

1723

10

-30

619

437

176

599

531

633

333

4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10

Revenue OIBDA* Total debt

186

131102

7977

262

87

1215

22

3029

-3

4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10

Implied ARPU (Rs/month) QoQ decline (%)

* Operating Income Before Depreciation and Amortization Source: Company/MOSL

SISTEMA SHYAM: IMPLIED ARPU (RS)


Bharti Airtel

1520 September 2010

Turnaround in Africa business would be key

Bharti would soon launch Airtel brand, finalize outsourcing arrangements (IT outsourcingdeal with IBM announced recently) and complete the integration process for Africa business.While there is low risk of negative surprises, the extent of improvement in cost structureand market elasticity will determine the achievement of US$5b revenue/US$2b EBITDAtarget set out for FY13 (we model US$4.4b revenue/US$1.6b EBITDA).

Africa business: key highlights

Zain's Africa business was on a declining trend during CY09, as indicated by (1)stagnant subscriber base, (2) decline in market share (from ~37% to ~30%), and (3)decline in EBITDA margin from 34% in CY08 to 29% in CY09 (22% in 4QCY09).

We believe Bharti would be investing in network and branding so as to put the businessback on the growth path.

Outsourcing initiatives and scale efficiencies are likely to start contributing to marginseffective FY12 and could result in a big delta in FY13 (~500bp margin improvement inthe base case).

Zain Africa acquisition would be 12-16% EPS dilutive for FY11 and FY12, but couldbe EPS neutral by FY13, as the Africa business reaches breakeven.

Bharti would be exposed to currency fluctuations. While its operating cash flowswould be in African currencies, its debt/capex liabilities would be largely denominatedin US$.

Historically, most of the currencies in Bharti's 15 countries of operations in Africahave exhibited a depreciating trend vis-à-vis the US$.

Bharti is targeting significant performance improvement for Africa business

During CY09, Zain Africa reported revenue of US$3.7b (down 12%), EBITDA ofUS$1.1b (down 23%), and capex of US$1.1b (down 44%).

As of December 2009, Zain had a subscriber base of ~42m (up 3%); CY09 ARPU isestimated at US$7.3/month (down 30%).

Although Bharti has not given a formal guidance, its CEO-International, Mr ManojKohli has announced a target of 100m subscribers, US$5b revenue and US$2b EBITDAfrom Africa in FY13.

Our FY13 estimates factor in a subscriber base of 89m, revenue of US$4.4b, andEBITDA of US$1.6b from Africa.

Achievement of management targets in FY13 would imply an EPS accretion of ~16%in FY13 v/s 1% in our base case projections.

Key assumptions for Africa business

Increase in subscriber base from 36m in June 2010 to 43m in March 2011, 68m inMarch 2012 and 89m in March 2013.

This implies a monthly net addition run rate of 0.68m during FY11, 2.1m in FY12, and1.7m in FY13.

Zain Africa acquisition

would be 12-16% EPS

dilutive for FY11 and FY12,

but could be EPS neutral by

FY13, as the Africa business

reaches breakeven

Achievement of management

targets in FY13 would imply

an EPS accretion of ~16% in

FY13 v/s 1% in our base

case projections

Bharti Airtel

1620 September 2010

We factor in a 1-year delay

in achievement of US$5b

revenue/ US$2b EBITDA by

Bharti Africa

Margin improvement to be

led by operating leverage

and cost cutting initiatives

Bharti estimates real

penetration of ~20% due to

dual SIM usage

5.0

2.0

3.73.4

3.84.44.2

1.41.1 0.9 1.2

1.62.0

1.10.8 0.8

0.70.7

CY08 CY09 FY11E FY12E FY13E FY14E

Revenue (US$b) EBITDA (US$b) Capex (US$b)

33.629.4

37.0

27.7

32.0

40.1

CY08 CY09 FY11E FY12E FY13E FY14E

123

7561

48 45 39 35 35 33 3323 23 19 17 16 14

Gab

on

Con

goB

razz

aville

Gha

na

Ken

ya

Nig

eria

Sie

rra

Leon

e

Uga

nda

Agg

rega

te

Zam

bia

Tan

zani

a

Bur

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Fas

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car

Cha

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DR

C

We assume ARPU of US$6.6/month in FY11 (v/s US$7.4/month reported by Bhartiin 1QFY11), US$5.7/month in FY12 (down 15%), and US$4.7/month in FY13 (down18%).

We assume EBITDA margin of 28% in FY11 (v/s 29% in CY09). We factor in margin recovery of 400bp in FY12 to 28% and 500bp in FY13 to 37%, as

benefits of efficiency improvements kick-in. The sharp margin improvement assumption for FY13 reflects (1) management guidance,

(2) efficiency improvement from outsourcing/network sharing etc, and (3) operatingleverage.

We assume a capex of US$850m in FY11 (v/s US$1.1b in CY09 and Bharti's guidanceof ~US$800m), US$750m in FY12 and US$650m in FY13.

BHARTI (ZAIN) AFRICA: REVENUE, EBITDA AND CAPEX TRENDS

BHARTI (ZAIN) AFRICA: EBITDA MARGIN LIKELY TO IMPROVE (%)

CY09 MOBILE PENETRATION ACROSS BHARTI'S AFRICA FOOTPRINT (%)


Bharti Airtel

1720 September 2010

Low market share in

Nigeria, Kenya, and Ghana

Most countries have an

ARPU less than US$10/

month

Bharti expects to exploit

usage elasticity in Africa

72 69 67 65 6251 51 46 45

40 39 3524

149

Mal

awi

Zam

bia

Nig

er

Cha

d

Gab

on

Bur

kina

Fas

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Con

go B

Sie

rra

Leon

e

DR

C

Mad

agas

car

Tan

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a

Uga

nda

Nig

eria

Ken

ya

Gha

na

12.79.9 9.9 8.7 8.5 7.8 7.3 7.3 7.2 6.8 6.1 5.2 5.0 4.6 4.2

24.5

Gab

on

Con

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Cha

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Nig

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Zam

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Mal

awi

DR

C

Ove

rall

(est

)

Bur

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Nig

eria

Gha

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Tan

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a

Ken

ya

Mad

agas

car

Uga

nda

103

480

Bharti (Africa) Bharti (India)

COST SAVING LEVERS FOR AFRICA BUSINESS


CY09 MARKET SHARE FOR ZAIN AFRICA (%)

CY09 ARPU FOR ZAIN AFRICA (US$)

AFRICA MOU PER SUBSCRIBER MUCH LOWER THAN INDIA (MINUTES/MONTH)

OPEX CAPEX

Network, IT, BPO

outsourcing

leveraging Bharti's

scale

2G+3G

equipment

procurement

Passive

Infrastructure

sharing

Passive

Infrastructure

sharing

Bharti Airtel

1820 September 2010

Ghana10%

Nigeria41%

Others31%

Zambia6%

Kenya6% Malaw i

6%

Nigeria37%

Zambia12%

Malaw i6%

Chad5%

Gabon9%

Tanzania9%

Niger7%

DRC6%

Congo Braz-zaville

5%

Others4%

Others33%

Nigeria35%

Tanzania12%

DRC8%

Zambia7%

Kenya5%

DRC9%

Nigeria36%

Congo Brazzaville

6%

Zambia8%

Tanzania7%

Gabon7%

Others27%

CY09 ZAIN AFRICA SUBSCRIBER MIX (%) CY09 ZAIN AFRICA REVENUE MIX (%)


CY09 ZAIN AFRICA EBITDA MIX (%) CY09 ZAIN AFRICA CAPEX MIX (%)


Bharti Airtel

1920 September 2010

Regulatory uncertainty, MNP, high gearing/forex exposurepose challenges

The final policy on government levies and 2G spectrum allocation is awaited and remainsan overhang. While competitive intensity has declined, there could be aggressive marketingand promotion by new GSM entrants post MNP implementation (by the end of 2010).Bharti's relatively high gearing at net debt/equity of 1.4x and net debt/annualized EBITDAof 3.4x makes it vulnerable to potential interest rate increases and forex fluctuations.Assuming ~US$10b forex exposure, Bharti gets impacted by Rs2.6/share for every Re1depreciation in the INR/USD rate.

Potential implementation of TRAI recommendations: low probability, highimpact event

In May 2010, the telecom regulator (TRAI) issued recommendations on licensing conditionsand 2G spectrum allocations. Most of the recommendations were negative for incumbentslike Bharti. Key negatives if the recommendations are accepted would be: Rs45b (Rs12/share) one-time liability for 'excess spectrum' Hike in annual spectrum charges (~100bp impact) Potential payout of ~Rs150b (Rs40/share) on licence renewal Surrender of 900MHz spectrum for re-farming

The positive outcome of the recommendations would be the proposed phased decline inlicence fee. The government is currently reviewing the recommendations; we see lowprobability of these recommendations being implemented in their current form.

SUMMARY OF TRAI RECOMMENDATIONS

RECOMMENDATIONS LIKELY IMPACT

One-time payout for spectrum allocation beyond One-time liability of ~Rs45b for Bharti

6.2MHz for GSM operators

Hike in annual spectrum charges (linked to revenues) EBITDA margin impact of ~110bp

Significant payouts for spectrum (linked to 3G auction Payout of ~Rs150b for Bharti on license

winning price) and return of spectrum allocated in renewal for a period of ten years

800MHz (CDMA) and 900 MHz (GSM) on license

renewal

Phased decline in license fee from 6-10% currently Margin accretion of 100-200bp for Bharti

(circle-wise) to a uniform 6% by FY14 (charged by FY14

as a percentage of AGR)

Tightening of rollout obligations Increase in capex outlay of new entrants

Linking of spectrum allocation beyond start-up More investment in rural coverage required in

spectrum to rollout obligations (v/s subscriber order to get incremental spectrum allocation

base currently)

De-linking of future licenses with spectrum Further interest by new pan-India licensee

unlikely

Source: TRAI/MOSL

Potential implementation

of TRAI recommendations

could imply Rs45b one-time

liability for 'excess spectrum'

TRAI recommendations

negative for GSM

incumbents

Bharti Airtel

2020 September 2010

Implementation of mobile number portability remains an overhang

Mobile number portability (MNP) has been delayed a number of times since December2009. It is now likely to be implemented in 3QFY11. MNP implementation could driveincrease in subscriber churn and higher subscriber retention costs, as operators will targethigh ARPU subscribers of competitors, especially in the post-paid segment. Post-paidsubscribers (comprising 4% of total subscribers) constitute 17% of total revenue in theGSM segment. Post-paid ARPU is 4.5x pre-paid ARPU. Key retention measures apartfrom potentially better tariff structure would be (1) 3G presence and (2) improved servicequality.

POST-PAID V/S PRE-PAID ARPU POST-PAID/PRE-PAID REVENUE MIX

POST-PAID SUBSCRIBER BASE STAGNANT AT ~20M

Source: TRAI/MOSL

600 584 559 543 539 530 530 503

204 189 192162181

113124143

1QF

Y09

2QF

Y09

3QF

Y09

4QF

Y09

1QF

Y10

2QF

Y10

3QF

Y10

4QF

Y10

Post-paid ARPU (Rs/month)Pre- paid ARPU (Rs/ month)

17

83

Post paid revenue (% of total)Pre paid revenue (%of total)

196 215240

279309

349401

459

17 19 18 18 19 19 20 20


Post paid subscribers (m) Pre paid subscribers (m)

Post-paid ARPU

at ~4.5x pre-paid

Post-paid base constitutes

~4% of GSM subscribers

Bharti Airtel

2120 September 2010

Raising price target to Rs430; maintain Buy

We are upgrading our SOTP-based target price to Rs430 - Rs488/share for India & SAbusiness (8.7x FY12E EBITDA; 15% discount to average 5-year EV/EBITDA of 10.2x)plus Rs84/share for Africa business (7x proportionate FY12E EBITDA) less Rs141/shareFY12E net debt of Rs533b. We no longer assign separate valuation for tower companies,as Bharti's consolidated financials under IFRS now capture EBITDA contribution fromIndus Towers (42% stake). Our valuation implies a negative value of Rs55/share for theAfrica business. Bharti trades at an EV of ~9.4x FY11E and ~7.3x FY12E proportionateEBITDA. Maintain Buy.

SOTP VALUATION: FAIR VALUE OF RS430 PER SHARE, 20% UPSIDE

FY12 EBITDA OWNER+ PROPOR- EV/EBITDA FAIR VALUE/SH

(RSB) SHIP TIONATE (X) VALUE

(%) EBITDA (RS B)

India business (incl. towers) 213 100 213 8.7 1,848 488

Africa business 56 80 45 7.0 314 84

FY12 net debt 533 141

Total Value 1,629 430

Shares o/s (b) 3.79

CMP (Rs) 358

Upside (%) 20

Source: MOSL

COMPARATIVE VALUATIONS

CMP RATING MCAP EV P/E (X) EV/EBITDA (X) EV/SALES (X)

(RS) (US$B) (US$B) FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E

Bharti * 358 Buy 29.0 41.6 15.1 19.6 15.7 8.2 9.4 7.3 3.3 3.4 2.8

Idea 78 Buy 5.5 8.0 25.3 54.3 42.6 9.0 10.1 7.5 2.5 2.5 2.0

RCom 166 Buy 7.3 13.9 7.0 31.2 21.7 6.9 9.6 7.8 2.4 3.1 2.6

ROIC (%) ROE (%) EBITDA MARGIN (%) NET DEBT/EBITDA (X) NET DEBT/EQUITY (X)

FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E

Bharti 22.0 11.9 10.5 23.6 14.4 15.5 40.1 35.7 37.6 0.1 2.8 2.0 0.1 1.1 0.9

Idea 7.0 5.2 5.8 7.6 4.1 5.0 27.4 24.4 27.3 1.9 3.2 2.2 0.6 1.0 0.8

RCom 6.3 3.9 4.0 12.6 2.8 3.9 35.5 32.3 33.4 2.5 4.5 3.5 0.5 0.8 0.7

CAPEX/SALES (%) SALES GR. (%) EBITDA GR. (%) EPS (RS) EPS GR. (%)

FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E FY10 FY11E FY12E

Bharti 19.9 45.2 16.1 13.2 43.6 19.2 10.5 28.1 25.4 23.7 18.3 22.7 5.9 -22.7 24.3

Idea 26.5 64.5 15.3 22.7 23.4 15.7 20.2 9.9 29.6 3.1 1.4 1.8 2.0 -53.4 27.5

RCom 18.7 63.6 12.7 -3.0 -5.9 14.2 -15.1 -14.3 18.2 23.7 5.3 7.7 -20.7 -77.4 43.6

* Proportionate EV/EBITDA and EV/sales Source: Company/MOSL

Bharti Airtel

2220 September 2010

BHARTI: ONE-YEAR FORWARD EV/EBITDA BAND

BHARTI: ONE-YEAR FORWARD P/E BAND

Bharti trading at ~25%

discount to its 5-year

average EV/EBITDA

Bharti trading broadly in

line with its 5-year average

P/E of ~18x

GLOBAL COMPARATIVE VALUATIONS (%)

MKT CAP REVENUE GR. (%) EBITDA GR. (%) EV/EBITDA (X)

(US$B) CY10 CY11 CY10 CY11 CY10 CY11

China Mobile 205 11 6 8 3 4.6 4.4

AT&T 166 1 1 4 4 5.4 5.2

Vodafone Group 133 3 8 -3 5 8.6 8.2

Telefonica 107 0 3 -4 3 6.0 5.8

America Movil 101 18 16 16 16 7.6 6.5

Verizon 90 -1 1 0 3 5.4 5.2

NTT DOCOMO 75 0 10 0 9 4.4 4.0

France Telecom 56 -15 0 -11 0 5.0 5.1

China Unicom 36 9 9 1 11 5.0 4.5

MTN Group 31 7 11 6 11 4.7 4.2

Bharti Airtel 29 44 19 28 25 9.4 7.3

Zain 20 -24 -3 -20 -1 7.0 7.1

Mobile telesystems 17 39 14 34 16 4.4 3.8

Partner Comm 3 5 -4 9 -4 4.8 5.0

Average 5 7 4 7 5.8 5.5

Source: Bloomberg/MOSL

6x

8x

Average 10.2x

12x

14x

16x

50

275

500

725

950

Mar

-05

Nov

-05

Jun-

06

Jan-

07

Aug

-07

Apr

-08

Nov

-08

Jun-

09

Feb

-10

Sep

-10

10x

14x

Average 17.9x

26x

22x

40

215

390

565

740

Mar

-05

Nov

-05

Jun-

06

Jan-

07

Aug

-07

Apr

-08

Nov

-08

Jun-

09

Feb

-10

Sep

-10

Bharti Airtel

2320 September 2010

KEY ASSUMPTIONS

FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E FY14E

Mobile - India

Subs (m) 20 37 62 94 128 160 178 193 205

YoY (%) 78 90 67 52 36 26 11 8 6

Average subs (m) 14 28 50 78 111 144 169 186 199

YoY (%) 65 91 79 57 42 30 18 10 7

Netadds per month (m) 0.7 1.5 2.1 2.7 2.8 2.7 1.5 1.2 1.0

YoY (%) 92 104 41 29 6 -3 -45 -20 -17

Total mobile traffic (b min) 70 153 285 475 610 843 991 1108 1187

YoY (%) 100 118 86 67 28 38 18 12 7

ARPU (Rs/month) 476 427 366 325 249 215 212 215 223

YoY (%) -8 -10 -14 -11 -23 -14 -2 1 4

MOU 405 461 479 508 459 488 488 498 498

YoY (%) 21 14 4 6 -10 6 0 2 0

Mobile RPM (Rs) 1.17 0.93 0.77 0.64 0.54 0.44 0.43 0.43 0.45

YoY (%) -24 -21 -17 -17 -15 -19 -2 -1 4

Mobile EBITDA margin (%) 36.1 37.7 39.2 31.0 38.7 35.8 36.3 35.5 33.4

Mobile Capex (Rs b) 42 72 108 65 34 53 41 35 30

Mobile Capex/sales (%) 50 51 50 21 10 14 9 7 6

Mobile - Africa

Subs (m) 43 68 89 109

YoY (%) 1 60 30 23

Netadds per month (m) 0.7 2.1 1.7 1.7

ARPU (US$/month) 7.3 5.7 4.7 4.2

YoY (%) -22 -18 -10

Capex (US$ b) 0.85 0.75 0.66 0.75

Capex/Sales (%) 25 20 15 15

Passive Infrastructure

Indus Towers

Towers (000s) 95 103 111 120 126 132

Cellsites (000s) 141 176 211 252 290 330

Tenancy ratio (x) 1.48 1.71 1.90 2.10 2.30 2.50

Sharing revenue per operator per month (Rs 000s) 28.1 26.7 25.6 24.9

EBITDA margin (%) 32.2 36.8 37.8 39.4

Bharti Infratel

Towers (000s) 28 31 33 36 38 40

Cellsites (000s) 37 50 60 73 84 97

Tenancy ratio (x) 1.34 1.62 1.80 2.00 2.20 2.40

Sharing revenue per operator per month (Rs 000s) 37.2 35.7 33.9 32.6 31.6

EBITDA margin (%) 35.4 46.2 44.4 45.4 46.0 47.4

Revenue mix (%)

Mobile (India & SA) 64 68 71 65 68 55 54 53 54

Telemedia 12 11 9 7 7 5 5 4 4

Enterprise 25 21 18 18 9 6 6 6 5

Passive infrastructure 0 0 2 9 15 13 12 12 12

Africa 0 0 0 0 0 19 22 23 23

EBITDA mix (%)

Mobile (India & SA) 66 69 71 58 75 61 57 54 51

Telemedia 8 7 10 9 9 7 6 6 5

Enterprise 26 23 17 23 7 5 4 4 4


Africa 0 0 0 0 0 16 21 24 27

Capex mix (%)

Mobile (India & SA) 66 80 78 46 41 40 35 37 33

Telemedia 21 10 7 10 12 4 3 3 2

Enterprise 14 15 15 15 14 3 3 4 4


Africa 0 0 0 0 0 28 30 33 38


ARPU and RPM declines to

get arrested in FY12

Domestic mobile business to

constitute 55-60% of

Bharti's consolidated

revenue and EBITDA

Bharti Airtel

2420 September 2010

Financials and valuation (Consolidated)

INCOME STATEMENT (RS MILLION)

Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E

Revenues 369,615 418,472 600,932 716,295 802,929 892,561

Change (%) 36.8 13.2 43.6 19.2 12.1 11.2

Total Expenses 217,937 250,839 386,260 447,042 491,954 544,779

EBITDA 151,678 167,633 214,672 269,252 310,975 347,782

% of Gross Sales 41.0 40.1 35.7 37.6 38.7 39.0

Depn. & Amortization 47,581 62,832 101,826 125,764 135,112 140,165

EBIT 104,097 104,800 112,846 143,489 175,863 207,616

Net finance cost 11,613 178 27,999 35,665 30,148 22,932

Other Income 589 468 1,049 1,218 1,348 1,486

PBT 93,073 105,090 85,897 109,042 147,063 186,171

Tax 6,615 13,453 16,843 22,713 31,658 47,585

Rate (%) 7.1 12.8 19.6 20.8 21.5 25.6

Minority Interest 1,759 1,870 -357 74 1,980 3,933

Adjusted PAT 84,699 89,767 69,411 86,255 113,424 134,653

BALANCE SHEET (RS MILLION)

Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E

Share Capital 18,982 18,988 18,988 18,988 18,988 18,988

Additional Paid up Capital 74,106 56,499 56,499 56,499 56,499 56,499

Reserves 210,857 346,453 412,145 488,539 590,777 713,125

Net Worth 303,945 421,940 487,632 564,026 666,264 788,612

Loans 118,801 101,898 643,939 673,721 653,359 663,982

Minority Interest 10,704 25,285 32,337 32,410 34,390 38,324

Other Liabilities 10,564 45,018 58,220 64,723 70,980 77,495

Deferred Tax Liability 7,556 7,980 16,905 17,984 19,188 20,409

Capital Employed 451,570 602,121 1,239,033 1,352,865 1,444,181 1,588,822

Gross Block 603,221 761,040 1,587,440 1,702,989 1,797,266 1,889,928

Less : Depreciation 153,722 218,521 316,441 440,432 573,434 712,719

Net Block 449,499 542,519 1,270,998 1,262,557 1,223,832 1,177,210

Other Non-Current Assets 10,370 30,736 57,361 57,732 58,112 58,502

Curr. Assets 144,079 137,685 139,324 240,769 383,079 585,759

Inventories 963 484 2,023 2,273 2,614 2,949

Debtors 28,528 35,711 48,783 55,597 62,149 68,972

Cash & Bank Balance 11,145 25,323 31,362 81,362 131,362 221,362

Short-term investments 38,010 52,362 19,820 59,218 139,218 239,218

Other Current Assets 65,434 23,805 37,336 42,319 47,736 53,257

Curr. Liab. & Prov. 152,377 108,819 228,651 208,193 220,841 232,649

Creditors 89,317 107,702 225,688 204,988 217,385 228,935

Other Current Liabilities 63,060 1,117 2,963 3,205 3,456 3,714

Net Curr. Assets -8,299 28,866 -89,327 32,576 162,238 353,110

Appl. of Funds 451,570 602,121 1,239,033 1,352,865 1,444,181 1,588,822

E: MOSL Estimates

Bharti Airtel

2520 September 2010

Financials and valuation (Consolidated)

RATIOS

Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E

Basic (Rs)

EPS 22.3 23.7 18.3 22.7 29.9 35.5

Cash EPS 34.9 40.2 45.1 55.9 65.5 72.4

Book Value 83.0 117.9 137.1 157.2 184.7 218.0

DPS 0.0 1.0 1.8 2.3 3.0 3.5

Payout %(Incl.Div.Taxes) 0.0 4.2 10.0 10.0 10.0 10.0

Valuation (x)

P/E 16.0 15.1 19.6 15.7 12.0 10.1

Cash P/E 10.3 8.9 7.9 6.4 5.5 4.9

EV/EBITDA 9.4 8.2 9.1 7.0 5.6 4.5

EV/Sales 3.9 3.3 3.2 2.6 2.2 1.7

Price/Book Value 4.3 3.0 2.6 2.3 1.9 1.6

Dividend Yield (%) 0.0 0.3 0.5 0.6 0.8 1.0

Profitability Ratios (%)

RoE 31.4 23.6 14.4 15.5 17.5 17.6

RoCE 26.6 18.9 10.0 8.9 10.2 10.6

Turnover Ratios

Debtors (Days) 28 31 30 28 28 28

Asset Turnover (x) 1.14 1.01 0.79 0.66 0.75 0.88

Leverage Ratio

Net Debt/Equity (x) 0.2 0.1 1.1 0.9 0.5 0.2

CASH FLOW STATEMENT (RS MILLION)

Y/E MARCH 2009 2010 2011E 2012E 2013E 2014E

Op.Profit/(Loss) bef Tax 151,678 167,633 214,672 269,252 310,975 347,782

Other Income 589 468 1,049 1,218 1,348 1,486

Interest Paid -11,613 -178 -27,999 -35,665 -30,148 -22,932

Direct Taxes Paid -4,359 -29,761 -34,892 -22,713 -31,658 -47,585

(Inc)/Dec in Wkg. Cap. -22,672 26,518 112,162 -26,529 7,575 7,636

CF from Op.Activity 113,623 164,680 264,992 185,563 258,091 286,387

(inc)/Dec in FA + CWIP -143,426 -155,852 -830,305 -117,322 -96,387 -93,543

(Pur)/Sale of Investments 10,142 -14,282 32,597 -39,398 -80,000 -100,000

CF from Inv.Activity -133,285 -170,134 -797,708 -156,720 -176,387 -193,543

Issue of Shares -3,640 27,617 -3,754 0 0 0

Inc/(Dec) in Debt 21,738 -16,903 542,041 29,782 -20,362 10,622

Other Financing Activities 5,933 8,917 470 -8,624 -11,340 -13,465

CF from Fin.Activity 24,031 19,632 538,757 21,158 -31,702 -2,843

Inc/(Dec) in Cash 4,368 14,178 6,039 50,000 50,000 90,000

Add: Opening Balance 6,777 11,145 25,323 31,362 81,362 131,362

Closing Balance 11,145 25,323 31,362 81,362 131,362 221,362

E: MOSL Estimates

This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Motilal OswalSecurities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solelyfor your information and should not be reproduced or redistributed to any other person in any form.

The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. MOSt orany of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in theinformation contained in this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regardingany matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. Therecipients of this report should rely on their own investigations.

MOSt and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. To enhance transparency,MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.

Disclosure of Interest Statement Bharti Airtel1. Analyst ownership of the stock No2. Group/Directors ownership of the stock Yes3. Broking relationship with company covered No4. Investment Banking relationship with company covered No

This information is subject to change without any prior notice. MOSt reserves the right to make modifications and alternations to this statement as may be requiredfrom time to time. Nevertheless, MOSt is committed to providing independent and transparent recommendations to its clients, and would be happy to provideinformation in response to specific client queries.

For more copies or other information, contactInstitutional: Navin Agarwal. Retail: Manish Shah

Phone: (91-22) 39825500 Fax: (91-22) 22885038. E-mail: [email protected]

Motilal Oswal Securities Ltd, 3rd Floor, Hoechst House, Nariman Point, Mumbai 400 021

sector: telecom bharti airtel - business...

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