INDIA Bharti Airtel

6 March 2009 Termination charges: Risk assessment

BHARTI IN Outperform Event
ƒ Telecom Regulatory Authority of India (TRAI) is reviewing the interconnection
Stock price as of 05 Mar 09 Rs 590.00
12-month target Rs 975.00 usage charges for telecom operators. As part of the ongoing consultation
Upside/downside % +65.3 process, key telecom players recently presented their views to TRAI. We
Valuation Rs 975.00 outline the contrarian stands of major telcos on key issues of termination and
- DCF (WACC 12.0%, beta 1.0, ERP 6.0%, RFR 9.0%,
TGR 3.5%) interconnect. We also analyse the impact on Bharti’s FY3/10E revenue,
EBITDA & EPS due to any potential lowering of termination charges (page 2).
GICS sector telecommunication services
Market cap Rs bn 1,120 Impact
30-day avg turnover US$m 55.6
Market cap US$m 21,730 ƒ Views espoused in presentations are in line with the previously articulated
Number shares on issue m 1,898 stands of the respective operators. Even if the sector regulator decides to
reduce the termination charge, it is unlikely to be firmed up or implemented before
Investment fundamentals the new government is in place following General Elections in April-May 2009.
Year end 31 Mar 2008A 2009E 2010E 2011E
ƒ Our sensitivity analysis implies limited downside risks to FY3/10E EPS. A
Total revenue bn 270.3 371.5 448.5 504.9 33% cut in the termination charge to Rs0.2 per minute from Rs0.3 will have only
EBITDA bn 113.7 153.3 190.0 221.6
EBITDA growth % 52.6 34.8 23.9 16.7 a 1% impact on EPS (assuming no change in Bharti’s tariff plans). In a worst
EBIT bn 76.5 107.7 138.0 162.0 case scenario of Bharti deciding to cut both on-net and off-net tariffs by Rs0.50
Reported profit bn 67.0 81.2 111.2 125.5
Adjusted profit bn 67.0 81.2 111.2 125.5 per minute (50% of the reduction in termination charge, implying 50% pass
through of termination charge to subscribers), then EPS would be 11% lower
EPS rep Rs 35.31 42.79 58.60 66.17
EPS adj Rs 35.31 42.79 58.60 66.17 than current forecasts. The worst case scenario is highly unlikely in our view.
EPS adj growth % 57.2 21.2 36.9 12.9
ƒ Incumbent GSM operators who have argued for no change in the
PE adj x 16.7 13.8 10.1 8.9
existing termination charge, have argued that cost based methodologies for
Total DPS Rs 0.00 0.00 10.00 10.00 arriving at termination charge are most efficient and are an international best
Total div yield % 0.0 0.0 1.7 1.7
practise. We note that the current termination charge of Rs0.30 per minute
ROA % 19.8 19.5 20.0 20.6 was arrived at in February 2004, using forward looking cost methodology.
ROE % 37.4 31.1 32.3 29.2
EV/EBITDA x 10.3 7.6 6.2 5.3 ƒ RCOM has favoured reducing termination charge to zero. RCOM (RCOM
Net debt/equity % 18.7 18.8 12.4 1.3
Price/book x 5.0 3.7 2.9 2.4 IN, Rs136, OP, TP: Rs275) believes that the termination charge is the biggest
hurdle to further tariff declines. RCOM has favoured the “Bill and Keep” (BAK)
BHARTI IN rel SENSEX performance, &
interconnection regime. Under BAK, the originating carrier bills its customers
rec history
for calls and keeps the corresponding revenue. The originating carrier does
not compensate the terminating carrier for call termination expenses.
ƒ Greenfield operators have called for asymmetric termination charges.
New entrants want the regulator to introduce asymmetric termination charges
to help them counter the scale advantages of the incumbents. They argue that
it will be difficult for them to match or undercut the incumbent operator’s “On-
net” call charges. We maintain that business economics for new entrants in
Indian wireless will remain challenging irrespective of IUC changes.
Earnings revision
Source: FactSet, Macquarie Research, March 2009 (all
figures in INR unless noted)
ƒ No change.
Price catalyst
ƒ 12-month price target: Rs975.00 based on a DCF methodology.
Analysts ƒ Catalyst: Consolidation in revenue market share and launch of Indus Towers.
Shubham Majumder Action and recommendation
9122 66533049 shubham.majumder@macquarie.com
Nitin Mohta ƒ Reiterate OP on Bharti. Review of the termination charge does add to the risk,
91 22 6653 3050 nitin.mohta@macquarie.com
Tim Smart but we believe that the market is already factoring in worst case outcomes.
852 3922 3565 tim.smart@macquarie.com
Please refer to the important disclosures and analyst certification on inside back cover of
this document, or on our website www.macquarie.com.au/research/disclosures.
Macquarie Research Equities - Flyer Bharti Airtel

Analysis
ƒ Lower termination charges will not have a material impact on Bharti’s financials. We
estimate Bharti’s net interconnect revenues at ~2% of its total top-line. In Figure 1 below, we
analyse the impact of a cut in the termination charge to Rs0.20 from current Rs0.30 on Bharti’s
FY3/10E revenues, EBITDA and EPS.
ƒ For scenario 1, we have assumed that Bharti would not make any change to its tariff plans
following a cut in the termination charge. Since Bharti is a net recipient of interconnect revenues,
lower termination charges would have a negative impact on the company’s financials. Even so, we
estimate only 1% hit to our FY3/10E EPS in this scenario. We highlight that lower termination
charges would result in 4% reduction in gross revenues, but the impact at the EBITDA level would
be much less due to the simultaneous reduction in network access charges.
ƒ For scenario 2, we have assumed Bharti would cut its outgoing tariff in a manner that it retains
half the benefit from reduced termination charges and passes the remaining to consumers. Based
on these assumptions, we estimate Bharti’s FY3/10E revenues and EBITDA to be 8% and EPS to
be 11% lower than our current forecasts.
ƒ Too early to pass the verdict on Bharti’s pricing action, post the review of termination
charges. Bharti management has reiterated its focus on consolidating Bharti’s wireless revenue
share in the Indian telecom market. As a result, we believe investor expectations of a cut in
Bharti’s retail tariff plans, in response to potential cut in the termination charge, is not a given.

Fig 1 We see limited downside risks to our FY3/10E EPS for Bharti, unless Bharti decides to cut tariifs
FY3/10E (Amount in Rs Revenues EBITDA EPS Comments
million)
Base Case 448,469 189,967 58.6
Scenario 1 - Assuming 429,151 188,674 58.0 • 33% reduction in termination
termination charges are cut to charge will have little impact on
Rs0.2 BUT there is no change Bharti’s EBITDA and EPS, if we
in outgoing tariffs, implying assume no change in tariff
company retains the benefit of
lower termination charges.
Deviation from Base Case (%) -4.3% -0.7% -1.0%

Scenario 2 - Assuming 413,229 174,822 51.9 ƒ We have assumed Bharti would

termination charges are cut to
Rs0.2 AND Bharti cuts
outgoing tariff in a manner that
it retains half the benefit from
reduced termination charge
and passes the remaining to
consumers.
Deviation from Base Case (%)
Source: Macquarie Research, March 2009
retain 50% of the 10 paise
reduction in termination charge
and passes the rest to consumers
in form of tariff cut.
ƒ Bharti’s EBITDA and EPS will be
hit by 8% and 11%, respectively
due to assumed 5 paise tariff cut.
-7.9% -8.0% -11.3%

We present the view and counterview of the Indian operators on major

aspects of a termination regime
ƒ Telecom Regulatory Authority of India has received three presentations on the interconnect
charges review: (1) presentation from incumbent GSM operators – Bharti Airtel, Vodafone Essar,
Ideal Cellular and Aircel, (2) presentation from Reliance Communications, and (3) presentation
from greenfield entrants – Datacom, Loop, Swan and Unitech.

Issue 1: Calling Party Pays regime vs Bill and Keep

ƒ Under a Calling Party Pays (CPP) regime, cellular operators charge the originator of the call and
no charge is levied on the receiving party. The originating carrier compensates the receiving party
operator by paying a termination charge. Under a “Bill and Keep” (BAK) approach, the originating
carrier bills its customers for calls and keeps the corresponding revenue. The originating carrier
does not compensate the terminating carrier for the call termination expense.

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Macquarie Research Equities - Flyer Bharti Airtel

ƒ We note that India switched from a Receiving Party Pays (RPP) to Calling Party Pays (CPP)
regime in 2003. Under RPP, there is no termination charge since both the caller and receiver pay
their respective operator for the call made. None of the three parties have advocated the switch
from CPP to RPP.
ƒ Incumbent GSM operators’ view: The incumbent GSM operators favoured CPP over BAK. The
GSM incumbents have argued that BAK creates a need for highly prescriptive technical network
regulation to manage inevitable congestion and quality issues. The operators believe that the BAK
regime would incentivise operators to “dump” more traffic onto their competitors, resulting in
network congestion and deteriorating service quality.
ƒ RCOM’s view: BAK is a simpler interconnection regime and results in an efficient network
utilisation. RCOM also highlighted in its presentation that a switch to the BAK approach would
save recurring transaction costs involved in determining, negotiating, and setting the termination
charges for various platforms. RCOM believes BAK would reduce the price floor for the calls made
from PCO and Fixed Wireless Phone. We highlight that RCOM has the highest share of PCO
among private telco operators in India and reduced call charges from PCO and FWP (if the
termination charge for calls made from PCO and FWP is reduced) would be a significant positive
for the company.
ƒ Greenfield operators’ view: This issue has not been discussed by the new entrants in their
presentation.
ƒ Case Study on Sri Lanka wireless market. Both incumbent GSM operators and RCOM have
used the Sri Lankan wireless market as an example to support their argument. RCOM has argued
that higher wireless penetration in Sri Lanka (49% in 2Q08 vs 31% for India in January 2009)
demonstrates the contribution of the BAK interconnection regime in increasing wireless
penetration. In contrast, incumbent GSM operators have highlighted that the BAK regime has not
resulted in affordable telecom services in Sri Lanka. The GSM players have noted that the
outgoing call rate in Sri Lanka was Rs0.13 and the incoming call rate was Rs0.4 before Bharti
launched its services in Sri Lanka.

Issue 2: Symmetric termination charges vs asymmetric termination

charges
ƒ Symmetric termination charges imply the same termination charges for all operators. In contrast,
asymmetric termination charges are used by the regulators to favour one set of operators over
others to meet specific objectives, which could range from increasing wireless penetration, higher
competition in the sector, or providing a level paying field to new operators in a market.
ƒ Incumbent GSM operators’ view: The operators have not explicitly commented on asymmetric
termination charges, but given their scale and incumbency advantage we do not expect the
incumbent GSM operators to favour the asymmetric termination charges.
ƒ RCOM’s view: RCOM has argued that if TRAI needs to stick to a cost based approach for arriving
at termination costs, the regulator should introduce asymmetric mobile termination charges.
RCOM has launched its GSM operations in 14 circles in January, completing its pan India GSM
footprint. As a result, asymmetric mobile termination would benefit the company to compete with
existing GSM operators – Bharti and Vodafone Essar. We believe that RCOM’s GSM offering is
the only credible threat to Bharti’s strong position in the Indian wireless market.
ƒ Greenfield operators’ view: New entrants have requested the authority for introduction of
asymmetric termination charges. Greenfield operators’ have highlighted that the cost of providing
same interconnection differs greatly between the incumbents and the new entrants due to a
phased roll-out of networks by incumbents over a long period of time and incumbents’
substantially higher subscriber market share. New entrants have urged the regulator to take a
“glide path” approach towards adoption of symmetric termination charges. According to the
presentation, “the glide path is determined based on the time it would take for the elimination of
cost differences between the operators. For example, in Belgium, the regulator’s objective was to
eliminate the asymmetry in the MTC over a reasonable time frame (2 years) based on the costs of
an efficient operator.”

6 March 2009 3
Macquarie Research Equities - Flyer Bharti Airtel

Issue 3: Mobile termination charge of Rs0.3 per minute vs Rs0.08 per

minute
ƒ The existing mobile termination charge of Rs0.3 per minute was introduced in 2004. TRAI had left
the termination rates unchanged following its review of the same in 2006.
ƒ Incumbent GSM operators’ view: Telecom operators having existing GSM operations believe
that issues (such as low wireless penetration in India and the need for operators to build network
capacity to support subscriber growth) highlighted by TARI in 2006 for maintaining the termination
charges are still relevant and as such there is no reason to cut the termination charges. The key
arguments made by the GSM operators in favour of maintaining the current termination charge
are:
⇒ Reduction in the termination charge would slow down rural coverage expansion. The
presentation highlights that investment for rural coverage is significantly higher than the urban
infrastructure. The operators have indicated the rural coverage capex (Towers, additional
electronics, backhaul connectivity and rights of way) is 1.5 to 4 times the urban site capex.
Opex (diesel, security, maintenance and higher spares) in rural areas is 1.4 to 3 times higher
than the urban site. As such, if the termination charge is reduced, it will not be economically
feasible for the operators’ to serve the rural customer.
⇒ The existing termination charge is already below the average national termination
charge derived using a cost based international methodology. Incumbent GSM operators
have cited an independent third party study to show that the average national termination
charge for the telecom operators would be Rs0.35 (based on Long Range Incremental Cost
Methodology). Operators have highlighted that the current termination charge is already lower
at Rs0.30.
ƒ RCOM’s view: RCOM has cited another third party study on calculating cost based termination
charges. According to the study based on FL-Long Range Incremental Cost Methodology (LRIC),
incumbent operators should charge Rs0.08 and new operators should charge Rs0.22 as a
termination charge. The RCOM presentation mentions that new operators would be willing to
accept Rs0.08 as the revised termination charge despite their higher cost base.
ƒ Greenfield operators’ view: The operators have not referenced any study or presented the
regulator with an alternative termination charge in their presentation.
ƒ Link to the presentations made by the respective operators to TRAI on Interconnect Usage
Charges is produced below for your quick reference:
⇒ Incumbent GSM operators (Bharti + Vodafone + Idea + Aircel)
http://www.trai.gov.in/WritereadData/trai/upload/misc/103/pptBharti.pdf
⇒ Reliance Communications
http://www.trai.gov.in/WritereadData/trai/upload/misc/103/pptReliance.pdf
⇒ Greenfield entrants (Datacom + Loop + Swan + Unitech)
http://www.trai.gov.in/WritereadData/trai/upload/misc/103/pptUnitech.pdf

6 March 2009 4
Macquarie Research Equities - Flyer Bharti Airtel

Fig 2 Bharti now at its lowest 1-year forward rolling EV/EBIDTA

Price in Rs
1,600
15x
1,400
13x
1,200
11x
1,000
9x
800
7x
600
5x
400

200

0
Mar-03
Jun-03

Dec-03
Mar-04
Jun-04

Dec-04
Mar-05
Jun-05

Dec-05
Mar-06
Jun-06

Dec-06
Mar-07
Jun-07

Dec-07
Mar-08
Jun-08

Dec-08
Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08
Source: Company Data, Macquarie Research, March 2009

Fig 3 Bharti is trading at its lowest 1-year forward rolling PER mutliple

Price in Rs
2,000
1,800 30x

1,600 25x
1,400
1,200 20x
1,000
15x
800
600 10x
400
5x
200
0
Jun-04

Jun-05

Jun-06

Dec-06

Dec-08
Mar-03
Jun-03

Sep-03

Dec-03
Mar-04

Sep-04

Dec-04
Mar-05

Sep-05
Dec-05
Mar-06

Sep-06

Mar-07
Jun-07

Sep-07
Dec-07

Mar-08
Jun-08

Sep-08

Source: Company Data, Macquarie Research, March 2009

6 March 2009 5
6 March 2009

Macquarie Research Equities - Flyer

Fig 4 Macquarie – Global emerging market telecom valuation
Macquarie - Global Emerging Market Telecom Valuation

Bloomberg Reco Price EV/EBITDA (x) PER (x) PEG ROE EBITDA CAGR EPS CAGR P/BV (x)
Company Name Ticker lcy FY3/10E FY3/11E FY3/10E FY3/11E (FY3/09-3/11E) (FY3/09E, %) (FY3/09-3/11E, %) (FY3/09-3/11E, %) FY3/10E FY3/11E
Bharti Airtel BHARTI IN OP 590 6.2 5.1 10.1 8.9 0.6 33.9 20.2 24.3 2.9 2.4
Reliance Communications RCOM IN OP 136 5.1 4.2 5.2 4.6 0.9 23.0 17.5 6.1 0.8 0.6
Idea Cellular IDEA IN UP 44 5.8 5.1 13.4 12.7 2.0 23.1 20.9 7.2 0.9 0.8
MTNL MTNL IN UP 63 6.1 6.2 68.7 -14.1 na 1.0 -0.3 na 0.4 0.4

China Mobile 941 HK OP 66 4.2 3.8 10.3 9.8 2.2 27.7 5.9 4.8 2.4 2.2
China Unicom 762 HK UP 8 2.8 2.7 10.6 16.5 -0.5 9.1 28.0 -21.3 0.6 0.6
Indosat ISAT IJ N 4,275 3.8 3.7 9.6 8.4 0.7 12.4 3.9 14.9 1.2 1.1
SK Telecom 017670 KS OP 188,500 3.9 3.5 9.2 7.8 0.7 13.0 6.7 15.5 1.3 1.2
KT Freetel 032390 KS OP 26,900 3.3 2.7 17.6 10.2 -1.6 3.8 12.4 101.5 1.1 1.0
LG Telecom 032640 KQ OP 7,900 3.1 2.8 6.5 6.1 0.6 15.1 5.6 14.4 1.0 0.9
Digi.Com DIGI MK N 21 7.1 6.3 12.2 10.9 4.2 65.7 6.5 3.1 7.6 6.5
Telekom Malaysia Intl TI MK OP 3 4.0 3.3 8.0 7.5 -10.9 4.4 15.7 -1.7 0.9 0.8
Globe GLO PM OP 795 3.0 2.7 6.9 6.6 1.0 24.1 3.4 7.8 1.6 1.5
Far EasTone 4904 TT N 34 5.0 5.1 9.7 9.5 2.5 14.1 -3.0 4.1 1.9 1.8
Taiwan Mobile 3045 TT N 47 5.3 5.2 8.5 8.6 5.4 37.4 1.9 1.7 2.8 2.8
AIS ADVANC TB UP 81 5.8 5.9 13.8 13.1 -1.1 23.9 -6.4 -12.8 3.3 3.4
TAC DTAC TB UP 29 4.4 4.4 6.2 5.7 -0.3 17.0 -5.9 -22.0 1.1 1.0
MobileOne M1 SP OP 2 5.4 5.5 9.4 9.8 na 71.9 -6.2 -9.1 6.1 5.7
MTN Group Ltd MTN SJ OP 8,793 3.1 2.8 7.2 5.8 0.3 32.4 33.4 33.9 2.1 1.7
Orascom Telecom ORTE EY NR 18 4.9 4.5 7.1 6.6
Vivo Participacoes Sa VIVO3 BZ NR 38 3.1 3.0 10.9 8.7
America Movil AMXL MM NR 19 5.1 4.9 8.1 7.1
Etihad Etisalat Co EEC AB NR 34 5.8 5.7 9.0 8.1
Saudi Telecom Co STC AB NR 37 5.3 5.1 5.5 5.3
Qatar Telecom QTEL QD NR 92 5.2 4.9 4.0 3.4
Average 4.6 4.3 9.1 8.4
Average (ex-China Mobile) 4.6 4.3 9.1 8.3

RCOM's valuation (discount)/premium to Bharti -17% -17% -48% -48% -74% -74%
Idea's valuation (discount)/premium to Bharti -6% 0% 33% 43% -70% -66%

Note: Prices as of 5 March 2009

Source: Bloomberg, Macquarie Research, March 2009

Bharti Airtel
RCOM is trading at a 17% discount to Bharti
on March 2010E EV/EBITDA
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Macquarie Research Equities - Flyer Bharti Airtel

Bharti Airtel – detailed financial statements

Fig 5 Bharti Airtel – annual income statement, fiscal year-end March

Particulars (Rs m) FY06 FY07 FY08 FY09E FY10E FY11E

Revenues
Services 114,638 184,152 269,004 368,886 445,410 501,493
Indefeasible right of use sales 418 436 436 436 436 436
Equipment 1,160 607 810 2,173 2,623 2,953
Total revenues 116,215 185,196 270,250 371,495 448,469 504,882

Operating expenses
Access & Interconnect Charges 32,933 48,330 68,011 89,875 103,869 112,162
(% of total revenues) 28.3% 26.1% 25.2% 24.2% 23.2% 22.2%
Network operations cost 11,742 21,100 33,001 57,646 67,270 70,683
(% of total revenues) 10.1% 11.4% 12.2% 15.5% 15.0% 14.0%
Employee costs 8,244 12,489 14,768 17,410 22,423 25,244
(% of total revenues) 7.1% 6.7% 5.5% 4.7% 5.0% 5.0%
Costs of equipment sales 1,169 589 661 2,813 4,485 5,049
(% of total revenues) 1.0% 0.3% 0.2% 0.8% 1.0% 1.0%
SG&A expenses 18,912 28,416 40,094 50,425 60,455 70,118
(% of total revenues) 16.3% 15.3% 14.8% 13.6% 13.5% 13.9%
Pre-operating cost 120 9 - - - -
(% of total revenues) 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
Total operating expense 73,120 110,932 156,535 218,169 258,502 283,257
(% of total revenues) 62.9% 59.9% 57.9% 58.7% 57.6% 56.1%

EBITDA 43,096 74,264 113,715 153,326 189,967 221,625

EBITDA margin 37.1% 40.1% 42.1% 41.3% 42.4% 43.9%
Interest expense (2,958) (3,044) (4,054) (29,578) (5,053) (6,069)
Interest income 446 1,606 1,713 13,174 2,713 3,371
Depreciation (15,610) (24,973) (37,260) (45,592) (51,917) (59,666)
Share of profits in associates / JV (5) (2) (1) (392)
Other income 499 1,064 2,740 1,448 1,665 1,831
Non operating expenses (103) (54) (317) (481)
Profit before taxes (PBT) 25,366 48,860 76,537 91,905 137,375 161,092
Income tax (expense) / benefit (2,539) (5,822) (8,378) (8,806) (23,354) (32,218)
Effective tax rate 10.0% 11.9% 10.9% 9.6% 17.0% 20.0%
Profit after taxes (PAT) 22,826 43,039 68,159 83,099 114,021 128,874
(Profit) / loss to minority shareholders (260) (467) (1,151) (1,909) (2,854) (3,347)
Adjusted net profit 22,567 42,572 67,008 81,189 111,167 125,527

Adjusted diluted EPS 12.0 22.5 35.3 42.8 58.6 66.2

YoY growth (%)

Service revenues 45.6 60.6 46.1 37.1 20.7 12.6
Total revenues 45.2 59.4 45.9 37.5 20.7 12.6
Operating expenses 44.8 51.7 41.1 39.4 18.5 9.6
SG&A 49.5 50.3 41.1 25.8 19.9 16.0
EBITDA 45.9 72.3 53.1 34.8 23.9 16.7
Net profit after taxes 50.7 88.6 57.4 24.8 33.1 12.9
Diluted EPS 50.7 87.2 57.3 24.7 33.1 12.9

Key parameters
ROE 29.5% 37.4% 37.4% 31.1% 32.3% 29.2%
RoCE 14.7% 19.5% 20.2% 19.8% 20.4% 21.2%
Fixed asset turnover (X) 0.82 0.88 0.86 0.84 0.84 0.86
Total asset turnover (X) 0.34 0.37 0.33 0.34 0.35 0.34
Source: Company Data, Macquarie Research, March 2009

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Macquarie Research Equities - Flyer Bharti Airtel

Fig 6 Bharti Airtel – annual balance sheet, fiscal year-end March

Particulars (Rs m) FY06 FY07 FY08 FY09E FY10E FY11E

ASSETS
Cash and cash equivalents 2,649 7,464 6,777 9,483 13,372 27,356
Accounts receivable, net 10,574 13,093 15,986 20,800 25,802 29,048
Unbilled receivables 3,629 4,890 12,076 13,582 12,287 13,832
Inventories 381 912 1,142 1,096 2,457 2,766
Short term investments 2,527 2,004 48,086 44,773 54,050 60,849
Deferred taxes on income 1,562 1,178 2,770 5,494 6,632 7,466
Derivative financial instruments 532 729 2,992 4,750 4,750 4,750
Restricted cash 189 134 85 84 84 84
Prepaid expenses/ current assets 9,590 13,711 23,522 31,021 25,802 29,048
Due from related parties 675 729 346 9,845 11,885 13,380
Total current assets 32,308 44,843 113,782 140,929 157,122 188,580

Property and equipment, net 142,411 210,604 313,407 444,048 535,812 584,724

Acquired intangible assets 14,873 14,116 13,204 13,478 13,478 13,478

Goodwill 23,687 23,684 27,043 27,043 27,043 27,043
Investment in associates and JV 190 182 108 112 112 112
Investments 500 500 - - - -
Restricted cash, non-current 56 54 58 54 54 54
Deferred taxes on income - 20 - - - -
Other assets 3,218 3,887 5,041 8,495 10,255 11,545
Total assets 217,243 297,888 472,643 634,159 743,876 825,537

LIABILITIES
Current liabilities
Short-term debt/current portion of long-term debt 12,892 10,925 19,348 22,458 23,341 18,848
Trade payables 14,130 16,877 18,749 28,365 31,870 34,922
Equipment supply payables 25,041 42,633 61,069 90,252 102,693 112,527
Accrued expenses 8,313 12,523 19,543 26,985 29,745 32,594
Unearned income 12,690 17,035 25,080 37,602 29,745 32,594
Unearned income- indefeasible right to use sales 336 336 336 436 436 436
Derivative financial instruments 1,583 1,981 3,184 239 239 239
Due to related parties 50 30 71 84 92
Other current liabilities 3,361 4,295 6,826 12,732 15,085 16,530
Deferred taxes on income - 14 - - - -
Total current liabilities 78,396 106,649 154,135 219,140 233,239 248,782
Long-term debt, net of current portion 34,503 41,536 77,715 89,832 93,362 75,392
Deferred taxes on income 3,508 3,616 5,301 4,674 5,642 6,352
Unearned income- Indefeasible right to use sales 4,136 3,800 3,464 3,296 3,296 3,296
Other liabilities 3,566 4,933 6,430 7,816 9,435 10,622
Total liabilities 124,108 160,534 247,045 324,757 344,975 344,444
Minority interest 957 1,801 3,013 9,892 9,892 9,892

Stockholders' equity
Common stock 18,939 18,959 18,979 18,981 18,981 18,981
Additional paid in capital 56,363 56,645 77,745 73,442 73,442 73,442
Deferred stock based compensation (419) - 12 45 45 45
Treasury stock (216) (134) (119) (110) (110) (110)
Retained earnings / (deficit) 17,511 60,083 125,964 207,152 296,651 378,842
Total stockholders' equity 92,178 135,553 222,585 299,510 389,009 471,200
Total liabilities and stockholders' equity 217,243 297,888 472,643 634,159 743,876 825,536

Ratios
Net debt/equity 0.4 0.3 0.19 0.19 0.13 0.0
Gross Debt/Equity 0.5 0.4 0.4 0.37 0.3 0.2
WC/Revenues (%) -42% -37% -17% -24% -20% -17%
Net working capital days <Days of Gross Sales> (153.1) (136.5) (63.7) (86.1) (72.8) (63.3)
Source: Company Data, Macquarie Research, March 2009

6 March 2009 8
Macquarie Research Equities - Flyer Bharti Airtel

Fig 7 Bharti Airtel – annual cashflow statement, fiscal year-end March

Particulars (Rs m) FY06 FY07 FY08 FY09E FY10E FY11E

Cashflow from operating activities

Net (loss) / profit 22,567 42,572 67,008 81,189 111,167 125,527
Depreciation and amortization 15,610 24,973 36,922 45,592 51,917 59,666
Deferred tax expense 767 491 (36) (3,351) (170) (124)
Share of (profits) / losses in joint venture 5 2 1 - - -
(Gain) / loss on sale of property and equipment (25) (15) 65
Interest income earned (15) - -
Deferred stock based compensation 159 235 339 - - -
Fair value loss / (gain) on trading securities (98) (327) (587)
Finance costs charged 79 12 1
Unrealized foreign exchange gain 1,320 (1,632) 1,227
Provision for impairment of receivables and advances 2,073 4,010 3,240
Debt origination costs amortised 13 519 274
Fair value loss / (gain) on derivatives and other (124) 248 (904) - - -
financial expenses
Minority interest 260 467 1,151 - -
Indefeasible right to use sales (418) (436) (436) - - -
Current tax impact on ESOP exercised 2 0 -
Proceeds from Indefeasible right to use sales 649 101 101
Changes in Working Capital: 6,085 (509) (5,072) 50,827 13,354 11,682
Accounts receivable (5,316) (5,351) (6,938) (4,814) (5,002) (3,246)
Inventories 164 (531) (230) 46 (1,361) (309)
Unbilled receivables and other current assets (5,852) (6,627) (16,965) (9,005) 6,514 (4,791)
Trade payables 6,512 2,096 1,826 38,799 15,946 12,886
Accrued expenses 2,339 4,210 5,818 7,442 2,761 2,848
Unearned income and other current liabilities 8,237 5,693 11,418 18,360 (5,503) 4,293

Other non-current liabilities 571 952 557 1,386 1,619 1,187

Non-current assets (641) (1,040) (1,748) (3,454) (1,760) (1,290)
Due to / from related parties, net (518) (75) 382 (9,428) (2,027) (1,487)
Net cash provided by/(used in) operating activities 48,320 70,549 102,484 162,761 174,101 195,160

Cashflows from investing activities

Purchase of property and equipment (57,309) (74,294) (126,258) (184,807) (143,680) (108,578)
Proceeds from sale of property and equipment 1,092 1,097 12,270 8,299 (0) 0
Proceeds of short term investments - - - - - -
Proceeds from sale of marketable securities - - - - - -
Acquisition of intangible assets (288) (504) (2,195) - - -
Non-current investments 11 (0) 500 (4,703) - -
Restricted cash (7) 58 45 5 - -
Investment in joint ventures (35) 5 (59) (4) - -
Short term investments 2,564 850 (45,440) 3,313 (9,277) (6,799)
Licence entry fees - (456) -
Cash paid for acquisition of subsidiaries, net (122) 14,873 -
Net cash used in investing activities (54,095) (72,788) (146,720) (177,897) (152,957) (115,377)

Cashflows from financing activities

Net movement in cash credit and bank overdraft 1,629 (861) 2,227 -
Proceeds from issuance of short-term borrowings 4,451 1,954 2,229 3,110 883 (4,493)
Repayment of short-term borrowings (43) (4,486) (1,954) -
Proceeds from issuance of long-term borrowings 18,334 34,237 50,662 12,117 3,531 (17,970)
Repayment of long-term borrowings (18,841) (24,129) (9,673) -
Proceeds from exercise of stock options 60 110 199 -
Additional paid in capital - 375 - (4,264) - -
Due to related parties,/ changes in minority interest 3 1 12 6,879
Dividend (including dividend tax) - - - - (21,668) (43,336)
Cash paid for debt issue costs (255) (148) (152) - - -
Net cash provided by/(used in) financing activities 5,337 7,053 43,550 17,842 (17,255) (65,799)

Net (decrease) / increase in cash during the year (438) 4,814 (686) 2,706 3,889 13,985
Add : Balance as at the beginning of the year 3,087 2,649 7,464 6,777 9,483 13,372
Balance as at the end of the year 2,649 7,464 6,777 9,483 13,372 27,356
Source: Company Data, Macquarie Research, March 2009

6 March 2009 9
Macquarie Research Equities - Flyer Bharti Airtel

Fig 8 Key quarterly operating & financial metrics – Wireless business: Bharti and RCOM
Bharti Airtel - Actuals for 3QFY09
March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Wireless Revenues (Rs m) 42,431 46,976 50,579 56,105 64,201 69,150 72,843 79,392
YoY growth (%) 75.8 65.3 53.2 49.3 51.3 47.2 44.0 41.5
QoQ growth (%) 12.9 10.7 7.7 10.9 14.4 7.7 5.3 9.0
Subscribers (m) 37.14 42.70 48.88 55.16 61.98 69.38 77.48 85.65
YoY growth (%) 89.7 85.1 80.6 72.5 66.9 62.5 58.5 55.3
QoQ growth (%) 16.2 15.0 14.5 12.9 12.4 11.9 11.7 10.5
Gross ARPU (Rs) 406 390 366 358 357 350 331 324
YoY growth (%) -8.1 -11.5 -16.5 -16.2 -12.1 -10.4 -9.5 -9.3
QoQ growth (%) -4.8 -3.9 -6.3 -2.2 -0.2 -2.1 -5.3 -2.0
Avg. monthly MoUs per subscriber 475 478 469 474 507 534 526 505
YoY growth (%) 10.1 8.3 3.9 1.4 6.8 11.8 12.2 6.7
QoQ growth (%) 1.6 0.7 -1.9 1.1 7.0 5.4 -1.6 -3.9
ARPM (Rs) 0.86 0.82 0.78 0.76 0.70 0.65 0.63 0.64
YoY growth (%) -16.6 -18.3 -19.6 -17.3 -17.7 -19.9 -19.4 -14.9
QoQ growth (%) -6.3 -4.5 -4.4 -3.3 -6.7 -7.1 -3.8 2.1
Total minutes carried (m) 49,240 57,125 64,375 73,840 89,058 105,217 115,834 123,626
YoY growth (%) 112.4 102.6 90.2 78.8 80.9 84.2 79.9 67.4
QoQ growth (%) 19.2 16.0 12.7 14.7 20.6 18.1 10.1 6.7
Avg. EBITDA per minute (Rs) 0.34 0.33 0.32 0.31 0.26 0.20 0.19 0.20
YoY growth (%) -10.4 -9.0 -10.3 -9.3 -24.2 -39.6 -41.0 -34.8
QoQ growth (%) -1.2 -1.1 -3.5 -3.8 -17.4 -21.2 -5.7 6.3
Wireless EBITDA (Rs m) 16,604 19,087 20,728 22,887 22,779 21,218 22,009 24,963
YoY growth (%) 89.8 84.6 70.2 62.0 37.2 11.2 6.2 9.1
QoQ growth (%) 17.5 15.0 8.6 10.4 -0.5 -6.9 3.7 13.4
EBITDA margin (%) 39.1 40.6 41.0 40.8 35.5 30.7 30.2 31.4
YoY expansion (basis points) 289.2 423.4 410.0 319.5 -365.1 -994.7 -1,076.7 -935.0
QoQ expansion (basis points) 153.4 150.0 35.0 -18.8 -531.2 -479.7 -47.0 122.8
Blended Churn 3.6% 4.0% 3.8% 3.9% 4.3% 3.8% 3.2% 2.9%
VAS as % of total revenue 10.1% 9.9% 9.8% 9.3% 9.4% 9.7% 10.0% 9.5%
YoY growth (%) -5.6 -8.3 -4.9 -10.6 -6.9 -2.0 2.0 2.2
QoQ growth (%) -2.9 -2.0 -1.0 -5.1 1.1 3.2 3.1 -5.0
Total Cell Sites 39,224 45,784 52,826 60,299 69,141 75,876 82,554 88,319
YoY growth (%) 87.0 81.9 75.9 75.8 76.3 65.7 56.3 46.5
QoQ growth (%) 14.3 16.7 15.4 14.1 14.7 9.7 8.8 7.0
Wireless Capex (Rs m) 10,706 32,806 28,661 27,538 17,995 32,227 23,396 29,012
YoY growth (%) -39.4 81.7 4.4 76.6 68.1 -1.8 -18.4 5.4
QoQ growth (%) -31.4 206.4 -12.6 -3.9 -34.7 79.1 -27.4 24.0
Total Population Centres covered 212,003 248,439 294,876 325,525 347,646 369,335 389,571 406,939
YoY growth (%) 151.2 135.2 85.0 79.7 64.0 48.7 32.1 25.0
QoQ growth (%) 17.0 17.2 18.7 10.4 6.8 6.2 5.5 4.5
Total employees 20,314 22,955 23,264 24,703 25,543 26,144 25,616 25,553
YoY growth (%) na na na 35.6 25.7 13.9 10.1 3.4
QoQ growth (%) 11.5 13.0 1.3 6.2 3.4 2.4 -2.0 -0.2

Reliance Communications - Actuals for 3QFY09

March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Wireless Revenues (Rs m) 29,692 33,730 37,230 39,567 41,608 41,187 43,356 44,119
YoY growth (%) 40.0 38.7 44.6 43.8 40.1 22.1 16.5 11.5
QoQ growth (%) 7.9 13.6 10.4 6.3 5.2 -1.0 5.3 1.8
Subscribers (m) 28.01 31.87 36.32 40.96 45.79 50.79 56.05 61.35
YoY growth (%) 38.6 41.5 39.8 36.6 63.5 59.4 54.3 49.8
QoQ growth (%) -6.6 13.8 14.0 12.8 11.8 10.9 10.4 9.5
Gross ARPU (Rs) 377 375 361 339 317 282 271 251
YoY growth (%) -0.5 -1.1 2.0 3.4 -15.9 -24.8 -24.9 -26.0
QoQ growth (%) 14.9 -0.5 -3.7 -6.1 -6.5 -11.0 -3.9 -7.4
Avg. monthly MoUs per subscriber 541 510 490 449 430 425 423 410
YoY growth (%) 1.7 3.9 6.3 -1.1 -20.5 -16.7 -13.7 -8.7
QoQ growth (%) 19.2 -5.7 -3.9 -8.4 -4.2 -1.2 -0.4 -3.1
ARPM (Rs) 0.70 0.74 0.74 0.76 0.74 0.66 0.64 0.61
YoY growth (%) -2.2 -4.7 -4.1 4.5 5.8 -9.7 -13.0 -18.9
QoQ growth (%) -3.5 5.5 0.2 2.5 -2.4 -9.9 -3.5 -4.4
Total minutes carried (m) 47,057 45,805 50,122 52,054 55,959 61,527 67,786 72,195
YoY growth (%) na na na na na na na na
QoQ growth (%) na na na na na na na na
Avg. EBITDA per minute (Rs) 0.27 0.29 0.26 0.30 0.30 0.27 0.25 0.23
YoY growth (%) 6.3 5.2 -4.9 12.5 10.7 -7.4 -5.6 -24.3
QoQ growth (%) 0.2 8.0 -9.9 15.3 -1.4 -9.7 -8.1 -7.5
Wireless EBITDA (Rs m) 11,511 13,392 14,873 15,819 16,763 16,623 16,859 16,616
YoY growth (%) 52.0 53.1 60.0 53.7 45.6 24.1 13.4 5.0
QoQ growth (%) 11.8 16.3 11.1 6.4 6.0 -0.8 1.4 -1.4
EBITDA margin (%) 38.8 39.7 39.9 40.0 40.3 40.4 38.9 37.7
YoY expansion (basis points) 306.6 374.1 384.6 257.1 152.0 65.6 -106.4 -231.9
QoQ expansion (basis points) 135.9 93.6 24.5 3.1 30.8 7.2 -147.5 -122.3
Blended Churn nmf nmf 1.5% 1.4% 1.4% 1.4% 1.3% 1.0%
VAS as % of total revenue 6.3% 5.7% 6.2% 6.4% 6.9% 7.6% 7.3% 7.4%
YoY growth (%) 3.3 -8.1 -1.6 1.6 9.5 33.3 17.7 15.6
QoQ growth (%) 0.0 -9.5 8.8 3.2 7.8 10.1 -3.9 1.4
Total Cell Sites na na na na na na na na
YoY growth (%) na na na na na na na na
QoQ growth (%) na na na na na na na na
Wireless Capex (Rs m) 9,860 14,973 49,685 60,605 46,442 56,926 33,260 32,508
YoY growth (%) na 110.2 231.6 401.3 371.0 280.2 -33.1 -46.4
QoQ growth (%) -18.4 51.9 231.8 22.0 -23.4 22.6 -41.6 -2.3

Source: Company data, Macquarie Research, March 2009

6 March 2009 10
Macquarie Research Equities - Flyer Bharti Airtel

Fig 9 Key quarterly operating & financial metrics – Wireless business: Vodafone Essar, Idea and MTNL
Vodafone Essar - Actuals for 3QFY09
March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A
Wireless revenues (in Rsm) na na 34,891 36,300 41,887 46,474 47,498 51,481
YoY growth (%) na na na na na na 36.1 41.8
QoQ growth (%) na na na 4.0 15.4 11.0 2.2 8.4
Wireless revenues (in GBPm) na na 440 491 559 565 574 674
YoY growth (%) na na na na na na 30.5 37.3
QoQ growth (%) na na na 11.6 13.8 1.1 1.6 17.4
Subscribers (m) 26.44 30.75 33.68 35.66 44.13 49.20 54.63 60.93
YoY growth (%) 72.1 75.3 65.5 53.0 66.9 60.0 62.2 70.9
QoQ growth (%) 13.5 16.3 9.5 5.9 23.7 11.5 11.0 11.5
Gross ARPU (Rs) 405 na 361 349 350 332 305 297
YoY growth (%) -10.7 na -14.0 -15.7 -13.6 na -15.5 -14.9
QoQ growth (%) -2.1 na na -3.3 0.3 -5.1 -8.1 -2.6
Avg. monthly MoUs per subscriber 432 415 373 384 391 374 364 355
YoY growth (%) 14.3 5.9 -8.2 -10.5 -9.6 na -2.2 -7.4
QoQ growth (%) 0.7 -3.9 -10.3 3.0 1.8 -4.2 -2.6 -2.5
ARPM (Rs) 0.94 na 0.97 0.91 0.90 0.89 0.84 0.84
YoY growth (%) -21.9 na -6.3 -5.8 -4.4 na -13.6 -8.1
QoQ growth (%) -2.8 na na -6.1 -1.5 -0.9 -5.7 -0.2
Total minutes carried (m) 32,242 35,626 36,011 39,913 46,734 52,349 56,745 61,606
YoY growth (%) na na na na na na 57.6 54.4
QoQ growth (%) na na na 10.8 17.1 12.0 8.4 8.6
Blended Churn na na na na na na na na
Total Cell Sites na na na 41,000 48,000 52,000 59,000 69,000
YoY growth (%) na na na na na na na 68.3
QoQ growth (%) na na na na 17.1 8.3 13.5 16.9

Idea Cellular - Actuals for 3QFY09

March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Wireless Revenues (Rs m) 13,057 14,773 15,622 17,081 19,724 21,735 22,992 27,286
YoY growth (%) na 65.2 56.1 49.0 51.1 47.1 47.2 59.7
QoQ growth (%) 13.9 13.1 5.7 9.3 15.5 10.2 5.8 18.7
Subscribers (m) 14.01 16.13 18.67 21.05 24.00 27.19 30.38 34.21
YoY growth (%) na 88.9 80.2 69.2 71.3 68.6 62.7 42.5
QoQ growth (%) 12.6 15.1 15.8 12.8 14.0 13.3 11.7 12.6
Gross ARPU (Rs) 317 320 288 279 287 278 261 266
YoY growth (%) na -15.2 -14.0 -13.4 -9.5 -13.1 -9.4 -4.7
QoQ growth (%) -1.6 0.9 -10.0 -3.1 2.9 -3.1 -6.1 1.9
Avg. monthly MoUs per subscriber 387 381 360 377 411 428 417 410
YoY growth (%) na 7.0 4.7 2.2 6.2 12.3 15.8 8.8
QoQ growth (%) 4.9 -1.6 -5.5 4.7 9.0 4.1 -2.6 -1.7
ARPM (Rs) 0.82 0.84 0.80 0.74 0.70 0.65 0.62 0.65
YoY growth (%) na -20.8 -17.9 -15.2 -14.8 -22.7 -22.5 -12.3
QoQ growth (%) -6.1 2.5 -4.8 -7.5 -5.6 -7.0 -4.5 4.6
Total minutes carried (m) 15,469 17,100 18,831 22,457 27,824 33,087 36,315 40,254
YoY growth (%) na 111.2 93.4 77.8 79.9 93.5 92.8 79.2
QoQ growth (%) 22.5 10.5 10.1 19.3 23.9 18.9 9.8 10.8
Avg. EBITDA per minute (Rs) 0.27 0.30 0.27 0.25 0.24 0.22 0.17 na
YoY growth (%) na -16.1 -21.1 -14.0 -12.7 -26.4 -38.5 na
QoQ growth (%) -7.3 9.6 -8.9 -7.1 -5.8 -7.6 -23.8 na
Wireless EBITDA (Rs m) 4,363 5,128 5,107 5,672 6,606 7,219 6,024 6,950
YoY growth (%) na 69.8 43.9 53.1 51.4 40.8 18.0 22.5
QoQ growth (%) 17.7 17.5 -0.4 11.1 16.5 9.3 -16.6 15.4
EBITDA margin (%) 33.4 34.7 32.7 33.2 33.5 33.2 26.2 25.5
YoY expansion (basis points) na 93.7 -275.2 88.1 7.9 -149.6 -649.1 -773.7
QoQ expansion (basis points) 108.8 129.6 -201.9 51.6 28.6 -27.8 -701.5 -73.0
Blended Churn 4.2% 4.2% 4.5% 4.7% 4.6% 4.0% 3.9% 4.3%
VAS as % of total revenue 9.0% 8.4% 8.3% 8.0% 8.2% 8.9% 9.8% 9.5%
YoY growth (%) na -8.7 -13.5 -13.0 -8.9 6.0 18.1 18.8
QoQ growth (%) -2.2 -6.7 -1.2 -3.6 2.5 8.5 10.1 -3.1
Total Cell Sites na 13,160 17,105 21,197 24,793 27,594 33,377 39,286
YoY growth (%) na na na na na 109.7 95.1 85.3
QoQ growth (%) na na 30.0 23.9 17.0 11.3 21.0 17.7
Total capex (Rs m) na 11,062 12,352 11,946 19,161 19,817 11,950 13,525
YoY growth (%) na na na na na 79.1 -3.3 13.2
QoQ growth (%) na na 11.7 -3.3 60.4 3.4 -39.7 13.2
Total Population Centres covered 4,432 6,066 8,413 11,104 13,308 na na na
YoY growth (%) na 167.1 177.6 207.8 200.3 na na na
QoQ growth (%) 22.9 36.9 38.7 32.0 19.8 na na na
Total employees 5,532 5,638 5,865 5,923 6,107 6,380 6,521 6,670
YoY growth (%) na 27.5 27.6 27.5 10.4 13.2 11.2 12.6
QoQ growth (%) 19.0 1.9 4.0 1.0 3.1 4.5 2.2 2.3

MTNL- Actuals for 3QFY09

March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Wireless Revenues (Rs m) 1,974 2,241 2,523 2,329 2,409 2,298 2,332 2,269
YoY growth (%) 15.1 11.1 26.4 6.3 22.0 2.5 -7.6 -2.6
QoQ growth (%) -9.9 13.5 12.6 -7.7 3.4 -4.6 1.5 -2.7
Subscribers (m) 2.94 2.81 2.99 3.21 3.53 3.72 3.96 4.18
YoY growth (%) 43.7 25.0 26.3 26.5 20.1 32.2 32.2 30.2
QoQ growth (%) 15.9 -4.4 6.5 7.2 10.0 5.3 6.4 5.6
Blended ARPU GSM (Rs) 228 253 284 242 237 213 207 188
YoY growth (%) -24.2 -12.5 4.2 -12.6 3.7 -15.7 -27.2 -22.2
QoQ growth (%) -17.7 10.7 12.6 -14.8 -2.3 -10.0 -2.8 -9.0

Source: Company data, Macquarie Research, March 2009

6 March 2009 11
Macquarie Research Equities - Flyer Bharti Airtel

Fig 10 Key annual operating & financial metrics – Wireless business: Bharti and RCOM
Bharti Airtel
March Year ends; Rs million FY06 FY07 FY08 FY09E FY10E FY11E

Wireless Revenues (Rs m) 82,392 141,443 217,861 298,142 356,772 397,021

YoY growth (%) 52.5 71.7 54.0 36.8 19.7 11.3
Subscribers (m) 19.58 37.14 61.98 93.08 119.48 137.48
YoY growth (%) 78.2 89.7 66.9 50.2 28.4 15.1
Gross ARPU (Rs) 474 427 370 321 280 258
YoY growth (%) -7.7 -9.9 -13.3 -13.3 -12.8 -7.9
Avg. monthly MoUs per subscriber 407 461 483 532 529 532
YoY growth (%) -37.5 13.3 4.9 10.1 -0.5 0.6
ARPM (Rs) 1.17 0.93 0.77 0.60 0.53 0.48
YoY growth (%) -22.1 -20.5 -17.3 -21.2 -12.4 -8.5
Total minutes carried (m) 70,456 152,583 284,399 494,449 591,197 657,892
YoY growth (%) na 116.6 86.4 73.9 19.6 11.3
Avg. EBITDA per minute (Rs) 0.40 0.34 0.30 0.18 0.17 0.16
YoY growth (%) -2.7 -14.8 -12.4 -37.9 -10.2 -5.0
Wireless EBITDA (Rs m) 29,712 53,253 85,481 91,373 111,950 129,261
YoY growth (%) 60.4 79.2 60.5 6.9 22.5 15.5
EBITDA margin (%) 36.1 37.6 39.2 30.6 31.4 32.6
YoY expansion (basis points) 177.7 158.8 158.7 -858.9 73.1 117.9
VAS as % of total revenue 10.4% 10.4% 9.6% 10.3% 11.4% 12.3%
YoY growth (%) 29.8 -0.1 -7.6 7.6 11.0 7.8
Wireless Capex (Rs m) 41,594 71,801 99,136 140,164 110,269 81,959
YoY growth (%) 39.4 72.6 38.1 41.4 -21.3 -25.7
Total Population Centres covered - 4,432 13,308 na na na
YoY growth (%) na na 200.3 na na na
Total employees na 5,532 6,107 na na na
YoY growth (%) na na 10.4 na na na

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

Wireless Revenues (Rs m) 73,643 107,276 152,135 174,797 211,582 239,867

YoY growth (%) na 45.7 41.8 14.9 21.0 13.4
Subscribers (m) 20.21 28.01 45.79 73.66 96.23 116.96
YoY growth (%) na 38.6 63.5 60.8 30.6 21.5
Gross ARPU (Rs) 401 358 345 255 208 188
YoY growth (%) na -10.7 -3.6 -26.1 -18.6 -9.7
Avg. monthly MoUs per subscriber 538 486 466 412 385 378
YoY growth (%) na -9.6 -4.3 -11.5 -6.6 -1.8
ARPM (Rs) 0.75 0.74 0.74 0.62 0.54 0.50
YoY growth (%) na -1.3 0.7 -16.5 -12.9 -8.0
Total minutes carried (m) 110,691 150,178 203,940 282,045 392,594 483,749
YoY growth (%) na 35.7 35.8 38.3 39.2 23.2
Avg. EBITDA per minute (Rs) 0.23 0.27 0.29 0.24 0.20 0.19
YoY growth (%) na 21.3 6.3 -18.9 -14.0 -5.4
Wireless EBITDA (Rs m) 22,490 39,846 60,847 66,761 79,669 92,858
YoY growth (%) na 77.2 52.7 9.7 19.3 16.6
EBITDA margin (%) 30.5 37.1 40.0 38.2 37.7 38.7
YoY expansion (basis points) na 660.4 285.2 -180.2 -53.9 105.8
VAS as % of total revenue 5.9% 6.3% 6.3% 7.3% 9.3% 11.4%
YoY growth (%) na 6.5 0.9 15.5 27.1 22.3
Wireless Capex (Rs m) na 44,055 171,705 201,402 102,106 89,493
YoY growth (%) na na 289.8 17.3 -49.3 -12.4

Source: Company data, Macquarie Research, March 2009

6 March 2009 12
Macquarie Research Equities - Flyer Bharti Airtel

Fig 11 Key annual operating & financial metrics – Wireless business: Idea and MTNL
Idea Cellular
March Year ends; Rs million FY06 FY07 FY08 FY09E FY10E FY11E

Wireless Revenues (Rs m) 29,489 43,500 67,199 93,716 111,193 126,398

YoY growth (%) 31.3 47.5 54.5 39.5 18.6 13.7
Subscribers (m) 7.37 14.01 24.00 36.84 49.38 57.10
YoY growth (%) 45.3 90.2 71.3 53.5 34.0 15.6
Gross ARPU (Rs) 391 339 295 257 215 198
YoY growth (%) -5.6 -13.3 -13.1 -12.9 -16.3 -8.0
Avg. monthly MoUs per subscriber 289 353 395 427 422 416
YoY growth (%) 16.5 22.1 11.9 8.0 -1.1 -1.3
ARPM (Rs) 1.35 0.96 0.75 0.60 0.51 0.48
YoY growth (%) -19.0 -29.0 -22.4 -19.4 -15.3 -6.7
Total minutes carried (m) 20,921 45,931 86,212 155,384 218,217 265,936
YoY growth (%) 61.3 119.5 87.7 80.2 40.4 21.9
Avg. EBITDA per minute (Rs) 0.49 0.29 0.25 0.17 0.15 0.14
YoY growth (%) -21.7 -41.1 -13.5 -32.0 -13.5 -5.0
Wireless EBITDA (Rs m) 10,674 14,653 22,517 26,568 32,109 38,837
YoY growth (%) 30.0 37.3 53.7 18.0 20.9 21.0
EBITDA margin (%) 36.0 33.6 33.5 28.3 28.9 30.7
YoY expansion (basis points) -40.2 -243.6 -5.0 -515.8 52.7 184.9
VAS as % of total revenue 7.5% 9.0% 8.2% 9.3% 10.2% 11.3%
YoY growth (%) 0.0 20.0 -8.7 13.3 9.3 10.7
Total Capex (Rs m) 5,293 22,819 55,726 80,465 73,604 50,694
YoY growth (%) -2.9 331.1 144.2 44.4 -8.5 -31.1
Total Population Centres covered 1,944 4,432 13,308 na na na
YoY growth (%) 76.9 128.0 200.3 na na na
Total employees 3,720 5,532 6,107 na na na
YoY growth (%) na 48.7 10.4 na na na

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

Wireless Revenues (Rs m) 5,611 7,334 8,601 8,424 7,915 7,260

YoY growth (%) 95.2 30.7 17.3 -2.1 -6.0 -8.3
Subscribers (m) 2.05 3.05 3.70 4.55 4.79 4.91
YoY growth (%) 89.8 49.2 21.1 23.1 5.3 2.5
Gross ARPU (Rs) 331 261 239 191 156 137
YoY growth (%) -14.1 -21.3 -8.2 -20.3 -18.4 -12.0
Total employees 51,212 48,529 47,422 na na na
YoY growth (%) -6.0 -5.2 -2.3 na na na

Source: Company data, Macquarie Research, March 2009

6 March 2009 13
Macquarie Research Equities - Flyer Bharti Airtel

Bharti Airtel Limited (BHARTI IN, Outperform, Target price: Rs975.00)

Balance Sheet 2008A 2009E 2010E 2011E Profit & Loss 2008A 2009E 2010E 2011E

Cash m 54,863 54,256 67,422 88,205 Revenue m 270,250 371,495 448,469 504,882
Receivables m 28,062 34,383 38,089 42,880 Gross Profit m 153,810 203,751 250,422 291,743
Inventories m 1,142 1,096 2,457 2,766 Cost of Goods Sold m 116,440 167,744 198,048 213,139
Investments m 0 0 0 0 EBITDA m 113,718 153,326 189,967 221,625
Fixed Assets m 313,407 444,048 535,812 584,724 Depreciation m 37,261 45,592 51,917 59,666
Intangibles m 27,043 27,043 27,043 27,043 Amortisation of Goodwill m 0 0 0 0
Other Assets m 48,126 73,333 73,053 79,918 Other Amortisation m 0 0 0 0
Total Assets m 472,643 634,159 743,876 825,537 EBIT m 76,457 107,734 138,050 161,958
Payables m 79,818 118,617 134,563 147,449 Net Interest Income m -2,341 -16,404 -2,340 -2,697
Short Term Debt m 19,348 22,458 23,341 18,848 Associates m -1 -392 0 0
Long Term Debt m 77,715 89,832 93,362 75,392 Exceptionals m 0 0 0 0
Provisions m 0 0 0 0 Forex Gains / Losses m 0 0 0 0
Other Liabilities m 70,164 93,851 93,709 102,755 Other Pre-Tax Income m 2,423 967 1,665 1,831
Total Liabilities m 247,045 324,757 344,975 344,444 Pre-Tax Profit m 76,538 91,905 137,375 161,092
Shareholders' Funds m 222,581 299,510 389,009 471,200 Tax Expense m -8,379 -8,806 -23,354 -32,218
Minority Interests m 3,013 9,892 9,892 9,892 Net Profit m 68,159 83,099 114,021 128,874
Other m 0 0 0 0 Minority Interests m -1,150 -1,909 -2,854 -3,347
Total S/H Equity m 225,594 309,402 398,901 481,092
Total Liab & S/H Funds m 472,639 634,159 743,876 825,536 Reported Earnings m 67,009 81,189 111,167 125,527
Adjusted Earnings m 67,009 81,189 111,167 125,527

EPS (rep) 35.31 42.79 58.60 66.17

EPS (adj) 35.31 42.79 58.60 66.17
EPS Growth (adj) % 57.2 21.2 36.9 12.9

Total DPS 0.00 0.00 10.00 10.00

Total Div Yield % 0.0 0.0 1.6 1.6
Weighted Average Shares m 1,898 1,897 1,897 1,897
Period End Shares m 1,895 1,896 1,896 1,896

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

Revenue Growth % 45.9 37.5 20.7 12.6 EBITDA m 104,369 123,431 162,914 185,069
EBITDA Growth % 52.6 34.8 23.9 16.7 Tax Paid m 0 0 0 0
EBIT Growth % 55.1 40.9 28.1 17.3 Chgs in Working Cap m 17,448 50,827 13,354 11,682
Gross Profit Margin % 56.9 54.8 55.8 57.8 Net Interest Paid m 0 0 0 0
EBITDA Margin % 42.1 41.3 42.4 43.9 Other m 695 -11,497 -2,168 -1,590
EBIT Margin % 28.3 29.0 30.8 32.1 Operating Cashflow m 122,512 162,761 174,101 195,160
Net Profit Margin % 25.2 22.4 25.4 25.5 Acquisitions m -46,568 -1,394 -9,277 -6,799
Payout Ratio % 0.0 0.0 17.1 15.1 Capex m -138,468 -184,807 -143,680 -108,578
EV/EBITDA x 10.8 8.0 6.4 5.5 Asset Sales m -4,044 8,299 -0 0
EV/EBIT x 16.0 11.4 8.9 7.6 Other m 44 5 0 0
Investing Cashflow m -189,036 -177,897 -152,957 -115,377
Balance Sheet Ratios Dividend (Ordinary) m 0 0 -21,668 -43,336
ROE % 37.4 31.1 32.3 29.2 Equity Raised m 20,019 -4,264 0 0
ROA % 19.8 19.5 20.0 20.6 Debt Movements m 44,602 15,227 4,413 -22,463
ROIC % 37.8 36.4 31.2 28.9 Other m 1,212 6,879 0 0
Net Debt/Equity % 18.7 18.8 12.4 1.3 Financing Cashflow m 65,833 17,842 -17,255 -65,799
Interest Cover x 32.7 6.6 59.0 60.0
Price/Book x 5.3 3.9 3.0 2.5 Net Chg in Cash/Debt m -691 2,706 3,889 13,985
Book Value per Share 117.5 158.0 205.2 248.5

Note: All figures in INR unless noted.

Source: Macquarie Research, January 2009

6 March 2009 14
Macquarie Research Equities - Flyer Bharti Airtel

Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand
Outperform – return >5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie First South - South Africa
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Macquarie - Canada
Outperform – return >5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Macquarie - USA
Outperform (Buy) – return >5% in excess of benchmark
return
Neutral (Hold) – return within 5% of benchmark return
Underperform (Sell)– return >5% below benchmark
return
Recommendations – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Volatility index definition*
This is calculated from the volatility of historical
price movements.
Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year –
investors should be aware this stock is highly
speculative.
High – stock should be expected to move up or
down at least 40–60% in a year – investors should
be aware this stock could be speculative.
Medium – stock should be expected to move up or
down at least 30–40% in a year.
Low–medium – stock should be expected to move
up or down at least 25–30% in a year.
Low – stock should be expected to move up or
down at least 15–25% in a year.
* Applicable to Australian/NZ/Canada stocks only
Financial definitions
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging,
IFRS impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
EPS = adjusted net profit / efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average
number of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).

Recommendation proportions – For quarter ending 31 December 2008

AU/NZ Asia RSA USA CA EUR
Outperform 38.55% 50.61% 64.52% 53.13% 65.55% 43.00%
Neutral 41.82% 15.92% 25.81% 40.63% 27.73% 48.00%
Underperform 19.64% 33.47% 9.68% 6.25% 6.72% 9.00%

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6 March 2009 15
Macquarie Research Equities - Flyer Bharti Airtel

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March 09