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[mehak1]

Bharti has guided for a capex of US$2.5bn ex-Infratel business in FY09 and plans to ramp up population coverage to 80-85%. We expect a CAGR of 29% in wireless subscribers over next two years (103mn by FY10E), while sales and earnings would grow at a compounded rate of 27.4% and 35.9% respectively over the same period.

We value Bharti’s core wireless business on a DCF basis with 12. 1% WACC and terminal growth of 3% for a price of Rs943. With Infratel and Indus combine likely to add about 35,000 towers in FY09 and assured tenancy on Indus, the tower JV, we put the value of tower arm at US$8.7bn, or Rs180 per share of Bharti. At our target price of Rs1,123,
Bharti trades at a P/E of 18.3x and EV/EBIDTA of 8.3x FY10E earnings.

As network coverage reaches a majority of population, mobile capex would gradually decline which implies company would have significant free cash flows going forward (estimated US$3.1bn by FY10) that could be used for inorganic growth or to bid aggressively in 3G auctions.

Revenues increase 13.1% qoq driven by 12.4% qoq subscriber growth; FY08
subscriber adds up 67%

Q4 wireless margins fall 360bps yoy on transfer of passive infrastructure to Infratel

Q4 PAT higher by 32.9% qoq on lower interest cost

Ends FY08 with 67% jump in mobile base

Bharti ended FY08 with nearly 62mn wireless subscribers giving it a 23.4% market
share. Although ARPU was flat qoq, it declined 12% yoy as incremental additions
have been mostly in the low ARPU rural and semi urban areas. Minutes of Usage
per subscriber, however, jumped 7% qoq, the largest in the past three years on
account of tariff rationalization (maximum call rate of 1 Re) and higher usage by
lifetime customers which formed a substantial 37% of the subscriber base.

FY08 margins improve on lower access charges, staff costs

Operating margins in FY08 improved by 185bps yoy as access charges and staff
costs declined. In Q4, Bharti transferred passive infrastructure worth Rs82bn to
Bharti Infratel. This, coupled with increased marketing spends to acquire new
customers and tariff rationalization led to 360bps yoy drop in mobile margins.

REPORT CARD:

PE ratio             27.42         29/04/08
EPS (Rs)            32.90        Mar, 08
Sales (Rs crore)      7,413.73      Mar, 08
Face Value (Rs)              10   
Net profit margin (%)   22.42     Mar, 07
Return on average equity  35.35    Mar, 07