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India Telecom Strategy It’s all about THE Spectrum!!

TELECOM: Sector Update 30 September 2014

PhillipCapital (India) Pvt. Ltd.

The Indian Telecom industry is at a critical juncture as it is witnessing a paradigm change in product offering and industry structure. The sector over the next four years will witness 1/ Mega 900MHz spectrum auctions, 2/Launch of Reliance Jio 3/Bifurcation of operators in terms of data capability, 4/ Rise in capex requirements for data and 5/ Level playing field after 700MHz auctions. The outcome of all these events is uncertain but we believe the following will be the key deciding factors to position the telecom portfolio over the medium and long‐term: RJio impactful launch at least 1‐year away; Compelling voice proposition critical: RJio ambitious project with start‐up investment of US$ 8bn requires scale; and without compelling voice proposition, network reach and scalable technological platform, RJio has limited market. We believe RJio will have to target 850MHz spectrum to provide compelling and competitive voice offering. The availability of this spectrum will depend of 800MHz spectrum auctions on which there is no clarity. Thus we surmise that RJio’s pan‐India (rather impactful launch) is at‐least 1 year from now. 900MHz auctions will lead to bifurcation of operators in terms of data capability; Advantage Bharti, Vodafone: The 900MHz auctions in February will lead to clear bifurcation of players between sub Giga Hertz and higher frequency data operators. Bharti, Vodafone and RJio (likely) will become sub Giga Hertz data players while Idea, RCOM, Aircel and others will move to higher frequency for data services. This will translate to Bharti, Voda and RJio having higher data reach and capacity capabilities while Idea and others would have constricted reach, capacities and in turn capabilities to offer data services.

700MHz auctions will provide level playing field: 700MHz spectrum has both reach and capacity capabilities but since India has opted Asia Pac Telecom (APT) band, the ecosystem is still limited. The ecosystem is developing and 700MHz spectrum will come for auction in the next four years. Also, the amount of spectrum available in the 700MHz band is abundant and 5‐6 players could be accommodated. Thus once 700MHZ comes up auction more operators will own sub Giga Hertz frequencies and have a level playing field in terms of reach and capacity.

Market consolidation continues; Pricing growth continues: With Jio launch 1‐year from now and market consolidation continuing, pricing growth will continue. We believe pricing growth will continue in FY15 and FY16 and incumbents will create a pricing cushion before RJio’s launch. Thus pricing over the medium term is more likely to surprise positively.

Capex to rise for incumbents: There is significant scope for improvement in Quality of Services (QoS) for mobile broadband in India. With the launch of Jio, inevitably data pricing will come down and also operators will compete on quality of service. This twin concoction will lead to higher capex requirements for the incumbents.

Advantage Bharti; Idea operationally strong but upside likely to be capped: Over the next 12‐18 months both Idea and Bharti will deliver on operational parameters. However, Bharti has significantly higher re‐rating potential. Bharti’s data spectrum assets are unparalleled and India business execution and operating performance have improved significantly. Idea, with depletion of 900MHz spectrum assets and significant gearing post auctions will see lowering of its business flexibility impacting its growth prospects over the next 3‐4 years. Hence, our top sector pick is Bharti Airtel.

Companies Covered Bharti Airtel CMP Rs405Reco BUYTarget Price Rs515 Idea Cellular CMP Rs163Reco BUYTarget Price Rs200 Naveen Kulkarni, CFA, FRM (+9122 6667 9947) [email protected] Vivekanand Subbaraman (+9122 6667 9766) [email protected]

30 September 2014 / INDIA EQUITY RESEARCH / TELECOM SECTOR UPDATE

RJio launch likely to be delayed; Compelling voice proposition critical RJio’s 2300MHz product strategy suffers coverage issues and it will be largely an urban product. Voice capability is another shortcoming of this band on account of the ecosystem and regulation. In 1800MHz the company will launch FD LTE which is again a data product but without a compelling voice proposition RJio will find it difficult to execute a churn based strategy. As we had discussed in our “Ground Zero” cover story on RJio, the current and seemingly straightforward options of VoLTE, VoIP, leasing a 2G network or buying a 2G operator (lack of options here) are all suboptimal choices. The best possible plan for RJio at this juncture is 850MHz (India 800MHz, currently known as CDMA band) 3G voice and data strategy. We outline the following advantages and execution plan for the strategy: • 850MHz propagation characteristics are similar to 900MHz and the device

ecosystem is the most evolved ecosystem. With 850MHz the reach and capacity for voice and data apart from the ability to compete on operating and capital costs are significantly enhanced.

• 850MHz is available with RCOM in contiguous format in 12 circles and it is valid for 7 years. Thus upfront payout is likely to much lower than any other spectrum.

• 850MHz needs to establish a benchmark price based on auction. The auctions could be held over the next 12 months but the spectrum coming up for auction is non‐contiguous and the price is likely to be much lower than contiguous 900MHz.

• Once a benchmark price is established for the band, RJio can acquire RCOM’s contiguous spectrum based on a non‐contiguous benchmark which will translate to significantly lower payout for such a high quality spectrum band.

• RJio using RCOM’s 43,000 towers gets access to 20,000 towns and 400,000 villages on formidable 3G and voice platforms apart from an urban offering in 2300MHz and 1800MHz bands.

• RJio will then go for a churn based strategy and in most likelihood it could be a device led strategy.

• RJio will target 20% revenue market share over the next five years and will be very aggressive across products including voice and data.

• RCOM has carved out its CDMA business into a separate segment. This provides some indication of the company’s intentions to sell the business at some point in time.

850MHz economic value is similar (if not higher) to 900MHz as the device ecosystem, equipment availability and capex requirements are fully evolved. It is also important to note that spectrum allocation on this band is significant but the utilisation of this band has been inefficient on account of spectrum being marked for CDMA technology. As operators have migrated to GSM and the mainstream path of wireless technology evolution, the revenues from the band have been de‐growing. The 850MHz spectrum is held by RCOM, Tata Teleservices, Sistema, BSNL, MTNL and HFCL. The subscriber base on this band is insignificant and revenue contribution is meager. If this band is liberalized through open market auctions then the utilisation of this band will improve significantly.

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http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_GZ-webmag1April14_20140401181132.pdf


Revenue contribution by spectrum bands Spectrum allocated between 850 MHz and other bands

7

93

800/850MHz Other bands

14

86

800/850MHz Other bands

Source: Company, PhillipCapital India Research

We find that 850MHz contiguous band is available in most circles either through RCOM or through market auction route. The table below provides the spectrum distribution across the 22 circles. 850MHz spectrum distribution Allotments

Spectrum allotted (MHz) Free

Guard bands

Total spectrum BandTTML Rcom SSTL HFCL BSNL/MTNL

Metros Delhi 5.00 5.00 3.75 ‐ 2.50 0.97 1.80 19.02868.8‐887.82Mumbai 5.00 5.00 ‐ ‐ 2.50 4.72 1.80 19.02868.8‐887.82Kolkata 3.75 5.00 3.75 ‐ 2.50 2.22 1.80 19.02868.8‐887.82A' Circle A.P. 3.75 5.00 ‐ ‐ 2.50 5.97 1.80 19.02868.8‐887.82Gujarat 3.75 3.75 3.75 ‐ 2.50 3.47 1.80 19.02868.8‐887.82Maharashtra 5.00 5.00 ‐ ‐ 2.50 4.72 1.80 19.02868.8‐887.82Karnataka 3.75 5.00 3.75 ‐ 2.50 2.22 1.80 19.02868.8‐887.82T.N. 3.75 5.00 3.75 ‐ 2.50 2.22 1.80 19.02868.8‐887.82B' Circle Haryana 3.75 3.75 ‐ ‐ 2.50 7.22 1.80 19.02868.8‐887.82M.P. 2.50 5.00 ‐ ‐ 2.50 7.22 1.80 19.02868.8‐887.82Punjab 3.75 3.75 ‐ 2.50 2.50 4.72 1.80 19.02868.8‐887.82Rajasthan 3.75 3.75 5.00 ‐ 2.50 2.22 1.80 19.02868.8‐887.82Kerala 3.75 5.00 3.75 ‐ 3.75 0.97 1.80 19.02868.8‐887.82U.P.(E) 3.75 5.00 ‐ ‐ 2.50 5.97 1.80 19.02868.8‐887.82U.P.(W) 3.75 5.00 3.75 ‐ 2.50 2.22 1.80 19.02868.8‐887.82W.B. 2.50 3.75 3.75 ‐ 2.50 4.72 1.80 19.02868.8‐887.82C' Circle Assam ‐ 2.50 ‐ ‐ 2.50 12.22 1.80 19.02868.8‐887.82Bihar 3.75 5.00 ‐ ‐ 2.50 5.97 1.80 19.02868.8‐887.82H.P. 2.50 2.50 ‐ ‐ 2.50 9.72 1.80 19.02868.8‐887.82J&K ‐ 2.50 ‐ ‐ 2.50 12.22 1.80 19.02868.8‐887.82N.E. ‐ 2.50 ‐ ‐ 2.50 12.22 1.80 19.02868.8‐887.82Orissa 2.50 3.75 ‐ ‐ 2.50 8.47 1.80 19.02868.8‐887.82Total 70.00 92.50 35.00 2.50 56.25 122.59 39.60 418.44

Source: TRAI, PhillipCapital India Research RCOM has contiguous spectrum in 12 circles and in other circles also contiguous spectrum could be made available by combining blocks with existing holder or from freed up spectrum. In several circles, there is free spectrum which is adjacent to the blocks of RCom/TTSL. We include these free blocks & determine the 5MHz contiguous spectrum contiguous blocks available in each circle (as shown below).

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800/850MHz spectrum contiguous block analysis

Circles

Who has 5MHz contiguous blocks?

How many contiguous blocks can be

created if we use free slots & combine with that of Rcom/TTSL? TTML/TTL Rcom Others

Free/vacant spectrum (MHz)

Metros Delhi 1 1 ‐ 0.97 2 Mumbai 1 1 ‐ 4.72 3 Kolkata ‐ 1 ‐ 2.22 1 A' Circle A.P. ‐ 1 ‐ 5.97 1 Gujarat ‐ ‐ ‐ 3.47 1 Maharashtra 1 1 ‐ 4.72 3 Karnataka ‐ 1 ‐ 2.22 2 T.N. ‐ 1 ‐ 2.22 2 B' Circle Haryana ‐ ‐ ‐ 7.22 2 M.P. ‐ 1 ‐ 7.22 2 Punjab ‐ ‐ ‐ 4.72 1 Rajasthan ‐ ‐ 1 2.22 1 Kerala ‐ 1 ‐ 0.97 2 U.P.(E) ‐ 1 ‐ 5.97 2 U.P.(W) ‐ 1 ‐ 2.22 2 W.B. ‐ ‐ ‐ 4.72 1 C' Circle Assam ‐ ‐ ‐ 12.22 2 Bihar ‐ 1 ‐ 5.97 2 H.P. ‐ ‐ ‐ 9.72 2 J&K ‐ ‐ ‐ 12.22 2 N.E. ‐ ‐ ‐ 12.22 2 Orissa ‐ ‐ ‐ 8.47 2 Total 3 12 1 122.59 40

Source: TRAI, PhillipCapital India Research Note: Media reports mention that Tata Teleservice will surrender spectrum in excess of 2.5MHz in all circles except Mumbai & Kolkata

Device ecosystem on 850MHz is one of the most advanced The 850MHz equipment as well as the handset ecosystem is one the most evolved ecosystem with almost all the smartphones being compatible on this band. This makes the product very much mainstream and highly competitive. It is important to note that RCOM suffered from limited device ecosystem which led to the company adopting mainstream GSM ecosystem.

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Device ecosystem comparison of UMTS (3G) 850MHz versus FDD 1800MHz

Source: Capitel Partners, PhillipCapital India Research

RJIO network plan According to Capitel Partners a leading telecom consultant RJio’s network plan will be based on Triband spectrum and technology model aligned to geographies. Reliance Jio Network plan – Mobile broadband context (as per Capitel Partners)

SoSource: Capitel Partners, PhillipCapital India Research

Strategy execution will be a time taking process: While this seems to be the panacea for RJio at the current juncture but the execution is likely to be fraught with significant regulatory and practical issues. • TRAI has suggested auction of E‐GSM band (850MHz) along with 900MHz band to

make more spectrum available which will ensure optimal utilisation and pricing for the band. This is a very strong argument in the current environment of mad scramble for sub Giga Hertz frequencies.

• Auction dates are not yet finalized and time taken for auctions is very uncertain. • RCOM’s intent for selling the CDMA business is still not clear and depending on the

auction price for 900MHz, the acquisition cost could go up significantly.

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• Time to launch network on 850MHz and product testing will take around 12 months.

• As we are now witnessing, allocation of national resources has become a very critical issue with multiple stakeholders, NGOs etc being very vigilant. Any allocation of such resources at prices less than fair value could become contentious.

• The government within the first year of coming to power would ideally avoid unnecessary controversies.

The choices for RJio are not straight forward and execution issues are galore. All these point to further delays on product roll out. In this scenario the incumbents – Bharti, Idea and Vodafone have a relatively lesser competitive environment and will be backed with more data spectrum to make further headwinds in consolidating their position.

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Bifurcation of operators between sub Giga Hertz and higher frequency data operators: As we know that 900MHz spectrum is scarce and there is room only for 2 players in most circles for contiguous 5MHz blocks. The upcoming auctions could lead to either fragmentation of market on spectrum holding or consolidation. We strongly believe that the market will consolidate further on spectrum holdings. The market is already divided into between Telcos that offer mobile broad and Telcos that cannot. The upcoming auctions will lead to further bifurcation of operators into two sets: 1. Operators winning sub Giga Hertz contiguous frequencies will have enhanced reach

and capacity for mobile broadband services. 2. Operators winning non‐contiguous sub Giga Hertz frequencies will move to higher

frequencies of 1800MHz and 2100MHz for providing mobile broadband services.

This furthering of bifurcation will have an incisive impact on the competitive landscape of the Indian Telecom sector. Further consolidation of the market will translate to improvement in profitability for the sector over the long term. Feb 2015 auction – a mega 900MHz auction across 18 circles – limited spectrum availability is the key challenge The Feb 2015 auctions will see auction of 900MHz & 1800MHz spectrum in 18 of India’s 22 circles. Most circles have 2 or less blocks of contiguous 900MHz spectrum available which will be keenly contested by Bharti, Vodafone and Idea Cellular. RJio may contest for 900MHz in some circles but it may not be a serious bidder in most circles. 900MHz spectrum provides un matched coverage in both voice and data and its importance in category A circles with mix of urban and rural coverage necessities is significantly higher than metros. Another critical factor is the in‐building coverage of 900MHz which cannot be matched by 1800MHz or 2100MHz. Thus, operators with sub Giga Hertz data frequencies (contiguous spectrum) will have an edge in both coverage and capacity. Considering the past auction experience and importance of 900MHz spectrum in Category A circles, it is very likely that operators like Vodafone will bid for 2 slots in most circles in the initial rounds and in dominant position circles like Gujarat will try win 10MHz.

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Feb 2015 auctions – available spectrum

Circle

Expiring licenses in

2015‐16

Available spectrum (MHz) Renewing licenses of

operators 900 MHz Band No. of 5MHz

contiguous blocks 1800 MHz Band

No. of 5MHz contiguous blocks

Delhi ‐ ‐ ‐ ‐ ‐ Mumbai ‐ ‐ ‐ ‐ ‐ Kolkata ‐ ‐ ‐ 7.0 1 Maharashtra 2 14.0 2 2.0 ‐ Idea, Vodafone Gujarat 2 14.0 2 3.4 ‐ Idea, Vodafone AP 2 14.0 2 3.8 ‐ Bharti, Idea Karnataka 2 14.0 2 1.8 ‐ Bharti, Idea TN 1 6.2 1 20.0 3 Vodafone Kerala 2 12.4 2 1.0 ‐ Idea, Vodafone Punjab 2 15.6 3 1.6 ‐ Bharti, Idea Haryana 2 12.4 2 8.0 ‐ Idea, Vodafone UP (W) 1 6.2 1 2.2 ‐ Idea UP (E) 1 6.2 1 4.2 ‐ Vodafone Rajasthan 2 12.4 2 10.4 1 Bharti, Vodafone MP 2 12.4 2 ‐ ‐ Idea, RCom WB 1 4.4 ‐ 1.8 ‐ RCom HP 2 12.4 2 10.2 ‐ Bharti, RCom Bihar 1 6.2 1 2.0 ‐ RCom Odisha 1 6.2 1 16.2 3 RCom Assam 1 6.2 1 ‐ ‐ RCom NE 2 8.8 1 8.4 ‐ Bharti, RCom J&K ‐ ‐ ‐ ‐ ‐

Source: TRAI, Company, PhillipCapital India Research The prices for 900MHz spectrum will soar and spectrum footprint for operators like Idea Cellular will change meaningfully. It is likely that Idea Cellular might have to give up spectrum in circles like Gujarat and Karnataka while it will face a tough challenge in Andhra and Haryana from Vodafone and Airtel respectively. Reliance Communications on the other hand is likely to lose 900MHz spectrum in all the category B and C circles.

Feb 2015 auctions – operators face a Hobson’s choice in several circles

Operator Licences due for expiry in 2015‐16

Circles where Telco has already acquired spectrum.

Circles where Telco needs to acquire spectrum to

sustain ops% of revenue

exposedCircles where operator has to

win spectrum for service continuityIdea 9 7 2 15.9 UP(W), GujaratVodafone 7 4 3 24.2 Maharashtra, Rajasthan & TNRTL 7 ‐ 7 Assam, Bihar, HP, MP, NE, Odisha & WBAirtel 6 6 ‐ ‐Total 29 17 12

Source: TRAI, Company, PhillipCapital India Research

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Several circles might see realignment of sub‐GHz operations _______Revenue exposure_______ _______Revenue market share_______Bharti Vodafone Idea Rcom Bharti Vodafone Idea Rcom

A' Circle Maharashtra 4.5 9.8 17.2 5.1 17.0 24.9 33.0 3.8Gujarat 2.2 11.1 7.0 4.2 12 44.0 20.8 4.1A.P. 11.1 3.1 11.1 5.3 43.2 9.5 21.9 4.6Karnataka 11.6 4.1 4.5 5.7 47.2 12.4 9.6 4.8T.N. 9.3 9.2 0.6 6.3 31.7 23.1 1.1 5.1B' Circle Kerala 2.0 4.6 11.2 1.7 13.3 22.7 39.9 2.7Punjab 4.2 2.8 5.1 2.5 34.4 17.1 23.1 3.7Haryana 0.8 2.5 2.8 1.2 13.8 30.6 24.7 3.4U.P.(W) 2.6 4.7 8.9 2.4 17.7 22.9 32.6 3.5U.P.(E) 6.6 9.1 5.1 4.1 29.5 29.9 12.4 4.1Rajasthan 7.2 5.2 3.4 3.6 44.2 24.3 11.3 4.5M.P. 3.6 1.4 11.9 11.1 22.4 6.1 39.1 15.5W.B. 3.2 5.4 1.1 5.2 27.5 35.3 4.9 12.1C' Circle H.P. 0.9 0.1 0.3 1.6 44.0 6.1 8.1 17.7Bihar 9.0 2.9 3.6 8.4 49.1 11.8 11.1 11.2Orissa 3.2 1.3 0.3 3.2 44.6 13.5 2.9 11.5Assam 2.2 1.4 0.2 3.3 35.5 17.8 1.9 15.1N.E. 1.7 0.5 0.1 0.9 44.6 10.5 2.1 6.9J&K 1.5 0.3 0.2 1.0 41.7 6.6 3.1 6.2

Notes: Colour coding of cells for 900 & 2100MHz Only 900MHz Only 2100MHz

Potential aggressor 900MHz position vulnerable Cells in bold indicate that the operator is facing renewal of 900MHz spectrum. Source: TRAI, Company, PhillipCapital India Research Currently the 900MHz band is split between Bharti, Vodafone, Idea and RCOM. After the Feb 2015 auctions 900MHz holding will be largely concentrated amongst three players. This is significant consolidation of spectrum holding especially in times of high mobile broad band services growth where coverage, capacity and in turn quality of services will be the key drivers of growth. The sub Giga Hertz spectrum owners will grow ahead of the market and market consolidation activity will gather further pace. Operators with patchy spectrum footprint will need to focus their efforts and resources in circles of strength and exit circles where incumbents are in a dominant position.

900MHz position by # of blocks (prior to Feb’15 auction) 900MHz position by # of blocks (after Feb’15 auction)

33

27

22

18

Bharti Vodafone Idea Rcom

40

27

18 2

Bharti Vodafone Idea Rcom Source: Company, PhillipCapital India Research

Bharti and Vodafone could possibly own 77% of pan‐India 900MHz contiguous spectrum blocks. Even on value terms the spectrum holding will be highly concentrated amongst the top 3 players with Vodafone having the most valuable spectrum.

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RJio may not be an aggressor in the 900MHz auctions as it is likely to rely more on 850MHz spectrum strategy.

900MHz position by value of spectrum (prior to Feb’15 auction) 900MHz position by value of spectrum (after Feb’15 auction)

28

37

28 7

Bharti Vodafone

32

42

22 4

Bharti Vodafone Source: Company, PhillipCapital India Research

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So, what happens in Feb 2015? Business continuity will be the focus? Our assumptions: Idea to shift to 900MHz GSM in Gujarat & Karnataka We note that Bharti & Vodafone could target winning one block each of 5MHz contiguous spectrum in the 900MHz band for 3G services in Gujarat & Karnataka – circles where these operators offer GSM voice on 1800MHz spectrum and their revenue market share is slipping. Moreover, in Gujarat & Karnataka, Bharti & Vodafone don’t have 2100MHz spectrum – implying that the ONLY way for them to provide 3G services in these important circles (accounting for ~6‐8% of India mobile revenue each) is by acquiring 5MHz of contiguous spectrum in the 900MHz band.

Spectrum value (Rs mn)

Circle Likely price

(Rs mn/MHz) 1800MHz price ‐ Feb 2014 (Rs mn)

Multiple to 1800MHz price (x) Bharti Vodafone Idea Comment

Delhi 7,410 3,640 2.0Mumbai 5,631 2,720 2.1Kolkata 1,946 730 2.7AUCTION 2015 expectations

Maharashtra 9,000 2,904 3.1 ‐ 45,000 45,000 Idea and Vodafone retain their spectrum Gujarat 8,500 2,378 3.6 42,500 42,500 34,000 Idea wins 4MHz non‐contiguous spectrum & Bharti

wins 5MHz contiguous spectrum AP 6,000 1,630 3.7 30,000 ‐ 30,000 Status quo ‐ Bharti, Idea retain Karnataka 6,000 1,550 3.9 30,000 30,000 24,000 Idea wins 4MHz non‐contiguous spectrum &

Vodafone wins 5MHz contiguous spectrum TN 7,500 2,080 3.6 ‐ 37,500 ‐ Status quo ‐ Vodafone retains Kerala 2,000 520 3.8 ‐ 10,000 10,000 Status quo ‐ Idea & Vodafone retain Punjab 1,600 540 3.0 8,000 ‐ 8,000 Status quo ‐ Bharti, Idea retain Haryana 1,200 270 4.4 ‐ 6,000 6,000 Status quo ‐ Idea & Vodafone retain UP (W) 2,500 950 2.6 ‐ ‐ 12,500 Status quo ‐ Idea retains UP (E) 2,500 640 3.9 ‐ 12,500 ‐ Status quo ‐ Vodafone retains Rajasthan 1,100 260 4.2 5,500 5,500 ‐ Status quo ‐ Vodafone retains MP 1,500 504 3.0 7,500 ‐ 7,500 Idea retains, Bharti wins at the cost of Rcom WB 1,000 246 4.1 5,000 ‐ ‐ Bharti wins at the cost of Rcom HP 250 60 4.2 2,500 ‐ ‐ Bharti wins at the cost of Rcom Bihar 1,400 431 3.2 7,000 ‐ ‐ Bharti wins at the cost of Rcom Odisha 600 160 3.8 3,000 ‐ ‐ Bharti wins at the cost of Rcom Assam 1,500 361 4.2 7,500 ‐ ‐ Bharti wins at the cost of Rcom NE 250 70 3.6 2,500 ‐ ‐ Bharti wins at the cost of Rcom Total 151,000 189,000 177,000

Source: TRAI, PhillipCapital India Research We expect Bharti & Vodafone to retain their 900MHz spectrum & use 5MHz contiguous spectrum for data & the balance for GSM voice. C category circles as well as Madhya Pradesh are seeing a renewal of RCom's spectrum. We believe that RCom won't be able to retain its spectrum due to the onerous Rs 40bn payout needed. Bharti, which is a market leader in all these circles (except MP) is likely to be go hammer & tongs to acquire this spectrum.


Market consolidation resulting in continued pricing growth Reducing competition showing in increased sector HHI The Indian telecom industry continues to witness consolidation as evinced by improvement in Herfindahl‐Hirschman Index (HHI) for industry revenue market share.

Movement of HHI – revenue market share (Indian telcos)

HHI movement & heat map (revenue market share) FY08 FY09 FY10 FY11 FY12 FY13 FY14 1QFY15 Change in FY14 (bps)

Delhi 0.238 0.240 0.238 0.229 0.232 0.238 0.235 0.237 (0.32) Mumbai 0.208 0.209 0.197 0.191 0.182 0.192 0.210 0.216 1.85 Kolkata 0.243 0.241 0.237 0.214 0.201 0.202 0.212 0.210 1.04 Maharashtra 0.185 0.193 0.197 0.198 0.196 0.198 0.208 0.216 1.04 Gujarat 0.229 0.242 0.252 0.239 0.230 0.234 0.237 0.236 0.34 AP 0.206 0.224 0.232 0.229 0.224 0.222 0.227 0.245 0.43 Karnataka 0.291 0.321 0.320 0.287 0.257 0.263 0.263 0.269 0.01 TN 0.212 0.217 0.224 0.215 0.208 0.211 0.210 0.215 (0.11) Kerala 0.179 0.186 0.197 0.200 0.209 0.226 0.241 0.247 1.47 Punjab 0.209 0.217 0.230 0.219 0.217 0.220 0.215 0.219 (0.53) Haryana 0.181 0.182 0.184 0.182 0.196 0.205 0.207 0.208 0.22 UP(W) 0.184 0.191 0.197 0.192 0.185 0.184 0.202 0.209 1.80 U.P.(E) 0.221 0.223 0.225 0.215 0.201 0.195 0.199 0.204 0.35 Rajasthan 0.206 0.249 0.278 0.279 0.253 0.238 0.243 0.249 0.48 MP 0.215 0.229 0.214 0.208 0.201 0.210 0.218 0.231 0.76 WB 0.230 0.246 0.249 0.219 0.216 0.213 0.231 0.233 1.84 HP 0.334 0.310 0.280 0.234 0.228 0.231 0.241 0.252 1.03 Bihar 0.323 0.328 0.287 0.258 0.239 0.244 0.258 0.265 1.44 Odisha 0.272 0.289 0.249 0.214 0.203 0.216 0.220 0.227 0.31 Assam 0.259 0.254 0.243 0.223 0.212 0.215 0.223 0.231 0.76 NE 0.264 0.273 0.275 0.250 0.242 0.251 0.269 0.282 1.79 J&K 0.443 0.452 0.321 0.288 0.257 0.250 0.266 0.273 1.66 PAN INDIA 0.185 0.196 0.197 0.189 0.183 0.188 0.193 0.197 0.50

Source: Company, TRAI, PhillipCapital India Research Barring a few circles like Delhi, Tamil Nadu & Punjab, the revenue market share HHI of Indian telecom has increased in FY14; indicating across the board decline in competitive intensity. In FY14, new entrants continued to scale‐down their footprints while focusing on their strong‐circles – • Aircel curtailed its footprint in Gujarat, Haryana, Kerala, MP & Chhattisgarh and

some areas in Punjab, as it chose to focus on circles such as Kolkata, Tamil Nadu, Karnataka, Rajasthan and the C circles, where it has held on or improved it revenue market share in FY14.

• After closing operations in three circles: Assam, J&K & North East, Tata Docomo scaled its operations in HP, Rajasthan and West Bengal. The company has chosen to bolster its operations in Gujarat, Karnataka, Maharashtra & Punjab, where it has maintained or improved its revenue market share.

Uninor is the only new entrant which is aggressive in all its six circles of operations. Additionally, the operator has also won 1800MHz spectrum in Assam and will soon start its operations there. Incumbents continue to grab lion’s share of the sector’s incremental metrics Incumbents continue to dominate the Indian telecom space reflecting in their continued improvements in revenue, active subscriber and minutes market share in FY14 & Q1FY15.

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Incumbents continue to gain market share (%) Reflecting in improving incremental market share as well (%)

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0 Revenue market share Minutes market shareVLR market share

‐

20.0

40.0

60.0

80.0

100.0

120.0

140.0

FY12 FY13 FY14 Q1FY15

Revenue Minutes Active subscribers

Source: Company, TRAI, PhillipCapital India Research

Allowing them to exercise pricing power, which we believe is likely to continue till RJio’s launch The increased concentration of the Indian telecom industry is allowing incumbents to increase voice tariffs – Bharti and Idea have managed annual voice RPM increases during each quarter of FY14. In past five quarters, viz. from Q4FY13 to Q1FY15, Bharti and Idea have managed to take tariffs up by 3 paise per minute and 2.2 paise per minute respectively. We believe that incumbents will preempt the competitive threat posed by Reliance Jio’s FY16‐17 market‐entry by building a tariff cushion. Thus we assume 4 paise per minute cumulative tariff increase over FY15 & FY16 our expectation in keeping with the trend witnessed in the past five quarters. Subsequently we assume marginal ~0.5% tariff increases for both Bharti & Idea.

YoY change in voice RPM (%) Voice RPM (Rs/min) to see continued improvement

‐

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15

Bharti Idea

0.340

0.360

0.380

0.400

0.420

0.440

FY12 FY13 FY14 FY15E FY16E FY17E

Bharti Idea

4 ps/min tariff cushion pre‐empting Jio's launch


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We believe that market is underestimating the ability of incumbents to take sustained tariff increases till R‐Jio’s launch. Thus pricing could be a key positive surprise till R‐Jio’s entry in the Indian telecom market. Our prior voice RPM assumptions were conservative and didn’t incorporate the ability of incumbents to take sustained tariff increases. We raise our FY15/16 voice RPM assumptions by 3‐8% for both Bharti & Idea (as shown below). YoY change in voice RPM (%) Change in assumptions (Rs/min) FY15 FY16Bharti Earlier 0.385 0.386New 0.396 0.416Change (%) 2.9 7.5Idea Earlier 0.376 0.379New 0.389 0.409Change (%) 3.4 8.0


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700MHz auctions will provide level playing field 700MHz: the best sub‐GHz frequency band; both from a capacity & coverage standpoint 700MHz spectrum is an enigma for Indian telecom companies. 700MHz band is the panacea for Indian telecom companies for solving all the coverage and capacity related problems for the Indian telecom companies as there is abundant spectrum in this band and the propagation characteristics of band are superlative. However, the 700MHz band in India will have a few takers at this juncture because of the following reasons: • India has opted for APT band. The device and equipment ecosystem is not fully

evolved for the band plan. Thus, pricing of a band higher than 900MHz will find a few takers at this juncture.

• 900MHz is coming up auctions which will put significant pressure on resources for incumbents and hence the appetite for this band for the incumbents will be limited.

• 700MHz also has implications for Rjio. Rjio has gathered spectrum assets which provide it with a window of circa 4 years to establish itself as a data player with superior offering. As 700MHz with 4‐5 blocks of spectrum is made available then market will be abundant with operators (4 operators at least) with capacity and reach.

• Thus at current juncture most operators are unlikely to push for 700MHz auctions owing financial and strategic constraints.

Nonetheless, it is important to understand the implications and strengths of this band. Being a sub‐gigahertz frequency band, 700MHz spectrum possesses the following advantages: • Better propagation characteristics – implying that signals travel farther, hence

lower cell sites needed for coverage; better in‐building coverage & lower capex for network setup,

• Lower power requirement, • These characteristics make 700MHz among the best frequencies to reach rural & far

flung areas for broadband reach. Compared to 1800/2100MHz spectrum, sub‐GHz frequencies, viz. 700MHz & 900MHz, offer much superior coverage characteristics. Wideband Code Division Multiple Access (WCDMA or 3G) sub‐GHz voice spectrum offers 3x & 4.4x coverage compared to 2100MHz WCMDA (3G) & 1800MHz GSM (2G) spectrum. Even in data, sub‐GHz WCDMA offers unique advantages compared to 2100MHz spectrum with nearly 2.7x cell‐site reach.

– 15 of 33 –


Sub‐GHz frequency propagation characteristics (km2)

~2.7x WCDMA 2100

~3x WCDMA 2100

‐ 2.0 4.0 6.0 8.0 10.0 12.0 14.0

WCDMA 2100MHz (1Mb/s)

WCDMA sub‐GHz data(1Mb/s)

GSM 1800 voice

WCDMA 2100MHz voice

GSM sub‐GHz voice

WCDMA sub‐GHz voice

Source: TRAI, GSA, PhillipCapital India Research India has chosen APT700, FDD band plan for 700MHz spectrum The National Frequency Allocation Plan‐2011 has made an allocation of 698‐806MHz for International Mobile Telecommunications (IMT) – Advanced broadband wireless access. As per the Wireless Planning & Coordination Wing (WPC), India’s 700MHz allocation is in accordance with the Asia‐Pacific Telecommunity band, implying that there is 90MHz of spectrum (2x45MHz spectrum) for frequency division duplexing. Of the 90MHz, 2x15MHz has been assigned with to the Defence & the balance 2x30MHz is planned to be auctioned. 700MHz frequency configurations

Frequency arrangements

Paired arrangements Un‐paired

arrangements (MHz)

Mobile station transmitter

(MHz)Centre gap

(MHz)

Base station transmitter

(MHz)

Duplex separation

(MHz)A1 824‐849 20 869‐894 45 NoneA2 880‐915 10 925‐960 45 NoneA3 832‐862 11 791‐821 41 None

A4 698‐716776‐793

1213

728‐746 746‐763

3030

716‐728

A5 703‐748 10 758‐803 55 NoneA6 None None None 698‐806

Source: TRAI, PhillipCapital India Research Note: Row highlighted in YELLOW represents India’s choice frequency arrangement for 700MHz 700MHz spectrum adequate, but auctions not before FY17 due to digitization delay As pointed out above, 2x30MHz spectrum in the 700MHz band will be auctioned and there are likely to be four serious bidders – Bharti Airtel, Idea Cellular, Reliance Jio & Vodafone India. Even if two operators acquire 10MHz of unpaired spectrum each, the other two operators can bid for 5MHz block of unpaired spectrum each. This clearly shows that the quantum of 700MHz is adequate for the number of serious operators in the Indian telecom market. Adequate spectrum is one thing, but the timeline of auction of 700MHz spectrum is the key issue. 700MHz band is also being used for analog television broadcasting, specifically for ultra high frequency analog television broadcasting. The two year delay in implementation of digital addressable systems by the Information and Broadcasting Ministry also delays the auction of 700MHz spectrum. The new deadline of digitization, viz. Dec 2016, implies that 700MHz auctions will not happen before end‐FY17 or FY18.

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Delay implies that telcos are unlikely to wait for 700MHz for serious data rollouts From the perspective of incumbents, it makes more sense to upgrade existing customers to 3G on 900MHz, which will allow them to effectively cover semi‐urban and rural markets along with dense urban coverage, which can be achieved with 1800/2100MHz spectrum. Even for Jio, waiting for 700MHz spectrum would mean that the operator would get spectrum 7 years after it won 2300MHz spectrum. This implies that incumbents and Jio will have no choice but to opt for liberalized 850/900MHz spectrum to extensively rollout broadband wireless services.

– 17 of 33 –


Incumbents to see robust operating performance; prefer Bharti due to 8% FCF yield With 8% FCF yield for FY16 and FY17, Bharti scores over Idea We highlight that Bharti will hit its peak debt (including deferred spectrum payment liabilities) of Rs 819bn (2.4x EBITDA) in FY15, following the Feb 2015 spectrum auctions. Idea will also reach its peak debt of Rs 288bn (2.7x EBITDA) in FY15. As shown in the below table, Bharti's FCF yield post cash payout for spectrum is 8.1% in FY16 & FY17, compared to Idea which generates 4.0% & 3.8% respectively. Note that the FCFE yield prior to spectrum capex of both operators are comparable, but Bharti scores over Idea in being able to acquire spectrum and generate free cash flow.

FCF yield ‐ Bharti scores over Idea ______________Idea Cellular______________ ______________Bharti Airtel______________

FCF profile (Rs bn) FY14 FY15E FY16E FY17E FY14 FY15E FY16E FY17EEBITDA 83.3 106.9 133.8 152.9 277.7 338.6 403.1 463.8O/w: India 205.3 251.7 307.6 350.0O/w: International 72.4 86.9 95.5 113.9Non‐spectrum capex 32.5 34.5 37.7 39.0 121.2 160.8 162.7 182.6Tax 10.8 15.4 20.0 25.0 48.4 60.2 70.1 79.0O/w: India 28.1 41.0 49.0 55.7O/w: International 20.3 19.2 21.1 23.2Interest cost 7.8 10.7 11.3 15.8 48.4 38.1 39.9 42.1FCFE 32.2 46.3 64.8 73.1 59.7 79.5 130.4 160.1FCFE yield (%) 5.4 7.8 10.8 12.2 3.7 5.0 8.1 10.0Spectrum payout (including capitalisation) 104.0 177.8 ‐ ‐ 185.3 161.1 ‐ ‐Spectrum cash payout 31.0 58.7 ‐ 12.6 54.3 53.2 ‐ 30.5FCFE post spectrum cash payout 1.2 (12.4) 64.8 60.5 5.4 26.3 130.4 129.6FCFE yield post spectrum payout (%) 0.1 (0.8) 4.0 3.8 0.3 1.6 8.1 8.1Net debt (adjusted) 154.4 285.8 221.1 148.0 736.5 818.1 687.7 527.6India 154.4 285.8 221.1 148.0 148.6 209.4 63.0 (99.4)Non‐spectrum debt 50.4 4.0 (60.7) (133.8) 185.3 346.4 346.4 346.4Spectrum debt 104.0 281.8 281.8 281.8 (36.7) (137.0) (283.4) (445.8)Africa debt 587.9 608.7 624.7 627.0Net debt/EBITDA (x) 1.9 2.7 1.7 1.0 2.7 2.4 1.7 1.1Net debt/equity (x) 1.2 1.2 0.9 0.6 1.2 1.2 0.9 0.6

Source: Company, PhillipCapital India Research FY14‐16: margin accretive growth period for incumbents Tariff increases will be key to the operating performance of incumbents from FY14‐16. We believe that both Bharti Airtel & Idea Cellular will be key beneficiaries of pricing power & will be able to growth EBITDA at 20‐22% CAGR from FY14‐17 leading to ~500bps EBITDA margin expansion during this period. The EBITDA growth trajectories of Bharti's India business and Idea Cellular are likely to be similar considering the improvement in Bharti's execution & superior data growth profile as it launches 3G using 900MHz spectrum in a bigger footprint (covering ~90% of its revenue versus 70% for Idea in our base case model).

– 18 of 33 –

– 19 of 33 –


~500bps EBITDA margin improvement over FY14‐17 (Bharti/Idea) Robust EBITDA growth (% ) for both Bharti & Idea

‐

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

FY14 FY15E FY16E FY17E

EBITDA margin (%)

Bharti India Bharti Consol Idea

10.0

15.0

20.0

25.0

30.0

35.0

40.0

FY14 FY15E FY16E FY17E

EBITDA growth (%)20% EBITDA CAGR FY14‐17E Bharti India

22% EBITDA CAGR FY14‐17 Idea

Bharti India Bharti Consol Idea

Source: Company, PhillipCapital India Research Expectations from Africa are muted We also point out that our expectations for Bharti's Africa business are muted & the company is unlikely to disappoint on them. Below is a snapshot of our expectations for Africa. Bharti Africa our expectations are muted Africa details ‐ abridged (US$ mn) FY14 FY15E FY16E FY17ERevenue 4,491 4,937 5,469 6,248EBITDA 1,171 1,234 1,382 1,678EBITDA margin (%) 26.1 25.0 25.3 26.8Interest 414 490 505 515Interest cost (%) 4.2 4.8 4.9 4.9Tax 268 310 332 357Capex 635 780 811 844FCFE (146) (346) (267) (39)Net debt 9,799 10,145 10,411 10,450



Bharti Airtel Leveraging on superior data assets

TELECOM: Company Update 30 September 2014


Bharti Airtel is our top sector pick as we expect it to benefit the most from high growth in data services and continued improvement in pricing over FY14‐16. Bharti’s capital structure has largely stabilized and de‐leveraging will start from FY16 onwards. We significantly upgrade our FY15 and FY16 revenue and earnings estimates based on likely delays in pan‐India RJio launch translating to continued creation of pricing cushion, improvement in data growth trajectory with enhanced spectrum assets and robust execution. Apart from improvement in domestic business, reduction in negative carry of the Africa business could translate to further upside. We value the company on DCF based model with a price objective of Rs 515. Our key arguments are as follows:

Enhanced spectrum assets to improve data consumption: Bharti has unparallel data spectrum assets and with the acquisition of 900MHz contiguous blocks in the metro circles capacity and coverage (especially in‐building) are significantly enhanced. We believe Bharti will start utilizing these assets in 2015 which will lead to improvement in data consumption. We also contend that Bharti will acquire more 900MHz data spectrum assets in February 2015 auction which will further boost its data services capabilities.

Improved execution under new management: Our channel checks indicate that Bharti’s execution is improving with renewed go to market strategy. We understand that significant changes have been made at circle level management with infusion of young blood. Now quite a few circle COOs are high performing young (under 40) executives. The renewed go to market strategy has started yielding results and we strongly believe that Bharti’s growth will be significantly ahead of market in the forthcoming quarters as strategic initiatives take time to mature for a large company.

Africa business gaining traction; Deleveraging to provide further impetus: Our valuation incorporates a negative carry of Rs 57 for Africa business but we believe that Africa business is gaining traction with focus on plugging the gaps in branding, network coverage and enhancing geographic reach by leveraging on the existing management capabilities. Africa business in the near term could surprise negatively on EBIDTA margins as the business is in an investment phase but revenue growth is likely accelerate in the forthcoming quarters. Bharti is in the process of divesting the African tower assets to deleverage the balance sheet and focus on core activities of active network deployment and marketing of services. The management has indicated divesting of assets will be PBT positive and improve the time to market. Estimates higher than consensus: Our EBIDTA estimates for Bharti are significantly ahead of consensus for FY15 and FY16 respectively by 3.5% and 10% respectively. Our higher estimates are primarily because of our expectations in price improvement in FY15 and FY16. Pricing improvements are rarely linear in nature and pin‐pointing the quarter of take‐off is difficult but considering the past precedence, we believe that Q1FY16 could see major impact of price hikes.

BUY BHARTI IN | CMP RS 405 TARGET RS 515 (+27%) Company Data O/S SHARES (MN) : 3997MARKET CAP (RSBN) : 1611MARKET CAP (USDBN) : 2652 ‐ WK HI/LO (RS) : 420 / 282LIQUIDITY 3M (USDMN) : 28.9FACE VALUE (RS) : 5

Share Holding Pattern, % PROMOTERS : 65.4FII / NRI : 22.9FI / MF : 7.2NON PROMOTER CORP. HOLDINGS : 3.3PUBLIC & OTHERS : 1.3

Price Performance, % 1mth 3mth 1yr

ABS 9.0 21.6 24.0REL TO BSE 9.2 15.6 ‐10.9

Price Vs. Sensex (Rebased values)

50

70

90

110

130

150

Apr‐11 May‐12 Jun‐13 Jul‐14Bharti BSE Sensex

Source: PhillipCapital India Research

Other Key Ratios Rs bn FY14 FY15E FY16ENet Sales 859 963 1,091EBIDTA 278 329 393Net Profit 27 59 88EPS, Rs 6.8 14.8 22.1PER, x 59.6 27.4 18.4EV/EBIDTA, x 8.4 7.3 6.1P/BV, x 2.7 2.4 2.0ROE, % 4.5 8.6 10.9Debt/Equity (%) 127.0 118.2 100.5Source: PhillipCapital India Research Est. Naveen Kulkarni, CFA, FRM (+9122 6667 9947) [email protected] Vivekanand Subbaraman (+9122 6667 9766) [email protected]

30 September 2014 / INDIA EQUITY RESEARCH / BHARTI AIRTEL COMPANY UPDATE

Best in the sector spectrum assets We expect Bharti to have the biggest spectrum portfolio among telcos. As per our base case model, Bharti will be able to secure 5MHz contiguous in circles contributing to ~90% of its revenue. We believe that Bharti will rollout 3G services on 900MHz spectrum using a 5MHz contiguous block and use the rest of the spectrum for GSM voice (due to the coverage advantage). Bharti to have the most comprehensive spectrum footprint Spectrum (MHz)

_____Current footprint_____ ____After Feb 2015 auctions____ % of revenue900 1800 2100 2300 900 1800 2100 2300

Delhi 6.0 7.0 5.0 20.0 6.0 7.0 5.0 20.0 8.0Mumbai 5.0 15.2 5.0 20.0 5.0 15.2 5.0 20.0 3.2Kolkata 7.0 5.0 0.0 20.0 7.0 5.0 0.0 20.0 1.6Maharashtra 0.0 8.2 0.0 20.0 0.0 10.2 0.0 20.0 4.5Gujarat 0.0 6.2 0.0 0.0 5.0 6.2 0.0 0.0 2.2AP 7.8 11.0 5.0 0.0 8.0 13.0 5.0 0.0 11.1Karnataka 7.8 11.0 5.0 20.0 8.0 12.8 5.0 20.0 11.7Tamil Nadu 6.2 14.2 5.0 0.0 6.2 14.2 5.0 0.0 9.3Kerala 0.0 11.2 0.0 20.0 0.0 11.2 0.0 20.0 1.9Punjab 7.8 8.2 0.0 20.0 8.0 9.8 0.0 20.0 4.0Haryana 0.0 6.2 0.0 20.0 0.0 6.2 0.0 20.0 0.8UP ‐ West 0.0 6.2 5.0 0.0 0.0 6.2 5.0 0.0 2.6UP ‐ East 6.2 1.0 0.0 0.0 6.2 1.0 0.0 0.0 6.7Rajasthan 6.2 10.2 5.0 0.0 7.0 10.2 5.0 0.0 7.2MP 0.0 13.8 0.0 0.0 5.0 13.8 0.0 0.0 3.8West Bengal 4.4 6.2 5.0 0.0 5.0 6.2 5.0 0.0 3.0HP 6.2 10.2 5.0 0.0 11.4 10.2 5.0 0.0 1.0Bihar 6.2 3.0 5.0 0.0 11.2 3.0 5.0 0.0 9.0Orissa 6.2 6.8 0.0 0.0 11.2 6.8 0.0 0.0 3.0Assam 1.8 5.7 5.0 0.0 8.0 5.7 5.0 0.0 2.1North East 4.4 8.8 5.0 0.0 8.8 8.8 5.0 0.0 1.6J&K 6.2 2.6 5.0 0.0 6.2 2.6 5.0 0.0 1.5Total 95.4 177.9 65.0 160.0 133.2 185.3 65.0 160.0 90

Source: Company, PhillipCapital India Research Note: Highlighted cells indicated circles where Bharti has over 5MHz of contiguous 900MHz spectrum which can be used for 3G deployments Africa negative carry has started reducing, improving revenue growth a sign of relief Our valuation incorporates a negative carry of Rs 57 for Africa business – 5x FY16 EBITDA of US$ 1.38bn. We find that the Africa business is gaining traction with focus on plugging the gaps in branding, network coverage and enhancing geographic reach by leveraging on the existing management capabilities. Africa business in the near term could surprise negatively on EBIDTA margins as the business is in an investment phase but revenue growth is likely accelerate in the forthcoming quarters.

– 21 of 33 –


Bharti Africa – negative carry is reducing

‐70

‐60

‐50

‐40

‐30

‐20

‐10

0

10

Q2FY12

Q3FY12

Q4FY12

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

NPV (Rs/share)

Source: Company, PhillipCapital India Research Bharti is in the process of divesting the African tower assets and has already done two deals hiving off 6,600 of its ~15,000 African towers. The company is doing so to deleverage its balance sheet and focus on core activities of active network deployment and marketing of services. While, the company hasn’t commented on valuations, we believe that deals are likely to have happened at replacement value of US$ 0.1‐0.3mn/tower implying deleveraging of US$ 700‐1,200mn and are PBT positive. Bharti Africa tower deals Period No. of

towers Countries Expected value

unlocking (US$ mn) Comment

Jul‐14 3,100 Ghana, Tanzania, DRC & others 300‐500 Deal with Helios Towers Sep‐14 3,500 Ghana, Kneya, Nigeria, Uganda & others 400‐700 Deal with Eaton Towers


– 22 of 33 –


Implied valuation according to current market price: We estimate the market implied values for various businesses with Bharti Airtel. As detailed in the earlier section, the NPV of Bharti’s Africa operations work out to a negative Rs 57 and Infratel and DTH businesses are valued at Rs 79 and Rs 10 respectively. Taking these into consideration we arrive at a value to the domestic business of Rs 378 implying a FY16E EV/EBIDTA of 6.3x as compared to Idea Cellular trading at 6.7x FY16E EV/EBIDTA. Bharti’s domestic business has superior assets and margin profile compared to Idea Cellular but Bharti generates superior FCF. Hence, Bharti Airtel should trade at a premium to Idea Cellular. Market implied valuation for the Bharti Airtel

373Trading @~6.3x FY16EV/EBITDA

‐575.0x of FY16ConsensusEBITDA

79‐Derivedfrom Infratel

CMP

10 ‐benchmarked with Dish TV

405‐ 6.2x FY16

EV/EBITDA

‐

50

100

150

200

250

300

350

400

450

Implied valuation of domestic biz.

Africa business Infratel DTH CMP

Source: Company, Bloomberg, PhillipCapital India Research Estimates Our valuation (~8.0x FY16 EV/EBITDA) is a marginal premium to Idea Cellular’s valuation (7.6x FY16 EV/EBITDA). We value the company at Rs 515 which implies an upside of 27% from the current levels. Even on our conservative estimates for Africa, the DCF valuation for Africa works out to a negative Rs 57 NPV similar to market implied valuation. We concur with consensus on the valuation of Infratel & DTH. Our target valuation for the domestic business

486Implied

multiple of ~8x FY16EV/EBITDA

‐575.0x FY16EBITDA

79 ‐ Derived from Infratel

CMP

10 ‐ ourEV/Subvalue for Airtel DTH

515 ‐ 7.2x FY16

EV/EBITDA

‐

100

200

300

400

500

600

OUR valuation of domestic biz.

Africa business Infratel DTH Target price

Source: Company, PhillipCapital India Research Estimates

– 23 of 33 –

– 24 of 33 –


Fair Value Calculation We look at Bharti Airtel with a 6‐year horizon to clock revenue CAGR of 8%. Bharti’s execution is improving & the company is driving market growth & is likely to gain higher market share in data. Our estimates for Bharti’s Africa business are conservative and have the potential to surprise positively as the company’s investments bear fruit.

Derivation of Enterprise value 2018 (excluding intermediate FCF) _____________Segmental Growth Profile_____________ _____________EV 2020 calculation_____________

Sales FY14 Sales CAGR (6‐year %) Sales FY20E

EBIT margin (%) EBIT (N)

Yield required (%) P/E EV/EBIT EV (2020)

Wireless services 484,237 11 913,201 25.0 228,300 7.0 14.3 10.0 2,283,001 Telemedia services 39,352 7 60,585 25.0 15,146 8.0 12.5 8.8 132,530 Enterprise carrier services 63,361 8 100,497 25.0 25,124 8.0 12.5 8.8 219,837 Tower business services 111,896 7 168,774 30.0 50,632 7.5 13.3 9.3 472,568 Africa 272,488 12 541,147 22.0 119,052 10.0 10.0 7.0 833,366 Intersegment ‐80,058 30 ‐388,710 23.0 (89,403) 10.0 10.0 7.0 (625,823) Total 891,277 8 1,395,494 25 348,852 7.4 13.6 9.5 3,315,480

Source: Company, PhillipCapital India Research Below we outline the derivation of our DCF valuation showcasing the multiples we assign to the businesses. We also roll‐forward our DCF vis‐à‐vis our prior computation to arrive at a September 2015 target price of Rs 515. The regulatory outgo is included in our DCF computations. Intermediate cash flow generation Cash Flows (Rs mn) FY15E FY16E FY17E FY18E FY19E FY20EEBIT 154,767 195,833 240,639 293,290 334,297 379,340NOPLAT 106,492 132,983 162,857 199,866 267,438 303,472Depreciation 174,562 196,803 211,629 227,654 244,700 263,044Capex 160,800 323,803 182,132 189,636 193,669 197,722FCF 120,254 5,983 192,354 237,883 318,469 368,794% conversion 78 3 80 81 95 97Discount factor 1.0 0.9 0.8 0.7 0.6 0.6PV 120,254 5,342 153,344 169,321 202,393 209,263NPV 120,254 125,596 278,940 448,260 650,653 859,916

Source: Company, PhillipCapital India Research Rs mn/ Rs per share ValueEnterprise value‐2020 3,315,480NPV Intermediate FCF 859,916Net cash‐ end of FY2015 (794,257)Return requirement 12%EV Future value end of FY2015 2,741,209Target value end of FY2015 1,946,952Target value per share (end of Sep 2015) 515CMP 405Upside (%) 27


– 25 of 33 –


Financials

Income Statement Y/E Mar, Rs bn FY13 FY14 FY15E FY16ENet sales 769 859 963 1,091Growth, % 8 12 12 13Total income 769 859 963 1,091Other Operating expenses ‐546 ‐581 ‐634 ‐698EBITDA (Core) 223 278 329 393Growth, % (5.7) 24.4 18.6 19.2Margin, % 29.0 32.4 34.2 36.0Depreciation ‐148 ‐156 ‐175 ‐197EBIT 75 121 155 196Growth, % (27.1) 61.4 27.6 26.5Margin, % 9.8 14.1 16.1 17.9Interest paid ‐40 ‐48 ‐38 ‐40Other Non‐Operating Income 0 0 0 0Pre‐tax profit 39 78 123 163Tax provided ‐25 ‐48 ‐60 ‐70Profit after tax 13 30 63 93Others (Minorities, Associates) 0 ‐2 ‐4 ‐4Net Profit 13 27 59 88Growth, % (68.2) 101.9 117.2 49.4Net Profit (adjusted) 13 27 59 88Unadj. shares (bn) 4.0 4.0 4.0 4.0Wtd avg shares (bn) 4.0 4.0 4.0 4.0 Balance Sheet Y/E Mar, Rs bn FY13 FY14 FY15E FY16ECash & bank 16 50 19 37Debtors 68 62 59 63Inventory 1 1 2 2Other current assets 112 110 107 105Total current assets 197 224 187 207Gross fixed assets 1,964 2,085 2,454 2,701Net fixed assets 1,317 1,286 1,488 1,556Non‐current assets 109 202 202 202Total assets 1,592 1,832 1,892 2,029 Current liabilities 421 568 530 593Total current liabilities 421 568 530 593Non‐current liabilities 628 624 628 578Total liabilities 1,048 1,192 1,158 1,171Paid‐up capital 19 20 20 20Reserves & surplus 484 578 668 789Shareholders’ equity 544 640 734 858Total equity & liabilities 1,592 1,832 1,892 2,029

Source: Company, PhillipCapital India Research Estimates Note: FY13 onwards revenue, costs and EBITDA numbers exclude Indus Towers, whose contribution is included under the share of income from associates. Consequently balance sheet and cash flows also exclude Indus’ numbers

Cash Flow Y/E Mar, Rs bn FY13 FY14 FY15E FY16EPre‐tax profit 39 78 123 163Depreciation 148 156 175 197Chg in working capital 16 77 56 48Total tax paid ‐25 ‐48 ‐60 ‐70Other operating activities 0 0 0 0Cash flow from operating activities 177 263 293 338Capital expenditure ‐129 ‐125 ‐377 ‐264Chg in marketable securities ‐189 2 3 2Cash flow from investing activities ‐318 ‐124 ‐374 ‐257Equity raised/(repaid) 0 68 0 0Debt raised/(repaid) 72 ‐19 4 ‐50Other financing activities ‐50 0 0 0Cash flow from financing activities 22 49 4 ‐51Net chg in cash ‐4 190 ‐74 30 Valuation Ratios & Per Share Data FY13 FY14 FY15E FY16EPer Share data EPS (INR) 3.4 6.8 14.8 22.1Growth, % (68.2) 101.9 117.2 49.4Book NAV/share (INR) 125.8 149.4 172.0 202.3FDEPS (INR) 3.4 6.8 14.8 22.1CEPS (INR) 40.4 45.9 58.4 71.3CFPS (INR) 34.8 60.0 37.3 73.4Return ratios Return on assets (%) 2.4 3.6 4.9 6.2Return on equity (%) 2.7 4.5 8.6 10.9Return on capital employed (%) 3.5 5.0 6.6 8.4Turnover ratios Asset turnover (x) 0.7 0.8 0.8 0.8Sales/Total assets (x) 0.5 0.5 0.5 0.6Sales/Net FA (x) 0.6 0.7 0.7 0.7Working capital/Sales (x) (0.3) (0.5) (0.4) (0.4)Fixed capital/Sales (x) 1.7 1.6 1.5 1.4Working capital days (113.7) (167.5) (137.1) (141.5)Liquidity ratios Current ratio (x) 0.5 0.4 0.4 0.3Quick ratio (x) 0.5 0.4 0.3 0.3Interest cover (x) 1.9 2.5 4.1 4.9Total debt/Equity (%) 132.6 127.0 118.2 100.5Net debt/Equity (%) 129.4 118.7 115.4 95.9Valuation PER (x) 120.3 59.6 27.4 18.4Price/Book (x) 3.2 2.7 2.4 2.0EV/Net sales (x) 3.0 2.7 2.5 2.2EV/EBITDA (x) 10.2 8.4 7.3 6.1EV/EBIT (x) 30.2 19.2 15.6 12.2

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Recommendation History

B (TP 430)

B (TP 500)

B (TP 423)

S (TP 235)

N (TP 365)B (TP 380)

B (TP 430)B (TP 460)

B (TP 418)

B (TP 390)B (TP 390)

B (TP 400)

200

250

300

350

400

450

500

1/3/2011 8/8/2011 3/16/2012 10/19/2012 5/29/2013 1/3/2014 8/12/2014



Idea Cellular Still lot to play for

TELECOM: Company Update 30 September 2014


Idea Cellular revenue and EBIDTA growth will continue to be ahead of market in FY15 and FY16 on account of its superior execution, pricing gains and traction in data services. While we expect strong growth over FY15 and FY16, Idea’s coverage and capacity will be constricted after February 900MHz auctions. This will cap the re‐rating potential and limit the upside. We also note the significant risks associated with Idea being an aggressor in the February auction. We value the company on DCF based methodology at Rs 200. Our key arguments are as follows: Flawless execution to continue: Idea Cellular’s near flawless execution track record with higher than market growth rate over the last 8 years will continue over FY15 and FY16. Incumbents will create pricing cushion before the pan‐India launch which will impact the pricing growth thereafter. Idea Cellular will be the significant beneficiary of the pricing and data growth over FY14‐16 translating to EBIDTA growth of 27% CAGR over the period. Spectrum footprint likely to be constricted as business continuity will be the key focus: Idea Cellular till date has invested in spectrum without significantly stretching its balance sheet. Investment in Delhi resulted in higher than expected spectrum payouts for all the eventual winners. We believe that Idea Cellular may not resort to similar strategy and business continuity will be the key focus area. In this scenario Idea will be prepared to give up some of 900MHz spectrum in key circles like Gujarat and Karnataka and move to 900MHz non contiguous band as competing for contiguous band may only jack up prices without any fruitful gains. Thus, we note that after the February auctions, Idea’s spectrum assets would have significantly depleted and thus its coverage and capacity impacting the long‐term growth prospects. Leverage will reduce business flexibility: Even with lower spectrum assets, we estimate that Idea’s balance sheet will be significantly leveraged (higher than Bharti Airtel). Leverage takes out some business flexibility as managing cash flows become very critical and operating performance could get impacted in balancing the near term cash flows versus long‐term strategic goals. Cash Flow yield: Notwithstanding the superlative EBIDTA growth for Idea Cellular, cash flow yield will not be significant on account of significant spectrum payouts in FY15 and FY16. We estimate Idea’s cash flow yield will be ‐1% and 4% over FY15 and FY16 respectively as compared to Bharti at 2% and 8% over FY15 and FY16 respectively. Continue to build higher than consensus estimates; Auction strategy key to valuations, Maintain Buy: Our EBIDTA estimates for Idea are significantly ahead of consensus for FY15 and FY16 respectively by 6% and 14% respectively. Our higher estimates are primarily because of our expectations in price improvement in FY15 and FY16. We believe that Idea is strategy in the upcoming auctions will be critical for its valuations as the company’s track record has been one of judicious management of resources. If Idea Cellular gets into a bidding war, then valuation multiples are most likely to shrink but on the other hand it focuses on business continuity plan and spends in‐line with estimates then valuation multiples will sustain over the medium to long‐term.

BUY BHIN IN | CMP RS 163 TARGET RS 200 (+23%) Company Data O/S SHARES (MN) : 3596MARKET CAP (RSBN) : 588MARKET CAP (USDBN) : 9.652 ‐ WK HI/LO (RS) : 188 / 165LIQUIDITY 3M (USDMN) : 25.2FACE VALUE (RS) : 10

Share Holding Pattern, % PROMOTERS : 42.9FII / NRI : 49.6FI / MF : 4.5NON PROMOTER CORP. HOLDINGS : 1.0PUBLIC & OTHERS : 1.9

Price Performance, % 1mth 3mth 1yr

ABS 1.0 25.2 ‐5.1REL TO BSE 1.1 19.2 ‐40.0

Price Vs. Sensex (Rebased values)

50

100

150

200

250

300

Apr‐11 May‐12 Jun‐13 Jul‐14

Idea BSE Sensex

Source: Bloomberg, Phillip Capital Research

Other Key Ratios Rs mn FY14 FY15E FY16ENet Sales 265,189 316,645 379,662EBIDTA 83,336 106,940 133,820Net Profit 18,513 28,647 37,220EPS, Rs 5.6 8.0 10.4PER, x 29.1 20.5 15.7EV/EBIDTA, x 8.4 7.8 5.8P/BV, x 3.3 2.6 2.2ROE, % 11.2 12.5 14.0Source: PhillipCapital India Research Est. Naveen Kulkarni, CFA, FRM (+ 9122 66679947) [email protected] Vivekanand Subbaraman (+ 91 22 66679766) [email protected]

30 September 2014 / INDIA EQUITY RESEARCH / IDEA CELLULAR COMPANY UPDATE

Spectrum footprint to be constrained by business continuity challenges We expect Idea to retain its 900MHz spectrum in 7 of its 9 circles. In these circles, Idea will be able to be competitive in data as well & offer 3G services on contiguous 900MHz spectrum. In Gujarat & Karnataka, we expect Idea to pick up <5MHz 900MHz spectrum to be able to offer GSM voice on 900MHz spectrum – ensuring survival/business continuity. Idea’s spectrum footprint to be constrained by Spectrum (MHz)

______Current footprint______ ___After Feb 2015 auctions___% of revenue900 1800 2100 2300 900 1800 2100 2300

Delhi 5.0 8.6 0.0 0.0 5.0 8.6 0.0 0.0 3.0 Mumbai 0.0 6.4 0.0 0.0 0.0 6.4 0.0 0.0 2.2 Kolkata 0.0 5.0 0.0 0.0 0.0 5.0 0.0 0.0 0.2 Maharashtra 7.8 11.0 5.0 0.0 8.0 11.0 5.0 0.0 17.1 Gujarat 6.2 1.6 5.0 0.0 4.0 5.0 5.0 0.0 7.1 AP 6.2 7.8 5.0 0.0 6.0 7.8 5.0 0.0 10.7 Karnataka 6.2 5.0 0.0 0.0 4.0 5.0 0.0 0.0 4.5 Tamil Nadu 0.0 5.0 0.0 0.0 0.0 5.0 0.0 0.0 0.6 Kerala 6.2 11.8 5.0 0.0 6.4 11.8 5.0 0.0 10.7 Punjab 7.8 8.0 5.0 0.0 7.6 8.0 5.0 0.0 4.9 Haryana 6.2 6.0 5.0 0.0 6.0 6.0 5.0 0.0 3.0 UP ‐ West 6.2 1.8 5.0 0.0 6.2 1.8 5.0 0.0 8.7 UP ‐ East 0.0 6.2 5.0 0.0 0.0 6.2 5.0 0.0 5.2 Rajasthan 0.0 6.2 0.0 0.0 0.0 6.2 0.0 0.0 3.5 MP 6.2 8.8 5.0 0.0 7.4 8.8 5.0 0.0 12.5 West Bengal 0.0 6.3 0.0 0.0 0.0 6.3 0.0 0.0 1.1 HP 0.0 4.4 5.0 0.0 0.0 4.4 5.0 0.0 0.3 Bihar 0.0 5.7 0.0 0.0 0.0 5.7 0.0 0.0 3.7 Orissa 0.0 5.0 0.0 0.0 0.0 5.0 0.0 0.0 0.4 Assam 0.0 5.0 0.0 0.0 0.0 5.0 0.0 0.0 0.2 North East 0.0 10.0 0.0 0.0 0.0 10.0 0.0 0.0 0.1 J&K 0.0 5.0 5.0 0.0 0.0 5.0 5.0 0.0 0.2 Total 64.0 140.5 55.0 0.0 60.6 143.9 55.0 0.0 68

Source: Company, PhillipCapital India Research Note: Highlighted cells indicated circles where Bharti has over 5MHz of contiguous 900MHz spectrum which can be used for 3G deployments Rows highlighted in RED indicate that Idea is likely to lose out on > 5MHz contiguous 900Mhz spectrum

– 28 of 33 –


Fair‐value calculation Idea will clock revenue CAGR of 13% over the next 6 years. The company is currently in a high‐growth phase and will post robust revenue growth over the next two years (FY14‐16 CAGR of 20%). Segmental growth and margin

Segments, Rs mn Sales FY14Sales CAGR (6‐year %)

Sales FY20E

EBIT margin (%) EBIT

Wireless services 265,189 12.8 547,330 21.0 114,939Tower business services 25,368 9.0 42,503 40.0 17,001Intersegment 25,368 9.0 42,503 7.0 2,975Total 265,189 12.8 547,330 23.6 128,965 We have now modeled the cash impact of spectrum renewal at Rs 180bn in our FY15‐16 capex assumptions. Derivation of Enterprise Value (EV) 2020 (excluding intermediate FCF) Segments (Rs mn) EBIT (N) Yield required (%) P/E, x EV/EBIT, x EV (2020)Wireless services 114,939 7.0 14.3 10.0 1,149,394Tower business services 17,001 7.5 13.3 9.3 158,678Intersegment 2,975 8.5 11.8 8.2 24,502Total 128,965 7.0 14.2 10.0 1,283,570 Medium‐term cash flow generation Cash Flows (Rs mn) FY15E FY16E FY17E FY18E FY19E FY20EEBIT 54,742 68,591 87,294 106,468 121,311 134,415NOPLAT 35,582 44,584 56,741 69,204 78,852 87,370Depreciation 52,198 65,229 65,580 64,543 64,285 64,611Capex 33,913 248,531 36,307 41,853 44,717 47,278FCF 53,867 ‐138,718 86,014 91,894 98,419 104,702% conversion 98 ‐202 99 86 81 78Discount factor 1.0 0.9 0.8 0.7 0.6 0.6PV 53,867 (123,855) 68,570 65,409 62,547 59,411NPV 53,867 (69,988) (1,419) 63,990 126,537 185,948 Derivation of fundamental value Rs mn/ Rs per share ValueEnterprise value‐2020 1,283,570NPV Intermediate FCF 185,948Net cash‐ end of FY2015 (232,279)Return requirement 12%EV value end of FY2015 914,280Target value per share (end Sep 2015) 721,763Target price (Sep 2015) 200CMP 163Upside (%) 23

Source: Company, PhillipCapital India Research Estimates

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– 30 of 33 –


Financials

Income Statement Y/E Mar, Rs mn FY13 FY14 FY15E FY16ENet sales 224,578 265,189 316,645 379,662Growth, % 15 18 19 20Total income 224,578 265,189 316,645 379,662Other Operating expenses ‐164,531 ‐181,853 ‐209,705 ‐245,841EBITDA (Core) 60,046 83,336 106,940 133,820Growth, % 17.9 38.8 28.3 25.1Margin, % 26.7 31.4 33.8 35.2Depreciation ‐34,778 ‐46,251 ‐52,198 ‐65,229EBIT 25,269 37,085 54,742 68,591Growth, % 19.7 46.8 47.6 25.3Margin, % 11.3 14.0 17.3 18.1Interest paid ‐9,495 ‐7,807 ‐10,670 ‐11,329Pre‐tax profit 15,774 29,277 44,072 57,262Tax provided ‐5,664 ‐10,765 ‐15,425 ‐20,042Profit after tax 10,110 18,513 28,647 37,220Net Profit 10,110 18,513 28,647 37,220Growth, % 39.8 83.1 54.7 29.9Net Profit (adjusted) 10,110 18,513 28,647 37,220Unadj. shares (m) 3,309 3,309 3,595 3,595Wtd avg shares (m) 3,309 3,309 3,595 3,595 Balance Sheet Y/E Mar, Rs mn FY13 FY14 FY15E FY16ECash & bank 1,429 1,881 49,311 95,990Marketable securities at cost 40,759 32,574 24,574 21,574Debtors 9,601 8,006 9,499 11,390Inventory 726 683 950 1,139Loans & advances 10,845 12,182 15,832 18,983Other current assets 9 35 317 380Total current assets 63,369 55,361 100,483 149,456Gross fixed assets 466,111 516,782 812,889 880,971Less: Depreciation ‐179,681 ‐220,762 ‐272,959 ‐338,188Add: Capital WIP 13,982 114,194 109,194 111,847Net fixed assets 300,411 410,214 649,124 654,629Total assets 363,778 465,575 668,045 719,870 Current liabilities 80,411 86,674 104,810 125,668Total current liabilities 80,411 86,674 104,810 125,668Non‐current liabilities 140,315 213,632 333,632 328,632Total liabilities 220,726 300,306 438,442 454,300Paid‐up capital 33,143 33,196 35,435 35,435Reserves & surplus 109,909 132,073 194,169 230,136Shareholders’ equity 143,052 165,269 229,603 265,570Total equity & liabilities 363,778 465,575 668,045 719,870 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY13 FY14 FY15E FY16EPre‐tax profit 15,774 29,277 44,072 57,262Depreciation 34,778 46,251 52,198 65,229Chg in working capital ‐4,336 6,538 12,443 15,565Total tax paid 4,098 ‐685 ‐15,425 ‐20,042Cash flow from operating activities 50,314 81,382 93,288 118,014Capital expenditure ‐58,452 ‐156,054 ‐291,107 ‐70,734Chg in marketable securities ‐17,220 8,185 8,000 3,000Cash flow from investing activities ‐75,673 ‐147,869 ‐283,107 ‐67,734Equity raised/(repaid) 55 53 36,940 0Debt raised/(repaid) 22,825 63,237 120,000 ‐5,000Cash flow from financing activities 22,880 63,290 156,940 ‐5,000Net chg in cash ‐2,479 ‐3,197 ‐32,879 45,280 Valuation Ratios & Per Share Data FY13 FY14 FY15E FY16EPer Share data EPS (INR) 3.1 5.6 8.0 10.4Growth, % 39.8 83.1 42.4 29.9Book NAV/share (INR) 43.2 49.9 63.9 73.9FDEPS (INR) 3.1 5.6 8.0 10.4CEPS (INR) 13.6 19.6 22.5 28.5CFPS (INR) 16.1 24.6 25.9 32.8Return ratios Return on assets (%) 4.7 5.7 5.8 5.7Return on equity (%) 7.1 11.2 12.5 14.0Return on capital employed (%) 6.2 7.1 7.5 7.7Turnover ratios Asset turnover (x) 0.9 0.9 0.7 0.7Sales/Total assets (x) 0.7 0.6 0.5 0.5Sales/Net FA (x) 0.8 0.7 0.6 0.6Working capital/Sales (x) (0.3) (0.2) (0.2) (0.2)Fixed capital/Sales (x) 2.1 1.9 2.6 2.3Working capital days (96.3) (90.5) (90.2) (90.2)Liquidity ratios Current ratio (x) 0.8 0.6 1.0 1.2Quick ratio (x) 0.8 0.6 0.9 1.2Interest cover (x) 2.7 4.8 5.1 6.1Total debt/Equity (%) 95.0 120.5 139.0 118.3Net debt/Equity (%) 94.0 119.3 117.5 82.1Valuation PER (x) 53.3 29.1 20.5 15.7Price/Book (x) 3.8 3.3 2.6 2.2EV/Net sales (x) 2.8 2.7 2.6 2.1EV/EBITDA (x) 10.5 8.4 7.8 5.8EV/EBIT (x) 25.1 19.0 15.2 11.4


Recommendation History

B (TP 87)B (TP 115)

B (TP 110)B (TP 105)

S (TP 67)

N (TP 115)

B (TP 142)

B ( TP 190)

B (TP 195)

B (TP 210)

B (TP 195)

B (TP 165)B (TP 180)

0

20

40

60

80

100

120

140

160

180

200

1/3/2011 8/8/2011 3/16/2012 10/19/2012 5/29/2013 1/3/2014 8/12/2014


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Management

(91 22) 2300 2999(91 22) 6667 9735

Research Engineering, Capital Goods Pharma

Dhawal Doshi (9122) 6667 9769 Ankur Sharma (9122) 6667 9759 Surya Patra (9122) 6667 9768Priya Ranjan (9122) 6667 9965 Hrishikesh Bhagat (9122) 6667 9986

Retail, Real EstateInfrastructure & IT Services Abhishek Ranganathan, CFA (9122) 6667 9952

Manish Agarwalla (9122) 6667 9962 Vibhor Singhal (9122) 6667 9949 Neha Garg (9122) 6667 9996Paresh Jain (9122) 6667 9948 Varun Vijayan (9122) 6667 9992Pradeep Agrawal (9122) 6667 9953 Technicals

Midcap Subodh Gupta, CMT (9122) 6667 9762Consumer, Media, Telecom Vikram Suryavanshi (9122) 6667 9951Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Production ManagerVivekanand Subbaraman (9122) 6667 9766 Metals Ganesh Deorukhkar (9122) 6667 9966Manish Pushkar, CFA (9122) 6667 9764 Dhawal Doshi (9122) 6667 9769

Database ManagerCement Oil&Gas, Agri Inputs Vishal Randive (9122) 6667 9944Vaibhav Agarwal (9122) 6667 9967 Gauri Anand (9122) 6667 9943

Deepak Pareek (9122) 6667 9950 Sr. Manager – Equities SupportEconomics Rosie Ferns (9122) 6667 9971Anjali Verma (9122) 6667 9969Sales & Distribution Kinshuk Bharti Tiwari (9122) 6667 9946 Dipesh Sohani (9122) 6667 9756 Zarine Damania (9122) 6667 9976Ashvin Patil (9122) 6667 9991 Sales TraderShubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)Jignesh Shah (Head – Equity Derivatives)

Automobiles

Banking, NBFCs

Contact Information (Regional Member Companies)

SINGAPORE Phillip Securities Pte Ltd

250 North Bridge Road, #06‐00 Raffles City Tower, Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834 www.phillip.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN Phillip Securities Japan, Ltd

4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com

UNITED STATES Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA PhillipCapital Australia

Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

– 32 of 33 –

http://www.phillip.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/home.htm

http://www.phillipcapital.in/

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Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. 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