德意志银行：印度电信行业研究报告2008年11月

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India Telecom Strategy
Expensive is good; Bharti is
our top pick
Srinivas Rao
Research Analyst
(91) 22 6658 4210
srini.rao@db.com
Amyn Pirani, MBA
Research Associate
(91) 22 6658 4355
amyn.pirani@db.com
Our order of preference: Bharti, Idea, Reliance Communications
The Indian telecom sector continues to witness record subscriber additions of
c10m/month which should support medium-term revenue growth. In addition,
recent stake sales by Indian telcos underline the attractiveness of the market to
foreign companies. However we believe that two issues -- rising competitive
intensity and regulatory flux -- will weigh on returns and share price performance in
the long run. Despite being the most expensive, Bharti is our top pick as it offers
the best combination of profitability, growth and upside to current price.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at http://gm.db.com or by calling 1-877-
208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.
Industry Strategy
Top picks
Bharti Airtel Limited (BRTI.BO),INR619.10 Buy
Reliance Comm (RLCM.BO),INR207.10 Hold
Idea Cellular Limited (IDEA.BO),INR44.20 Buy
Companies featured
Bharti Airtel Limited (BRTI.BO),INR619.10 Buy
2008A 2009E 2010E
P/E (x) 24.9 12.6 10.7
EV/EBITDA (x) 15.1 7.9 6.4
Price/book (x) 7.2 3.8 2.8
Reliance Comm (RLCM.BO),INR207.10 Hold
2008A 2009E 2010E
P/E (x) 27.3 8.3 7.7
EV/EBITDA (x) 17.8 7.9 6.5
Price/book (x) 3.6 1.2 1.1
Idea Cellular Limited (IDEA.BO),INR44.20 Buy
2008A 2009E 2010E
P/E (x) 32.2 11.0 8.4
EV/EBITDA (x) 15.8 3.1 3.0
Price/book (x) 7.6 0.9 0.8
Global Markets Research Company
Bharti: upgrading to Buy; EPS increased by c10%, TP (Rs 860) unchanged
Bharti’s has continuously increased its subscriber marketshare against our
expectation of a flat trend. At 33% revenue marketshare, it has commanding lead
over its peers even as the industry moves out of its hyper-growth phase. Our
upgrade is underlined by the strengthening cashflow position and resilience of
Bharti’s business franchise. While we continue to maintain our assumption of a
falling margin for Bharti, its scale and cost structure could help it partially weather
the impact of competition. We also highlight its robust financials (24% EPS CAGR
(FY08-11E), ROCE 30%) and inexpensive valuations (FY10 P/E 10.5x).
Idea: cutting EPS by c16% and TP (Rs 58) by 35%; maintain Buy
Our cut in estimates is primarily driven by a reduction in Idea’s EBITDA margin in
its legacy circles reflecting our expectation of increased competition. Our
forecasts for Idea are consolidated for the impact of its recent acquisition of Spice.
These circles contribute c85% of Idea’s consolidated FY10E EBITDA. Idea’s
recently strengthened balance sheet through cash infusion ($1.7bn net) and its
inexpensive valuations underpin our Buy recommendation.
RCOM: cutting EPS by c16% and TP (Rs 230) by 44%; maintain Hold
Our reduction is driven by cuts in the wireless business where we have assumed
a fall in both MoU and rev/min to factor in the launch of its GSM business. Despite
the cuts, our estimates assume a rapid increase in wireless marketshare (18%
currently to 21% in FY11E). While RCOM is the least expensive among the three,
it also has the lowest ROCE (10%). Its key challenge would be to grow profitably
and close the gap with Bharti.
Influx of capital into the sector could depress long-term returns
The recent stake sales by Idea and TTSL have significantly strengthened the
balance sheet of the weakest among the incumbents. Furthermore, start-ups such
as Swan, Unitech and Shyam Tele are getting funds into their ventures. The
sudden abundance of capital in the mid-stage of growth cycle raises the possibility
of capital misallocation in the sector which could result in a fall in ROCE for all the
players. While subscriber growth may accelerate in the medium term, we believe
pricing pressures would further intensify and impact revenue growth (estimated at
3-yr CAGR (FY08-11E) of 20%).
Valuation: Bharti trading at a premium to market; Idea & RCOM at a discount
We use DCF to value Indian telcos. We have used a 25% discount to DCF to
derive TP of Idea and RCOM to reflect the challenges they face in
expanding/launching GSM operations. Risks include a slowdown in subscriber
additions and higher than forecasted rise in competition pricing.

Table of Contents
Why Bharti is our top pick ................................................................ 3
Changes in our estimates reflect a challenging scenario of RCOM and Idea............................5
RCOM: the chasm with Bharti is too large to bridge ................................................................6
Indian Telecom: our forecasts .......................................................... 7
Bharti vs. RCOM: A comparison....................................................... 9
Bharti Airtel Limited........................................................................ 12
Investment thesis ............................................................................ 14
Outlook ..................................................................................................................................14
Valuation ................................................................................................................................14
Risks ......................................................................................................................................14
Bharti: key highlights ...................................................................... 15
The Indian Wireless colossus..................................................................................................15
Valuation ................................................................................................................................18
Risks ......................................................................................................................................19
Reliance Comm................................................................................ 20
Investment thesis ............................................................................ 22
Outlook ..................................................................................................................................22
Valuation ................................................................................................................................22
Risks ......................................................................................................................................22
RCOM: Key highlights ..................................................................... 23
Valuations...............................................................................................................................25
Risks ......................................................................................................................................26
Idea Cellular Limited ....................................................................... 27
Investment thesis ............................................................................ 29
Outlook ..................................................................................................................................29
Valuation ................................................................................................................................29
Risks ......................................................................................................................................29
Idea: key highlights ......................................................................... 30
Valuations...............................................................................................................................32
Risks ......................................................................................................................................33
Appendix A – Bharti......................................................................... 34
Appendix B - RCOM......................................................................... 39
Appendix C - Idea ............................................................................ 44
Appendix D – Regional comparison............................................... 48

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