>BHARTI(CITI)

 EBITDA in-line, forex/deferred taxes distort headline profits — 2QFY09 EBITDA
at Rs37bn (+5%qoq/+37% yoy) was broadly in-line as non-mobile businesses
chipped in to cover slightly slower growth in mobile (5%qoq vs. 8-10% in the
past). Higher forex losses (Rs5.9bn vs. Rs1.5bn in 1Q) and deferred tax
recognitions distorted headline profits. We note PBT ex-forex adjustments were
up 42% yoy (vs. headline 13% growth). Bharti stays our top sector pick.

 Mobile margins increase despite seasonally weak quarter — The seasonal 1.5%
QoQ MoU decline was slightly higher than we thought; decline in rev/min was
sharper as well (4%qoq). Headline margins (30.2%) were lower. Adjusted for
the incremental 140bps on account of full quarter impact of higher NLD
carriage charge (2 months in 1Q) and diesel price hike (est. 25bps), EBITDA
margins would have been 31.9%.

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 Other businesses steady — Fixed line had another strong quarter as a result of
scale economies and higher ARPUs. Long distance volumes have remained
strong and enterprise revenues jumped 25% qoq albeit with lower margins.
Towerco margins compression of 400bps was primarily on account of higher
energy costs, which though passed through, are included in gross rentals.

 We are maintaining estimates — Our subscriber net addition rate (2.3m/month)
for FY09 is well within Bharti’s YTD 2.6m rate and provides some cushion from
higher than forecast declines in rev/min and margin pressures. Sustained INR
weakness will mean forex impacts continue to distort headline profits though.