>Bharti Airtel Limited (JP MORGAN)

Cutting our estimates and PT due to increasing competition and MTC cut; Remain cautious

• We reduce our estimates and PT on Bharti given continued competition challenges, cut in Mobile Termination Charge (MTC) and more headwinds on regulatory side (3G, MNP): While Bharti continues to be a top tier player with strong management and our relative top pick in Indian Telecom sector, we believe that increasing competition and MTC cut would depress ARPMs and margins over the next 12-18 months. As a result, we expect a sharp fall in EBITDA/EPS CAGR to 7%/13% in FY09-11 (35%/31% growth in FY09) that we believe could keep valuation multiples depressed.

• We cut our FY10E/11E revenue/EBITDA/EPS by 4%/6%/8% and 3%/5%/7%: This is largely driven by reduction in our mobile ARPM/ARPU estimates by 3%/4% and 2%/4% for FY10E and FY11E respectively. As a result, we expect wireless EBITDA margins of 27%/25% in FY10/FY11, down from 28%/26% in FY08/FY09E. We now estimate ARPU decline of 12%/8% Y/Y in FY10/FY11. Our new FY10E/FY11E EPS of Rs49/Rs58 is below consensus by 5%/1%.

• Why the cut in ARPUs?: We believe the MTC cut from Rs0.30/min to Rs0.20/min would eventually force operators to cut tariffs. This is already been evinced in comments from operators like Tata Teleservices, which have expressed willingness to cut tariffs due to the MTC cut. We are also seeing more evidence of aggressive pricing strategies from the expansion of incumbent operators like RCOM and Idea. In fact, RCOM and Idea tariff plans offer call rates 40% below base tariff levels in Mumbai and few other circles as per our checks. We expect this competition pressure to increase pushing down ARPUs.

To see full report: BHARTI AIRTEL