>Bharti Airtel (CITI)

4Q – Robust Per Se, But a Notch Below Raised Expectations

■ Free mins slow down revenue growth — Bharti’s 4Q wireless revenue grew 3.6% qoq, higher than est. but lower than the raised hopes post Idea (9%qoq). Adjusting for the 2% EBITDA impact (~Rs2bn) on account of equity accounting of the 35k towers transferred to Indus, EBITDA was in-line. Net profit at Rs22.4bn came in ahead with lower forex losses (Rs2.3bn v/s Rs5bn est.).

■ Operating leverage should manifest in FY10E — Wireless margins remained stable as fuel price cut and lower distribution costs offset higher network opex. With 81% coverage done, network opex as % of revenues should also start moderating in the coming quarters. FY10E capex guidance at US$2.0-2.2bn (ex-towers) and maiden dividend (Rs2) are further indicators of reducing rollout intensity (read pure coverage capex).

■ KPIs were OK — MoU declined to 485 mins (4% qoq decline) though slightly higher than expectations. Rev/min remained stable in absence of any major tariff cuts to counter RCOM’s “trial offer”. These trends (though weaker than its listed GSM peer) continue to be encouraging given concerns on competition.

■ Non-mobile business was lackluster — Fixed line ARPU contracted; likely impact of economic slowdown and long distance volume growth slowed. “Other” EBITDA losses narrowed on lower DTH losses

■ Top pick — Our conservative FY10 wireless assumptions of 1) 2.3m net adds/month, 2) 50p rev/min, 3) usage elasticity of 0.13, 4) flat EBITDA margins and 5) tax rate of 16% leave room for upside.

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