>INDIA WIRELESS (CITI)

It's All About the Risk Premium

■ Stable government doesn’t alter fundamentals much — While competition will keep coming and is the key driver of subdued elasticity assumption in FY10E (3% MOU growth for 21% rev/min decline), a sharper-than-expected recovery in economic activity could improve that. No changes likely to 3G/MNP policy but M&A norms could be relaxed. Since it's early to factor the positives in numbers, the target revisions are solely a result of 50-100bps reduction in country risk premium.

■ Bharti – MTN offsets some of the India re-rating; still a Buy — Raising our target price to Rs930 based on WACC of 11.3% (from 12%). The lower WACC is due to a reduced risk premium though we add back 50bps for the perceived higher risk post-MTN. Dilution of India-centric play, and not the 4-5% EPS dilution, is a bigger issue for India-bound flows. However, MTN related overhang offers long-term entry points given Bharti’s execution track record and cheaper valuations (15x) relative to market (17x).

■ RCOM – Sell, Risk in vogue again, but fundamentals lagging — We reduce RCOM’s discount on Bharti’s target EV/E to 15% and value it at Rs270 based on EV/E of 7.8x FY10E. However, we eliminate any value from towerco (Rs26 earlier) to reflect the low visibility of tenancy. The jury is still out on GSM’s ability to drive faster growth; sustenance of traffic share post the free mins is key challenge.

■ Idea – M&A/cleaner play? but don’t compromise on valuations — Inclusion in MSCI, cleaner play (post Bharti’s MTN agenda) and M&A talk could benefit Idea. However, smaller scale and relative vulnerability (should competition worsen) means too much compromise on valuation is risky. Axiata open offer (if at all) would be factored in at Rs90-100. Downgrade to Sell with TP of Rs80 on EV/E of 7.8x and towerco at Rs21 .

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