>INDIA WIRELESS (CITI)

1QFY10E: Mixed MOU Drivers, Forex Trends Could Aid PAT

■ Headline revenue growth impacted by lower termination — We forecast mobile revenue growth of 3-4% as termination cut shaves off ~3p from headline rev/min. Like-for-like, the revenue growth would be 7-8% QoQ, an improvement over 4QFY09. EBITDA margins will receive mathematical support (with lower termination) and reversal in forex losses (esp. for Bharti) will aid performance at PAT level. Overall, we expect EBITDA to grow 17% YoY and PAT at 2% YoY.

■ MOUs to reflect multiple factors in 1Q — We expect a modest 1-2% MOU growth to reflect (i) reducing impact of free mins in Jun-quarter and (ii) election led traffic activity, which will be partially offset by (iii) seasonal slowdown during the quarter. As for rev/min, we assume a additional decline of 1-2p in addition to the 3p impact of termination cut.

■ EBITDA margins flat to marginally up — Due to the reduction in headline RPM as well as interconnect cost, the EBITDA margin would mathematically move up by 1.1-1.2%, everything else remaining equal. This will be offset by (i) in:out skew esp. for GSM operators and (ii) new launches esp. for Idea (TN & Orissa). As a result, we factor in 70bps QoQ margin improvement for Bharti & 110bps for RCOM but only 10bps for Idea.

■ Losses on forex liabilities will be stemmed — Bharti would gain from MTM/derivative gains in the quarter though it could be partially offset by higher tax (MAT increased). In RCOM’s case, there will be no impact as they adjust forex gains in the gross assets; depreciation could go up sharply if GSM capex starts getting capitalized.

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