>BHARTI AIRTEL LIMITED (UBS)

■ Bharti enjoys significant first mover & scale advantages:
Bharti, thanks to its management’s vision has been a big believer in the potential of the Indian mobile market that led the company to invest earlier than its rivals in a nationwide network. This has led to Bharti having a much superior scale vs. its competitors. There is significant operating leverage as we believe 52% of the operating costs in the mobile business are fixed (please refer to table 1).

Positioned to emerge stronger

■ Bharti’s cost focus implies that it is likely to emerge stronger
We believe Bharti management is currently taking appropriate steps to optimize the cost structure further with a view to protect margins in a low pricing power environment. We think consolidation is inevitable in the Indian mobile sector over the next 2-3 years and some pricing power is likely to return. Bharti should emerge as the major beneficiary of any consolidation in the Indian mobile sector.

■ Quarterly results are likely to be uninspiring
Given the price war in the Indian mobile sector the quarterly performance of Bharti is likely to be adversely impacted over the next 4-8 quarters. For Q3FY10, we expect consolidated revenues to grow 0.8% qoq to Rs99.2bn, EBITDA to decline 5.8% to Rs39.0bn. Mobile revenue to decline 2.5% qoq to Rs78.9bn, and mobile EBITDA to decline 8.4% qoq to Rs23.7bn. We expect voice rev/min to decline from Rs0.51 to Rs0.47/min.

■ Maintain Buy rating and SoTP based PT of Rs450
3G licensing related developments may act as a dampener for Bharti stock price. We believe this could create attractive buying opportunities in Bharti stock on this potential weakness.

To read the full report: BHARTI AIRTEL