INDIA

6 March 2009
BHARTI IN
Stock price as of 05 Mar 09 12-month target Upside/downside Valuation Rs Rs % Rs

Bharti Airtel
Termination charges: Risk assessment
Outperform
590.00 975.00 +65.3 975.00

Event
Telecom Regulatory Authority of India (TRAI) is reviewing the interconnection usage charges for telecom operators. As part of the ongoing consultation process, key telecom players recently presented their views to TRAI. We outline the contrarian stands of major telcos on key issues of termination and interconnect. We also analyse the impact on Bhartis FY3/10E revenue, EBITDA & EPS due to any potential lowering of termination charges (page 2).

- DCF (WACC 12.0%, beta 1.0, ERP 6.0%, RFR 9.0%, TGR 3.5%)

GICS sector telecommunication services Market cap Rs bn 1,120 30-day avg turnover US$m 55.6 Market cap US$m 21,730 Number shares on issue m 1,898

Impact
Views espoused in presentations are in line with the previously articulated stands of the respective operators. Even if the sector regulator decides to reduce the termination charge, it is unlikely to be firmed up or implemented before the new government is in place following General Elections in April-May 2009. Our sensitivity analysis implies limited downside risks to FY3/10E EPS. A 33% cut in the termination charge to Rs0.2 per minute from Rs0.3 will have only a 1% impact on EPS (assuming no change in Bhartis tariff plans). In a worst case scenario of Bharti deciding to cut both on-net and off-net tariffs by Rs0.50 per minute (50% of the reduction in termination charge, implying 50% pass through of termination charge to subscribers), then EPS would be 11% lower than current forecasts. The worst case scenario is highly unlikely in our view. Incumbent GSM operators who have argued for no change in the existing termination charge, have argued that cost based methodologies for arriving at termination charge are most efficient and are an international best practise. We note that the current termination charge of Rs0.30 per minute was arrived at in February 2004, using forward looking cost methodology. RCOM has favoured reducing termination charge to zero. RCOM (RCOM IN, Rs136, OP, TP: Rs275) believes that the termination charge is the biggest hurdle to further tariff declines. RCOM has favoured the Bill and Keep (BAK) interconnection regime. Under BAK, the originating carrier bills its customers for calls and keeps the corresponding revenue. The originating carrier does not compensate the terminating carrier for call termination expenses. Greenfield operators have called for asymmetric termination charges. New entrants want the regulator to introduce asymmetric termination charges to help them counter the scale advantages of the incumbents. They argue that it will be difficult for them to match or undercut the incumbent operators Onnet call charges. We maintain that business economics for new entrants in Indian wireless will remain challenging irrespective of IUC changes.

Investment fundamentals
Year end 31 Mar Total revenue EBITDA EBITDA growth EBIT Reported profit Adjusted profit EPS rep EPS adj EPS adj growth PE adj Total DPS Total div yield ROA ROE EV/EBITDA Net debt/equity Price/book bn bn % bn bn bn Rs Rs % x Rs % % % x % x 2008A 270.3 113.7 52.6 76.5 67.0 67.0 35.31 35.31 57.2 16.7 0.00 0.0 19.8 37.4 10.3 18.7 5.0 2009E 371.5 153.3 34.8 107.7 81.2 81.2 42.79 42.79 21.2 13.8 0.00 0.0 19.5 31.1 7.6 18.8 3.7 2010E 448.5 190.0 23.9 138.0 111.2 111.2 58.60 58.60 36.9 10.1 10.00 1.7 20.0 32.3 6.2 12.4 2.9 2011E 504.9 221.6 16.7 162.0 125.5 125.5 66.17 66.17 12.9 8.9 10.00 1.7 20.6 29.2 5.3 1.3 2.4

BHARTI IN rel SENSEX performance, & rec history

Earnings revision
Source: FactSet, Macquarie Research, March 2009 (all figures in INR unless noted)

No change.

Price catalyst
12-month price target: Rs975.00 based on a DCF methodology. Analysts
Shubham Majumder 9122 66533049 shubham.majumder@macquarie.com Nitin Mohta 91 22 6653 3050 nitin.mohta@macquarie.com Tim Smart 852 3922 3565 tim.smart@macquarie.com

Catalyst: Consolidation in revenue market share and launch of Indus Towers.

Action and recommendation

Reiterate OP on Bharti. Review of the termination charge does add to the risk, but we believe that the market is already factoring in worst case outcomes.
Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com.au/research/disclosures.

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Bharti Airtel

Analysis
Lower termination charges will not have a material impact on Bhartis financials. We estimate Bhartis net interconnect revenues at ~2% of its total top-line. In Figure 1 below, we analyse the impact of a cut in the termination charge to Rs0.20 from current Rs0.30 on Bhartis FY3/10E revenues, EBITDA and EPS. For scenario 1, we have assumed that Bharti would not make any change to its tariff plans following a cut in the termination charge. Since Bharti is a net recipient of interconnect revenues, lower termination charges would have a negative impact on the companys financials. Even so, we estimate only 1% hit to our FY3/10E EPS in this scenario. We highlight that lower termination charges would result in 4% reduction in gross revenues, but the impact at the EBITDA level would be much less due to the simultaneous reduction in network access charges. For scenario 2, we have assumed Bharti would cut its outgoing tariff in a manner that it retains half the benefit from reduced termination charges and passes the remaining to consumers. Based on these assumptions, we estimate Bhartis FY3/10E revenues and EBITDA to be 8% and EPS to be 11% lower than our current forecasts. Too early to pass the verdict on Bhartis pricing action, post the review of termination charges. Bharti management has reiterated its focus on consolidating Bhartis wireless revenue share in the Indian telecom market. As a result, we believe investor expectations of a cut in Bhartis retail tariff plans, in response to potential cut in the termination charge, is not a given.

Fig 1 We see limited downside risks to our FY3/10E EPS for Bharti, unless Bharti decides to cut tariifs
FY3/10E (Amount in Rs million) Base Case Scenario 1 - Assuming termination charges are cut to Rs0.2 BUT there is no change in outgoing tariffs, implying company retains the benefit of lower termination charges. Deviation from Base Case (%) Scenario 2 - Assuming termination charges are cut to Rs0.2 AND Bharti cuts outgoing tariff in a manner that it retains half the benefit from reduced termination charge and passes the remaining to consumers. Revenues 448,469 429,151 EBITDA 189,967 188,674 EPS 58.6 58.0 Comments

33% reduction in termination charge will have little impact on Bhartis EBITDA and EPS, if we assume no change in tariff

-4.3% 413,229

-0.7% 174,822

-1.0% 51.9 We have assumed Bharti would retain 50% of the 10 paise reduction in termination charge and passes the rest to consumers in form of tariff cut. Bhartis EBITDA and EPS will be hit by 8% and 11%, respectively due to assumed 5 paise tariff cut.

Deviation from Base Case (%)

Source: Macquarie Research, March 2009

-7.9%

-8.0%

-11.3%

We present the view and counterview of the Indian operators on major aspects of a termination regime
Telecom Regulatory Authority of India has received three presentations on the interconnect charges review: (1) presentation from incumbent GSM operators Bharti Airtel, Vodafone Essar, Ideal Cellular and Aircel, (2) presentation from Reliance Communications, and (3) presentation from greenfield entrants Datacom, Loop, Swan and Unitech.

Issue 1: Calling Party Pays regime vs Bill and Keep

Under a Calling Party Pays (CPP) regime, cellular operators charge the originator of the call and no charge is levied on the receiving party. The originating carrier compensates the receiving party operator by paying a termination charge. Under a Bill and Keep (BAK) approach, the originating carrier bills its customers for calls and keeps the corresponding revenue. The originating carrier does not compensate the terminating carrier for the call termination expense.
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Bharti Airtel

We note that India switched from a Receiving Party Pays (RPP) to Calling Party Pays (CPP) regime in 2003. Under RPP, there is no termination charge since both the caller and receiver pay their respective operator for the call made. None of the three parties have advocated the switch from CPP to RPP. Incumbent GSM operators view: The incumbent GSM operators favoured CPP over BAK. The GSM incumbents have argued that BAK creates a need for highly prescriptive technical network regulation to manage inevitable congestion and quality issues. The operators believe that the BAK regime would incentivise operators to dump more traffic onto their competitors, resulting in network congestion and deteriorating service quality. RCOMs view: BAK is a simpler interconnection regime and results in an efficient network utilisation. RCOM also highlighted in its presentation that a switch to the BAK approach would save recurring transaction costs involved in determining, negotiating, and setting the termination charges for various platforms. RCOM believes BAK would reduce the price floor for the calls made from PCO and Fixed Wireless Phone. We highlight that RCOM has the highest share of PCO among private telco operators in India and reduced call charges from PCO and FWP (if the termination charge for calls made from PCO and FWP is reduced) would be a significant positive for the company. Greenfield operators view: This issue has not been discussed by the new entrants in their presentation. Case Study on Sri Lanka wireless market. Both incumbent GSM operators and RCOM have used the Sri Lankan wireless market as an example to support their argument. RCOM has argued that higher wireless penetration in Sri Lanka (49% in 2Q08 vs 31% for India in January 2009) demonstrates the contribution of the BAK interconnection regime in increasing wireless penetration. In contrast, incumbent GSM operators have highlighted that the BAK regime has not resulted in affordable telecom services in Sri Lanka. The GSM players have noted that the outgoing call rate in Sri Lanka was Rs0.13 and the incoming call rate was Rs0.4 before Bharti launched its services in Sri Lanka.

Issue 2: Symmetric termination charges vs asymmetric termination charges

Symmetric termination charges imply the same termination charges for all operators. In contrast, asymmetric termination charges are used by the regulators to favour one set of operators over others to meet specific objectives, which could range from increasing wireless penetration, higher competition in the sector, or providing a level paying field to new operators in a market. Incumbent GSM operators view: The operators have not explicitly commented on asymmetric termination charges, but given their scale and incumbency advantage we do not expect the incumbent GSM operators to favour the asymmetric termination charges. RCOMs view: RCOM has argued that if TRAI needs to stick to a cost based approach for arriving at termination costs, the regulator should introduce asymmetric mobile termination charges. RCOM has launched its GSM operations in 14 circles in January, completing its pan India GSM footprint. As a result, asymmetric mobile termination would benefit the company to compete with existing GSM operators Bharti and Vodafone Essar. We believe that RCOMs GSM offering is the only credible threat to Bhartis strong position in the Indian wireless market. Greenfield operators view: New entrants have requested the authority for introduction of asymmetric termination charges. Greenfield operators have highlighted that the cost of providing same interconnection differs greatly between the incumbents and the new entrants due to a phased roll-out of networks by incumbents over a long period of time and incumbents substantially higher subscriber market share. New entrants have urged the regulator to take a glide path approach towards adoption of symmetric termination charges. According to the presentation, the glide path is determined based on the time it would take for the elimination of cost differences between the operators. For example, in Belgium, the regulators objective was to eliminate the asymmetry in the MTC over a reasonable time frame (2 years) based on the costs of an efficient operator.

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Bharti Airtel

Issue 3: Mobile termination charge of Rs0.3 per minute vs Rs0.08 per minute
The existing mobile termination charge of Rs0.3 per minute was introduced in 2004. TRAI had left the termination rates unchanged following its review of the same in 2006. Incumbent GSM operators view: Telecom operators having existing GSM operations believe that issues (such as low wireless penetration in India and the need for operators to build network capacity to support subscriber growth) highlighted by TARI in 2006 for maintaining the termination charges are still relevant and as such there is no reason to cut the termination charges. The key arguments made by the GSM operators in favour of maintaining the current termination charge are: Reduction in the termination charge would slow down rural coverage expansion. The presentation highlights that investment for rural coverage is significantly higher than the urban infrastructure. The operators have indicated the rural coverage capex (Towers, additional electronics, backhaul connectivity and rights of way) is 1.5 to 4 times the urban site capex. Opex (diesel, security, maintenance and higher spares) in rural areas is 1.4 to 3 times higher than the urban site. As such, if the termination charge is reduced, it will not be economically feasible for the operators to serve the rural customer. The existing termination charge is already below the average national termination charge derived using a cost based international methodology. Incumbent GSM operators have cited an independent third party study to show that the average national termination charge for the telecom operators would be Rs0.35 (based on Long Range Incremental Cost Methodology). Operators have highlighted that the current termination charge is already lower at Rs0.30. RCOMs view: RCOM has cited another third party study on calculating cost based termination charges. According to the study based on FL-Long Range Incremental Cost Methodology (LRIC), incumbent operators should charge Rs0.08 and new operators should charge Rs0.22 as a termination charge. The RCOM presentation mentions that new operators would be willing to accept Rs0.08 as the revised termination charge despite their higher cost base. Greenfield operators view: The operators have not referenced any study or presented the regulator with an alternative termination charge in their presentation. Link to the presentations made by the respective operators to TRAI on Interconnect Usage Charges is produced below for your quick reference: Incumbent GSM operators (Bharti + Vodafone + Idea + Aircel) http://www.trai.gov.in/WritereadData/trai/upload/misc/103/pptBharti.pdf Reliance Communications http://www.trai.gov.in/WritereadData/trai/upload/misc/103/pptReliance.pdf Greenfield entrants (Datacom + Loop + Swan + Unitech) http://www.trai.gov.in/WritereadData/trai/upload/misc/103/pptUnitech.pdf

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Fig 2 Bharti now at its lowest 1-year forward rolling EV/EBIDTA

Price in Rs 1,600 15x 1,400 1,200 1,000 800 600 400 200 0 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Mar-08 Dec-08
30x 25x 20x 15x 10x 5x Dec-08

13x 11x 9x 7x 5x

Jun-07

Jun-03

Jun-04

Jun-05

Sep-03

Sep-04

Sep-05

Jun-06

Sep-06

Sep-07

Jun-08
Jun-08

Source: Company Data, Macquarie Research, March 2009

Fig 3 Bharti is trading at its lowest 1-year forward rolling PER mutliple
Price in Rs 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Dec-06 Jun-04 Jun-05 Mar-04 Mar-03 Mar-05 Jun-06 Sep-03 Sep-06 Sep-07 Mar-08 Mar-06 Mar-07 Sep-08 Jun-03 Dec-03 Sep-04 Dec-04 Sep-05 Dec-05 Jun-07 Dec-07

Source: Company Data, Macquarie Research, March 2009

6 March 2009

Sep-08

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Fig 4 Macquarie Global emerging market telecom valuation

Macquarie - Global Emerging Market Telecom Valuation

Company Name Bharti Airtel Reliance Communications Idea Cellular MTNL

Bloomberg Ticker BHARTI IN RCOM IN IDEA IN MTNL IN

Reco OP OP UP UP OP UP N OP OP OP N OP OP N N UP UP OP OP NR NR NR NR NR NR

Price lcy 590 136 44 63 66 8 4,275 188,500 26,900 7,900 21 3 795 34 47 81 29 2 8,793 18 38 19 34 37 92

EV/EBITDA (x) FY3/10E FY3/11E 6.2 5.1 5.1 4.2 5.8 5.1 6.1 6.2 4.2 2.8 3.8 3.9 3.3 3.1 7.1 4.0 3.0 5.0 5.3 5.8 4.4 5.4 3.1 4.9 3.1 5.1 5.8 5.3 5.2 4.6 4.6 3.8 2.7 3.7 3.5 2.7 2.8 6.3 3.3 2.7 5.1 5.2 5.9 4.4 5.5 2.8 4.5 3.0 4.9 5.7 5.1 4.9 4.3 4.3

PER (x) FY3/10E FY3/11E 10.1 8.9 5.2 4.6 13.4 12.7 68.7 -14.1 10.3 10.6 9.6 9.2 17.6 6.5 12.2 8.0 6.9 9.7 8.5 13.8 6.2 9.4 7.2 7.1 10.9 8.1 9.0 5.5 4.0 9.1 9.1 9.8 16.5 8.4 7.8 10.2 6.1 10.9 7.5 6.6 9.5 8.6 13.1 5.7 9.8 5.8 6.6 8.7 7.1 8.1 5.3 3.4 8.4 8.3

PEG (FY3/09-3/11E) 0.6 0.9 2.0 na 2.2 -0.5 0.7 0.7 -1.6 0.6 4.2 -10.9 1.0 2.5 5.4 -1.1 -0.3 na 0.3

ROE (FY3/09E, %) 33.9 23.0 23.1 1.0 27.7 9.1 12.4 13.0 3.8 15.1 65.7 4.4 24.1 14.1 37.4 23.9 17.0 71.9 32.4

EBITDA CAGR (FY3/09-3/11E, %) 20.2 17.5 20.9 -0.3 5.9 28.0 3.9 6.7 12.4 5.6 6.5 15.7 3.4 -3.0 1.9 -6.4 -5.9 -6.2 33.4

EPS CAGR (FY3/09-3/11E, %) 24.3 6.1 7.2 na 4.8 -21.3 14.9 15.5 101.5 14.4 3.1 -1.7 7.8 4.1 1.7 -12.8 -22.0 -9.1 33.9

P/BV (x) FY3/10E FY3/11E 2.9 2.4 0.8 0.6 0.9 0.8 0.4 0.4 2.4 0.6 1.2 1.3 1.1 1.0 7.6 0.9 1.6 1.9 2.8 3.3 1.1 6.1 2.1 2.2 0.6 1.1 1.2 1.0 0.9 6.5 0.8 1.5 1.8 2.8 3.4 1.0 5.7 1.7

China Mobile 941 HK China Unicom 762 HK Indosat ISAT IJ SK Telecom 017670 KS KT Freetel 032390 KS LG Telecom 032640 KQ Digi.Com DIGI MK Telekom Malaysia Intl TI MK Globe GLO PM Far EasTone 4904 TT Taiwan Mobile 3045 TT AIS ADVANC TB TAC DTAC TB MobileOne M1 SP MTN Group Ltd MTN SJ Orascom Telecom ORTE EY Vivo Participacoes Sa VIVO3 BZ America Movil AMXL MM Etihad Etisalat Co EEC AB Saudi Telecom Co STC AB Qatar Telecom QTEL QD Average Average (ex-China Mobile)

RCOM's valuation (discount)/premium to Bharti Idea's valuation (discount)/premium to Bharti

-17% -6%

-17% 0%

-48% 33%

-48% 43%

-74% -70%

-74% -66%

Note: Prices as of 5 March 2009 Source: Bloomberg, Macquarie Research, March 2009

Bharti Airtel

RCOM is trading at a 17% discount to Bharti on March 2010E EV/EBITDA

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Bharti Airtel

Bharti Airtel detailed financial statements

Fig 5 Bharti Airtel annual income statement, fiscal year-end March
Particulars (Rs m) Revenues Services Indefeasible right of use sales Equipment Total revenues Operating expenses Access & Interconnect Charges (% of total revenues) Network operations cost (% of total revenues) Employee costs (% of total revenues) Costs of equipment sales (% of total revenues) SG&A expenses (% of total revenues) Pre-operating cost (% of total revenues) Total operating expense (% of total revenues) EBITDA EBITDA margin Interest expense Interest income Depreciation Share of profits in associates / JV Other income Non operating expenses Profit before taxes (PBT) Income tax (expense) / benefit Effective tax rate Profit after taxes (PAT) (Profit) / loss to minority shareholders Adjusted net profit Adjusted diluted EPS YoY growth (%) Service revenues Total revenues Operating expenses SG&A EBITDA Net profit after taxes Diluted EPS Key parameters ROE RoCE Fixed asset turnover (X) Total asset turnover (X) FY06 FY07 FY08 FY09E FY10E FY11E

114,638 418 1,160 116,215

184,152 436 607 185,196

269,004 436 810 270,250

368,886 436 2,173 371,495

445,410 436 2,623 448,469

501,493 436 2,953 504,882

32,933 28.3% 11,742 10.1% 8,244 7.1% 1,169 1.0% 18,912 16.3% 120 0.1% 73,120 62.9% 43,096 37.1% (2,958) 446 (15,610) (5) 499 (103) 25,366 (2,539) 10.0% 22,826 (260) 22,567 12.0

48,330 26.1% 21,100 11.4% 12,489 6.7% 589 0.3% 28,416 15.3% 9 0.0% 110,932 59.9% 74,264 40.1% (3,044) 1,606 (24,973) (2) 1,064 (54) 48,860 (5,822) 11.9% 43,039 (467) 42,572 22.5

68,011 25.2% 33,001 12.2% 14,768 5.5% 661 0.2% 40,094 14.8% 0.0% 156,535 57.9% 113,715 42.1% (4,054) 1,713 (37,260) (1) 2,740 (317) 76,537 (8,378) 10.9% 68,159 (1,151) 67,008 35.3

89,875 24.2% 57,646 15.5% 17,410 4.7% 2,813 0.8% 50,425 13.6% 0.0% 218,169 58.7% 153,326 41.3% (29,578) 13,174 (45,592) (392) 1,448 (481) 91,905 (8,806) 9.6% 83,099 (1,909) 81,189 42.8

103,869 23.2% 67,270 15.0% 22,423 5.0% 4,485 1.0% 60,455 13.5% 0.0% 258,502 57.6% 189,967 42.4% (5,053) 2,713 (51,917) 1,665 137,375 (23,354) 17.0% 114,021 (2,854) 111,167 58.6

112,162 22.2% 70,683 14.0% 25,244 5.0% 5,049 1.0% 70,118 13.9% 0.0% 283,257 56.1% 221,625 43.9% (6,069) 3,371 (59,666) 1,831 161,092 (32,218) 20.0% 128,874 (3,347) 125,527 66.2

45.6 45.2 44.8 49.5 45.9 50.7 50.7

60.6 59.4 51.7 50.3 72.3 88.6 87.2

46.1 45.9 41.1 41.1 53.1 57.4 57.3

37.1 37.5 39.4 25.8 34.8 24.8 24.7

20.7 20.7 18.5 19.9 23.9 33.1 33.1

12.6 12.6 9.6 16.0 16.7 12.9 12.9

29.5% 14.7% 0.82 0.34

37.4% 19.5% 0.88 0.37

37.4% 20.2% 0.86 0.33

31.1% 19.8% 0.84 0.34

32.3% 20.4% 0.84 0.35

29.2% 21.2% 0.86 0.34

Source: Company Data, Macquarie Research, March 2009

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Fig 6

Bharti Airtel annual balance sheet, fiscal year-end March

FY06 FY07 FY08 FY09E FY10E FY11E

Particulars (Rs m) ASSETS Cash and cash equivalents Accounts receivable, net Unbilled receivables Inventories Short term investments Deferred taxes on income Derivative financial instruments Restricted cash Prepaid expenses/ current assets Due from related parties Total current assets Property and equipment, net Acquired intangible assets Goodwill Investment in associates and JV Investments Restricted cash, non-current Deferred taxes on income Other assets Total assets LIABILITIES Current liabilities Short-term debt/current portion of long-term debt Trade payables Equipment supply payables Accrued expenses Unearned income Unearned income- indefeasible right to use sales Derivative financial instruments Due to related parties Other current liabilities Deferred taxes on income Total current liabilities Long-term debt, net of current portion Deferred taxes on income Unearned income- Indefeasible right to use sales Other liabilities Total liabilities Minority interest Stockholders' equity Common stock Additional paid in capital Deferred stock based compensation Treasury stock Retained earnings / (deficit) Total stockholders' equity Total liabilities and stockholders' equity Ratios Net debt/equity Gross Debt/Equity WC/Revenues (%) Net working capital days <Days of Gross Sales>

2,649 10,574 3,629 381 2,527 1,562 532 189 9,590 675 32,308 142,411 14,873 23,687 190 500 56 3,218 217,243

7,464 13,093 4,890 912 2,004 1,178 729 134 13,711 729 44,843 210,604 14,116 23,684 182 500 54 20 3,887 297,888

6,777 15,986 12,076 1,142 48,086 2,770 2,992 85 23,522 346 113,782 313,407 13,204 27,043 108 58 5,041 472,643

9,483 20,800 13,582 1,096 44,773 5,494 4,750 84 31,021 9,845 140,929 444,048 13,478 27,043 112 54 8,495 634,159

13,372 25,802 12,287 2,457 54,050 6,632 4,750 84 25,802 11,885 157,122 535,812 13,478 27,043 112 54 10,255 743,876

27,356 29,048 13,832 2,766 60,849 7,466 4,750 84 29,048 13,380 188,580 584,724 13,478 27,043 112 54 11,545 825,537

12,892 14,130 25,041 8,313 12,690 336 1,583 50 3,361 78,396 34,503 3,508 4,136 3,566 124,108 957

10,925 16,877 42,633 12,523 17,035 336 1,981 30 4,295 14 106,649 41,536 3,616 3,800 4,933 160,534 1,801

19,348 18,749 61,069 19,543 25,080 336 3,184 6,826 154,135 77,715 5,301 3,464 6,430 247,045 3,013

22,458 28,365 90,252 26,985 37,602 436 239 71 12,732 219,140 89,832 4,674 3,296 7,816 324,757 9,892

23,341 31,870 102,693 29,745 29,745 436 239 84 15,085 233,239 93,362 5,642 3,296 9,435 344,975 9,892

18,848 34,922 112,527 32,594 32,594 436 239 92 16,530 248,782 75,392 6,352 3,296 10,622 344,444 9,892

18,939 56,363 (419) (216) 17,511 92,178 217,243

18,959 56,645 (134) 60,083 135,553 297,888

18,979 18,981 18,981 18,981 77,745 73,442 73,442 73,442 12 45 45 45 (119) (110) (110) (110) 125,964 207,152 296,651 378,842 222,585 299,510 389,009 471,200 472,643 634,159 743,876 825,536

0.4 0.5 -42% (153.1)

0.3 0.4 -37% (136.5)

0.19 0.4 -17% (63.7)

0.19 0.37 -24% (86.1)

0.13 0.3 -20% (72.8)

0.0 0.2 -17% (63.3)

Source: Company Data, Macquarie Research, March 2009

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Fig 7

Bharti Airtel annual cashflow statement, fiscal year-end March

FY06 FY07 FY08 FY09E FY10E FY11E

Particulars (Rs m) Cashflow from operating activities Net (loss) / profit Depreciation and amortization Deferred tax expense Share of (profits) / losses in joint venture (Gain) / loss on sale of property and equipment Interest income earned Deferred stock based compensation Fair value loss / (gain) on trading securities Finance costs charged Unrealized foreign exchange gain Provision for impairment of receivables and advances Debt origination costs amortised Fair value loss / (gain) on derivatives and other financial expenses Minority interest Indefeasible right to use sales Current tax impact on ESOP exercised Proceeds from Indefeasible right to use sales Changes in Working Capital: Accounts receivable Inventories Unbilled receivables and other current assets Trade payables Accrued expenses Unearned income and other current liabilities Other non-current liabilities Non-current assets Due to / from related parties, net Net cash provided by/(used in) operating activities Cashflows from investing activities Purchase of property and equipment Proceeds from sale of property and equipment Proceeds of short term investments Proceeds from sale of marketable securities Acquisition of intangible assets Non-current investments Restricted cash Investment in joint ventures Short term investments Licence entry fees Cash paid for acquisition of subsidiaries, net Net cash used in investing activities Cashflows from financing activities Net movement in cash credit and bank overdraft Proceeds from issuance of short-term borrowings Repayment of short-term borrowings Proceeds from issuance of long-term borrowings Repayment of long-term borrowings Proceeds from exercise of stock options Additional paid in capital Due to related parties,/ changes in minority interest Dividend (including dividend tax) Cash paid for debt issue costs Net cash provided by/(used in) financing activities Net (decrease) / increase in cash during the year Add : Balance as at the beginning of the year Balance as at the end of the year Source: Company Data, Macquarie Research, March 2009

22,567 15,610 767 5 (25) (15) 159 (98) 79 1,320 2,073 13 (124) 260 (418) 2 649 6,085 (5,316) 164 (5,852) 6,512 2,339 8,237 571 (641) (518) 48,320

42,572 24,973 491 2 (15) 235 (327) 12 (1,632) 4,010 519 248 467 (436) 0 101 (509) (5,351) (531) (6,627) 2,096 4,210 5,693 952 (1,040) (75) 70,549

67,008 36,922 (36) 1 65 339 (587) 1 1,227 3,240 274 (904) 1,151 (436) 101 (5,072) (6,938) (230) (16,965) 1,826 5,818 11,418 557 (1,748) 382 102,484

81,189 45,592 (3,351) -

111,167 51,917 (170) -

125,527 59,666 (124) -

50,827 (4,814) 46 (9,005) 38,799 7,442 18,360 1,386 (3,454) (9,428) 162,761

13,354 (5,002) (1,361) 6,514 15,946 2,761 (5,503) 1,619 (1,760) (2,027) 174,101

11,682 (3,246) (309) (4,791) 12,886 2,848 4,293 1,187 (1,290) (1,487) 195,160

(57,309) 1,092 (288) 11 (7) (35) 2,564 (122) (54,095)

(74,294) (126,258) (184,807) (143,680) (108,578) 1,097 12,270 8,299 (0) 0 (504) (2,195) (0) 500 (4,703) 58 45 5 5 (59) (4) 850 (45,440) 3,313 (9,277) (6,799) (456) 14,873 (72,788) (146,720) (177,897) (152,957) (115,377)

1,629 4,451 (43) 18,334 (18,841) 60 3 (255) 5,337 (438) 3,087 2,649

(861) 1,954 (4,486) 34,237 (24,129) 110 375 1 (148) 7,053 4,814 2,649 7,464

2,227 2,229 (1,954) 50,662 (9,673) 199 12 (152) 43,550 (686) 7,464 6,777

3,110 12,117 (4,264) 6,879 17,842 2,706 6,777 9,483

883 3,531

(4,493) (17,970)

(21,668) (17,255) 3,889 9,483 13,372

(43,336) (65,799) 13,985 13,372 27,356

6 March 2009

Macquarie Research Equities - Flyer

Bharti Airtel

Fig 8

Key quarterly operating & financial metrics Wireless business: Bharti and RCOM
4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Bharti Airtel - Actuals for 3QFY09

March Year ends; Rs million

Wireless Revenues (Rs m) YoY growth (%) QoQ growth (%) Subscribers (m) YoY growth (%) QoQ growth (%) Gross ARPU (Rs) YoY growth (%) QoQ growth (%) Avg. monthly MoUs per subscriber YoY growth (%) QoQ growth (%) ARPM (Rs) YoY growth (%) QoQ growth (%) Total minutes carried (m) YoY growth (%) QoQ growth (%) Avg. EBITDA per minute (Rs) YoY growth (%) QoQ growth (%) Wireless EBITDA (Rs m) YoY growth (%) QoQ growth (%) EBITDA margin (%) YoY expansion (basis points) QoQ expansion (basis points) Blended Churn VAS as % of total revenue YoY growth (%) QoQ growth (%) Total Cell Sites YoY growth (%) QoQ growth (%) Wireless Capex (Rs m) YoY growth (%) QoQ growth (%) Total Population Centres covered YoY growth (%) QoQ growth (%) Total employees YoY growth (%) QoQ growth (%)

42,431 75.8 12.9 37.14 89.7 16.2 406 -8.1 -4.8 475 10.1 1.6 0.86 -16.6 -6.3 49,240 112.4 19.2 0.34 -10.4 -1.2 16,604 89.8 17.5 39.1 289.2 153.4 3.6% 10.1% -5.6 -2.9 39,224 87.0 14.3 10,706 -39.4 -31.4 212,003 151.2 17.0 20,314 na 11.5

46,976 65.3 10.7 42.70 85.1 15.0 390 -11.5 -3.9 478 8.3 0.7 0.82 -18.3 -4.5 57,125 102.6 16.0 0.33 -9.0 -1.1 19,087 84.6 15.0 40.6 423.4 150.0 4.0% 9.9% -8.3 -2.0 45,784 81.9 16.7 32,806 81.7 206.4 248,439 135.2 17.2 22,955 na 13.0

50,579 53.2 7.7 48.88 80.6 14.5 366 -16.5 -6.3 469 3.9 -1.9 0.78 -19.6 -4.4 64,375 90.2 12.7 0.32 -10.3 -3.5 20,728 70.2 8.6 41.0 410.0 35.0 3.8% 9.8% -4.9 -1.0 52,826 75.9 15.4 28,661 4.4 -12.6 294,876 85.0 18.7 23,264 na 1.3

56,105 49.3 10.9 55.16 72.5 12.9 358 -16.2 -2.2 474 1.4 1.1 0.76 -17.3 -3.3 73,840 78.8 14.7 0.31 -9.3 -3.8 22,887 62.0 10.4 40.8 319.5 -18.8 3.9% 9.3% -10.6 -5.1 60,299 75.8 14.1 27,538 76.6 -3.9 325,525 79.7 10.4 24,703 35.6 6.2

64,201 51.3 14.4 61.98 66.9 12.4 357 -12.1 -0.2 507 6.8 7.0 0.70 -17.7 -6.7 89,058 80.9 20.6 0.26 -24.2 -17.4 22,779 37.2 -0.5 35.5 -365.1 -531.2 4.3% 9.4% -6.9 1.1 69,141 76.3 14.7 17,995 68.1 -34.7 347,646 64.0 6.8 25,543 25.7 3.4

69,150 47.2 7.7 69.38 62.5 11.9 350 -10.4 -2.1 534 11.8 5.4 0.65 -19.9 -7.1 105,217 84.2 18.1 0.20 -39.6 -21.2 21,218 11.2 -6.9 30.7 -994.7 -479.7 3.8% 9.7% -2.0 3.2 75,876 65.7 9.7 32,227 -1.8 79.1 369,335 48.7 6.2 26,144 13.9 2.4

72,843 44.0 5.3 77.48 58.5 11.7 331 -9.5 -5.3 526 12.2 -1.6 0.63 -19.4 -3.8 115,834 79.9 10.1 0.19 -41.0 -5.7 22,009 6.2 3.7 30.2 -1,076.7 -47.0 3.2% 10.0% 2.0 3.1 82,554 56.3 8.8 23,396 -18.4 -27.4 389,571 32.1 5.5 25,616 10.1 -2.0

79,392 41.5 9.0 85.65 55.3 10.5 324 -9.3 -2.0 505 6.7 -3.9 0.64 -14.9 2.1 123,626 67.4 6.7 0.20 -34.8 6.3 24,963 9.1 13.4 31.4 -935.0 122.8 2.9% 9.5% 2.2 -5.0 88,319 46.5 7.0 29,012 5.4 24.0 406,939 25.0 4.5 25,553 3.4 -0.2

Reliance Communications - Actuals for 3QFY09

March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Wireless Revenues (Rs m) YoY growth (%) QoQ growth (%) Subscribers (m) YoY growth (%) QoQ growth (%) Gross ARPU (Rs) YoY growth (%) QoQ growth (%) Avg. monthly MoUs per subscriber YoY growth (%) QoQ growth (%) ARPM (Rs) YoY growth (%) QoQ growth (%) Total minutes carried (m) YoY growth (%) QoQ growth (%) Avg. EBITDA per minute (Rs) YoY growth (%) QoQ growth (%) Wireless EBITDA (Rs m) YoY growth (%) QoQ growth (%) EBITDA margin (%) YoY expansion (basis points) QoQ expansion (basis points) Blended Churn VAS as % of total revenue YoY growth (%) QoQ growth (%) Total Cell Sites YoY growth (%) QoQ growth (%) Wireless Capex (Rs m) YoY growth (%) QoQ growth (%)

29,692 40.0 7.9 28.01 38.6 -6.6 377 -0.5 14.9 541 1.7 19.2 0.70 -2.2 -3.5 47,057 na na 0.27 6.3 0.2 11,511 52.0 11.8 38.8 306.6 135.9 nmf 6.3% 3.3 0.0 na na na 9,860 na -18.4

33,730 38.7 13.6 31.87 41.5 13.8 375 -1.1 -0.5 510 3.9 -5.7 0.74 -4.7 5.5 45,805 na na 0.29 5.2 8.0 13,392 53.1 16.3 39.7 374.1 93.6 nmf 5.7% -8.1 -9.5 na na na 14,973 110.2 51.9

37,230 44.6 10.4 36.32 39.8 14.0 361 2.0 -3.7 490 6.3 -3.9 0.74 -4.1 0.2 50,122 na na 0.26 -4.9 -9.9 14,873 60.0 11.1 39.9 384.6 24.5 1.5% 6.2% -1.6 8.8 na na na 49,685 231.6 231.8

39,567 43.8 6.3 40.96 36.6 12.8 339 3.4 -6.1 449 -1.1 -8.4 0.76 4.5 2.5 52,054 na na 0.30 12.5 15.3 15,819 53.7 6.4 40.0 257.1 3.1 1.4% 6.4% 1.6 3.2 na na na 60,605 401.3 22.0

41,608 40.1 5.2 45.79 63.5 11.8 317 -15.9 -6.5 430 -20.5 -4.2 0.74 5.8 -2.4 55,959 na na 0.30 10.7 -1.4 16,763 45.6 6.0 40.3 152.0 30.8 1.4% 6.9% 9.5 7.8 na na na 46,442 371.0 -23.4

41,187 22.1 -1.0 50.79 59.4 10.9 282 -24.8 -11.0 425 -16.7 -1.2 0.66 -9.7 -9.9 61,527 na na 0.27 -7.4 -9.7 16,623 24.1 -0.8 40.4 65.6 7.2 1.4% 7.6% 33.3 10.1 na na na 56,926 280.2 22.6

43,356 16.5 5.3 56.05 54.3 10.4 271 -24.9 -3.9 423 -13.7 -0.4 0.64 -13.0 -3.5 67,786 na na 0.25 -5.6 -8.1 16,859 13.4 1.4 38.9 -106.4 -147.5 1.3% 7.3% 17.7 -3.9 na na na 33,260 -33.1 -41.6

44,119 11.5 1.8 61.35 49.8 9.5 251 -26.0 -7.4 410 -8.7 -3.1 0.61 -18.9 -4.4 72,195 na na 0.23 -24.3 -7.5 16,616 5.0 -1.4 37.7 -231.9 -122.3 1.0% 7.4% 15.6 1.4 na na na 32,508 -46.4 -2.3

Source: Company data, Macquarie Research, March 2009

6 March 2009

10

Macquarie Research Equities - Flyer

Bharti Airtel

Fig 9

Key quarterly operating & financial metrics Wireless business: Vodafone Essar, Idea and MTNL
4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Vodafone Essar - Actuals for 3QFY09

March Year ends; Rs million

Wireless revenues (in Rsm) YoY growth (%) QoQ growth (%) Wireless revenues (in GBPm) YoY growth (%) QoQ growth (%) Subscribers (m) YoY growth (%) QoQ growth (%) Gross ARPU (Rs) YoY growth (%) QoQ growth (%) Avg. monthly MoUs per subscriber YoY growth (%) QoQ growth (%) ARPM (Rs) YoY growth (%) QoQ growth (%) Total minutes carried (m) YoY growth (%) QoQ growth (%) Blended Churn Total Cell Sites YoY growth (%) QoQ growth (%)

na na na na na na 26.44 72.1 13.5 405 -10.7 -2.1 432 14.3 0.7 0.94 -21.9 -2.8 32,242 na na na
na

na na na na na na 30.75 75.3 16.3 na na na 415 5.9 -3.9 na na na 35,626 na na na

na

34,891 na na 440 na na 33.68 65.5 9.5 361 -14.0 na 373 -8.2 -10.3 0.97 -6.3 na 36,011 na na na
na

na na

na na

na na

36,300 na 4.0 491 na 11.6 35.66 53.0 5.9 349 -15.7 -3.3 384 -10.5 3.0 0.91 -5.8 -6.1 39,913 na 10.8 na 41,000 na na

41,887 na 15.4 559 na 13.8 44.13 66.9 23.7 350 -13.6 0.3 391 -9.6 1.8 0.90 -4.4 -1.5 46,734 na 17.1 na 48,000 na 17.1

46,474 na 11.0 565 na 1.1 49.20 60.0 11.5 332 na -5.1 374 na -4.2 0.89 na -0.9 52,349 na 12.0 na 52,000 na 8.3

47,498 36.1 2.2 574 30.5 1.6 54.63 62.2 11.0 305 -15.5 -8.1 364 -2.2 -2.6 0.84 -13.6 -5.7 56,745 57.6 8.4 na 59,000 na 13.5

51,481 41.8 8.4 674 37.3 17.4 60.93 70.9 11.5 297 -14.9 -2.6 355 -7.4 -2.5 0.84 -8.1 -0.2 61,606 54.4 8.6 na 69,000 68.3 16.9

Idea Cellular - Actuals for 3QFY09

March Year ends; Rs million 4QFY07 1QFY08 2QFY08 3QFY08 4QFY08 1QFY09 2QFY09 3QFY09A

Wireless Revenues (Rs m) YoY growth (%) QoQ growth (%) Subscribers (m) YoY growth (%) QoQ growth (%) Gross ARPU (Rs) YoY growth (%) QoQ growth (%) Avg. monthly MoUs per subscriber YoY growth (%) QoQ growth (%) ARPM (Rs) YoY growth (%) QoQ growth (%) Total minutes carried (m) YoY growth (%) QoQ growth (%) Avg. EBITDA per minute (Rs) YoY growth (%) QoQ growth (%) Wireless EBITDA (Rs m) YoY growth (%) QoQ growth (%) EBITDA margin (%) YoY expansion (basis points) QoQ expansion (basis points) Blended Churn VAS as % of total revenue YoY growth (%) QoQ growth (%) Total Cell Sites YoY growth (%) QoQ growth (%) Total capex (Rs m) YoY growth (%) QoQ growth (%) Total Population Centres covered YoY growth (%) QoQ growth (%) Total employees YoY growth (%) QoQ growth (%) MTNL- Actuals for 3QFY09
March Year ends; Rs million

13,057 na 13.9 14.01 na 12.6 317 na -1.6 387 na 4.9 0.82 na -6.1 15,469 na 22.5 0.27 na -7.3 4,363 na 17.7 33.4 na 108.8 4.2% 9.0% na -2.2 na na na na na na 4,432 na 22.9 5,532 na 19.0

14,773 65.2 13.1 16.13 88.9 15.1 320 -15.2 0.9 381 7.0 -1.6 0.84 -20.8 2.5 17,100 111.2 10.5 0.30 -16.1 9.6 5,128 69.8 17.5 34.7 93.7 129.6 4.2% 8.4% -8.7 -6.7 13,160 na na 11,062 na na 6,066 167.1 36.9 5,638 27.5 1.9

15,622 56.1 5.7 18.67 80.2 15.8 288 -14.0 -10.0 360 4.7 -5.5 0.80 -17.9 -4.8 18,831 93.4 10.1 0.27 -21.1 -8.9 5,107 43.9 -0.4 32.7 -275.2 -201.9 4.5% 8.3% -13.5 -1.2 17,105 na 30.0 12,352 na 11.7 8,413 177.6 38.7 5,865 27.6 4.0

17,081 49.0 9.3 21.05 69.2 12.8 279 -13.4 -3.1 377 2.2 4.7 0.74 -15.2 -7.5 22,457 77.8 19.3 0.25 -14.0 -7.1 5,672 53.1 11.1 33.2 88.1 51.6 4.7% 8.0% -13.0 -3.6 21,197 na 23.9 11,946 na -3.3 11,104 207.8 32.0 5,923 27.5 1.0

19,724 51.1 15.5 24.00 71.3 14.0 287 -9.5 2.9 411 6.2 9.0 0.70 -14.8 -5.6 27,824 79.9 23.9 0.24 -12.7 -5.8 6,606 51.4 16.5 33.5 7.9 28.6 4.6% 8.2% -8.9 2.5 24,793 na 17.0 19,161 na 60.4 13,308 200.3 19.8 6,107 10.4 3.1

21,735 47.1 10.2 27.19 68.6 13.3 278 -13.1 -3.1 428 12.3 4.1 0.65 -22.7 -7.0 33,087 93.5 18.9 0.22 -26.4 -7.6 7,219 40.8 9.3 33.2 -149.6 -27.8 4.0% 8.9% 6.0 8.5 27,594 109.7 11.3 19,817 79.1 3.4 na na na 6,380 13.2 4.5

22,992 47.2 5.8 30.38 62.7 11.7 261 -9.4 -6.1 417 15.8 -2.6 0.62 -22.5 -4.5 36,315 92.8 9.8 0.17 -38.5 -23.8 6,024 18.0 -16.6 26.2 -649.1 -701.5 3.9% 9.8% 18.1 10.1 33,377 95.1 21.0 11,950 -3.3 -39.7 na na na 6,521 11.2 2.2

27,286 59.7 18.7 34.21 42.5 12.6 266 -4.7 1.9 410 8.8 -1.7 0.65 -12.3 4.6 40,254 79.2 10.8 na na na 6,950 22.5 15.4 25.5 -773.7 -73.0 4.3% 9.5% 18.8 -3.1 39,286 85.3 17.7 13,525 13.2 13.2 na na na 6,670 12.6 2.3

4QFY07

1QFY08

2QFY08

3QFY08

4QFY08

1QFY09

2QFY09

3QFY09A

Wireless Revenues (Rs m) YoY growth (%) QoQ growth (%) Subscribers (m) YoY growth (%) QoQ growth (%) Blended ARPU GSM (Rs) YoY growth (%) QoQ growth (%)

1,974 15.1 -9.9 2.94 43.7 15.9 228 -24.2 -17.7

2,241 11.1 13.5 2.81 25.0 -4.4 253 -12.5 10.7

2,523 26.4 12.6 2.99 26.3 6.5 284 4.2 12.6

2,329 6.3 -7.7 3.21 26.5 7.2 242 -12.6 -14.8

2,409 22.0 3.4 3.53 20.1 10.0 237 3.7 -2.3

2,298 2.5 -4.6 3.72 32.2 5.3 213 -15.7 -10.0

2,332 -7.6 1.5 3.96 32.2 6.4 207 -27.2 -2.8

2,269 -2.6 -2.7 4.18 30.2 5.6 188 -22.2 -9.0

Source: Company data, Macquarie Research, March 2009

6 March 2009

11

Macquarie Research Equities - Flyer

Bharti Airtel

Fig 10

Key annual operating & financial metrics Wireless business: Bharti and RCOM
FY06 FY07 FY08 FY09E FY10E FY11E

Bharti Airtel
March Year ends; Rs million

Wireless Revenues (Rs m) YoY growth (%) Subscribers (m) YoY growth (%) Gross ARPU (Rs) YoY growth (%) Avg. monthly MoUs per subscriber YoY growth (%) ARPM (Rs) YoY growth (%) Total minutes carried (m) YoY growth (%) Avg. EBITDA per minute (Rs) YoY growth (%) Wireless EBITDA (Rs m) YoY growth (%) EBITDA margin (%) YoY expansion (basis points) VAS as % of total revenue YoY growth (%) Wireless Capex (Rs m) YoY growth (%) Total Population Centres covered YoY growth (%) Total employees YoY growth (%) Reliance Communications
March Year ends; Rs million

82,392 52.5 19.58 78.2 474 -7.7 407 -37.5 1.17 -22.1 70,456 na 0.40 -2.7 29,712 60.4 36.1 177.7 10.4% 29.8 41,594 39.4 na na na

141,443 71.7 37.14 89.7 427 -9.9 461 13.3 0.93 -20.5 152,583 116.6 0.34 -14.8 53,253 79.2 37.6 158.8 10.4% -0.1 71,801 72.6 4,432 na 5,532 na

217,861 54.0 61.98 66.9 370 -13.3 483 4.9 0.77 -17.3 284,399 86.4 0.30 -12.4 85,481 60.5 39.2 158.7 9.6% -7.6 99,136 38.1 13,308 200.3 6,107 10.4

298,142 36.8 93.08 50.2 321 -13.3 532 10.1 0.60 -21.2 494,449 73.9 0.18 -37.9 91,373 6.9 30.6 -858.9 10.3% 7.6 140,164 41.4 na na na na

356,772 19.7 119.48 28.4 280 -12.8 529 -0.5 0.53 -12.4 591,197 19.6 0.17 -10.2 111,950 22.5 31.4 73.1 11.4% 11.0 110,269 -21.3 na na na na

397,021 11.3 137.48 15.1 258 -7.9 532 0.6 0.48 -8.5 657,892 11.3 0.16 -5.0 129,261 15.5 32.6 117.9 12.3% 7.8 81,959 -25.7 na na na na

FY06

FY07

FY08

FY09E

FY10E

FY11E

Wireless Revenues (Rs m) YoY growth (%) Subscribers (m) YoY growth (%) Gross ARPU (Rs) YoY growth (%) Avg. monthly MoUs per subscriber YoY growth (%) ARPM (Rs) YoY growth (%) Total minutes carried (m) YoY growth (%) Avg. EBITDA per minute (Rs) YoY growth (%) Wireless EBITDA (Rs m) YoY growth (%) EBITDA margin (%) YoY expansion (basis points) VAS as % of total revenue YoY growth (%) Wireless Capex (Rs m) YoY growth (%)
Source: Company data, Macquarie Research, March 2009

73,643 na 20.21 na 401 na 538 na 0.75 na 110,691 na 0.23 na 22,490 na 30.5 na 5.9% na na na

107,276 45.7 28.01 38.6 358 -10.7 486 -9.6 0.74 -1.3 150,178 35.7 0.27 21.3 39,846 77.2 37.1 660.4 6.3% 6.5 44,055 na

152,135 41.8 45.79 63.5 345 -3.6 466 -4.3 0.74 0.7 203,940 35.8 0.29 6.3 60,847 52.7 40.0 285.2 6.3% 0.9 171,705 289.8

174,797 14.9 73.66 60.8 255 -26.1 412 -11.5 0.62 -16.5 282,045 38.3 0.24 -18.9 66,761 9.7 38.2 -180.2 7.3% 15.5 201,402 17.3

211,582 21.0 96.23 30.6 208 -18.6 385 -6.6 0.54 -12.9 392,594 39.2 0.20 -14.0 79,669 19.3 37.7 -53.9 9.3% 27.1 102,106 -49.3

239,867 13.4 116.96 21.5 188 -9.7 378 -1.8 0.50 -8.0 483,749 23.2 0.19 -5.4 92,858 16.6 38.7 105.8 11.4% 22.3 89,493 -12.4

6 March 2009

12

Macquarie Research Equities - Flyer

Bharti Airtel

Fig 11 Key annual operating & financial metrics Wireless business: Idea and MTNL
Idea Cellular
March Year ends; Rs million FY06 FY07 FY08 FY09E FY10E FY11E

Wireless Revenues (Rs m) YoY growth (%) Subscribers (m) YoY growth (%) Gross ARPU (Rs) YoY growth (%) Avg. monthly MoUs per subscriber YoY growth (%) ARPM (Rs) YoY growth (%) Total minutes carried (m) YoY growth (%) Avg. EBITDA per minute (Rs) YoY growth (%) Wireless EBITDA (Rs m) YoY growth (%) EBITDA margin (%) YoY expansion (basis points) VAS as % of total revenue YoY growth (%) Total Capex (Rs m) YoY growth (%) Total Population Centres covered YoY growth (%) Total employees YoY growth (%) MTNL
March Year ends; Rs million

29,489 31.3 7.37 45.3 391 -5.6 289 16.5 1.35 -19.0 20,921 61.3 0.49 -21.7 10,674 30.0 36.0 -40.2 7.5% 0.0 5,293 -2.9 1,944 76.9 3,720 na

43,500 47.5 14.01 90.2 339 -13.3 353 22.1 0.96 -29.0 45,931 119.5 0.29 -41.1 14,653 37.3 33.6 -243.6 9.0% 20.0 22,819 331.1 4,432 128.0 5,532 48.7

67,199 54.5 24.00 71.3 295 -13.1 395 11.9 0.75 -22.4 86,212 87.7 0.25 -13.5 22,517 53.7 33.5 -5.0 8.2% -8.7 55,726 144.2 13,308 200.3 6,107 10.4

93,716 39.5 36.84 53.5 257 -12.9 427 8.0 0.60 -19.4 155,384 80.2 0.17 -32.0 26,568 18.0 28.3 -515.8 9.3% 13.3 80,465 44.4 na na na na

111,193 18.6 49.38 34.0 215 -16.3 422 -1.1 0.51 -15.3 218,217 40.4 0.15 -13.5 32,109 20.9 28.9 52.7 10.2% 9.3 73,604 -8.5 na na na na

126,398 13.7 57.10 15.6 198 -8.0 416 -1.3 0.48 -6.7 265,936 21.9 0.14 -5.0 38,837 21.0 30.7 184.9 11.3% 10.7 50,694 -31.1 na na na na

FY06

FY07

FY08

FY09E

FY10E

FY11E

Wireless Revenues (Rs m) YoY growth (%) Subscribers (m) YoY growth (%) Gross ARPU (Rs) YoY growth (%) Total employees YoY growth (%)
Source: Company data, Macquarie Research, March 2009

5,611 95.2 2.05 89.8 331 -14.1 51,212 -6.0

7,334 30.7 3.05 49.2 261 -21.3 48,529 -5.2

8,601 17.3 3.70 21.1 239 -8.2 47,422 -2.3

8,424 -2.1 4.55 23.1 191 -20.3 na na

7,915 -6.0 4.79 5.3 156 -18.4 na na

7,260 -8.3 4.91 2.5 137 -12.0 na na

6 March 2009

13

Macquarie Research Equities - Flyer

Bharti Airtel

Bharti Airtel Limited (BHARTI IN, Outperform, Target price: Rs975.00)

Balance Sheet Cash Receivables Inventories Investments Fixed Assets Intangibles Other Assets Total Assets Payables Short Term Debt Long Term Debt Provisions Other Liabilities Total Liabilities Shareholders' Funds Minority Interests Other Total S/H Equity Total Liab & S/H Funds m m m m m m m m m m m m m m m m m m m 2008A 54,863 28,062 1,142 0 313,407 27,043 48,126 472,643 79,818 19,348 77,715 0 70,164 247,045 222,581 3,013 0 225,594 472,639 2009E 54,256 34,383 1,096 0 444,048 27,043 73,333 634,159 118,617 22,458 89,832 0 93,851 324,757 299,510 9,892 0 309,402 634,159 2010E 67,422 38,089 2,457 0 535,812 27,043 73,053 743,876 134,563 23,341 93,362 0 93,709 344,975 389,009 9,892 0 398,901 743,876 2011E 88,205 42,880 2,766 0 584,724 27,043 79,918 825,537 147,449 18,848 75,392 0 102,755 344,444 471,200 9,892 0 481,092 825,536 Profit & Loss Revenue Gross Profit Cost of Goods Sold EBITDA Depreciation Amortisation of Goodwill Other Amortisation EBIT Net Interest Income Associates Exceptionals Forex Gains / Losses Other Pre-Tax Income Pre-Tax Profit Tax Expense Net Profit Minority Interests Reported Earnings Adjusted Earnings EPS (rep) EPS (adj) EPS Growth (adj) m m m m m m m m m m m m m m m m m m m 2008A 270,250 153,810 116,440 113,718 37,261 0 0 76,457 -2,341 -1 0 0 2,423 76,538 -8,379 68,159 -1,150 67,009 67,009 35.31 35.31 57.2 2009E 371,495 203,751 167,744 153,326 45,592 0 0 107,734 -16,404 -392 0 0 967 91,905 -8,806 83,099 -1,909 81,189 81,189 42.79 42.79 21.2 2010E 448,469 250,422 198,048 189,967 51,917 0 0 138,050 -2,340 0 0 0 1,665 137,375 -23,354 114,021 -2,854 111,167 111,167 58.60 58.60 36.9 2011E 504,882 291,743 213,139 221,625 59,666 0 0 161,958 -2,697 0 0 0 1,831 161,092 -32,218 128,874 -3,347 125,527 125,527 66.17 66.17 12.9

Total DPS Total Div Yield Weighted Average Shares Period End Shares

% m m

0.00 0.0 1,898 1,895

0.00 0.0 1,897 1,896

10.00 1.6 1,897 1,896

10.00 1.6 1,897 1,896

Profit and Loss Ratios Revenue Growth EBITDA Growth EBIT Growth Gross Profit Margin EBITDA Margin EBIT Margin Net Profit Margin Payout Ratio EV/EBITDA EV/EBIT Balance Sheet Ratios ROE ROA ROIC Net Debt/Equity Interest Cover Price/Book Book Value per Share % % % % % % % % x x

2008A 45.9 52.6 55.1 56.9 42.1 28.3 25.2 0.0 10.8 16.0

2009E 37.5 34.8 40.9 54.8 41.3 29.0 22.4 0.0 8.0 11.4

2010E 20.7 23.9 28.1 55.8 42.4 30.8 25.4 17.1 6.4 8.9

2011E 12.6 16.7 17.3 57.8 43.9 32.1 25.5 15.1 5.5 7.6

Cashflow Analysis EBITDA Tax Paid Chgs in Working Cap Net Interest Paid Other Operating Cashflow Acquisitions Capex Asset Sales Other Investing Cashflow Dividend (Ordinary) Equity Raised Debt Movements Other Financing Cashflow Net Chg in Cash/Debt m m m m m m m m m m m m m m m m m

2008A 104,369 0 17,448 0 695 122,512 -46,568 -138,468 -4,044 44 -189,036 0 20,019 44,602 1,212 65,833 -691

2009E 123,431 0 50,827 0 -11,497 162,761 -1,394 -184,807 8,299 5 -177,897 0 -4,264 15,227 6,879 17,842 2,706

2010E 162,914 0 13,354 0 -2,168 174,101 -9,277 -143,680 -0 0 -152,957 -21,668 0 4,413 0 -17,255 3,889

2011E 185,069 0 11,682 0 -1,590 195,160 -6,799 -108,578 0 0 -115,377 -43,336 0 -22,463 0 -65,799 13,985

% % % % x x

37.4 19.8 37.8 18.7 32.7 5.3 117.5

31.1 19.5 36.4 18.8 6.6 3.9 158.0

32.3 20.0 31.2 12.4 59.0 3.0 205.2

29.2 20.6 28.9 1.3 60.0 2.5 248.5

Note: All figures in INR unless noted. Source: Macquarie Research, January 2009

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Important disclosures:
Recommendation definitions
Macquarie - Australia/New Zealand Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of benchmark return Neutral (Hold) return within 5% of benchmark return Underperform (Sell) return >5% below benchmark return Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Volatility index definition*

This is calculated from the volatility of historical price movements. Very highhighest risk Stock should be expected to move up or down 60100% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4060% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3040% in a year. Lowmedium stock should be expected to move up or down at least 2530% in a year. Low stock should be expected to move up or down at least 1525% in a year. * Applicable to Australian/NZ/Canada stocks only

Financial definitions
All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions For quarter ending 31 December 2008

Outperform Neutral Underperform AU/NZ 38.55% 41.82% 19.64% Asia 50.61% 15.92% 33.47% RSA 64.52% 25.81% 9.68% USA 53.13% 40.63% 6.25% CA 65.55% 27.73% 6.72% EUR 43.00% 48.00% 9.00%

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Macquarie Research Equities - Flyer

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Asia Research
Head of Equity Research
Stephen OSullivan (852) 3922 3566 (6221) 515 7343 (813) 3512 7856 (813) 3512 6050 (822) 3705 8644 (8862) 2734 7521 (813) 3512 5979 (852) 3922 4774 (8621) 2412 9035 (9122) 6653 3053 (6221) 515 7335 (65) 6231 2837 (632) 857 0890 (8862) 2734 7514 (662) 694 7741 (9122) 6653 3040 (822) 3705 8670 (603) 2059 8993 (852) 3922 3557 (8621) 2412 9020 (6221) 515 7343 (65) 6231 2830 (852) 3922 1111 (852) 3922 3568 (9122) 6653 3042 (813) 3512 7392 (822) 3705 8677 (822) 3705 8678 (603) 2059 8982 (632) 857 0899 (8862) 2734 7521 (8621) 2412 9007 (813) 3512 6058 (813) 3512 7853 (822) 3705 8677 (9122) 6653 3166 (813) 3512 7432 (813) 3512 7475 (822) 2095 7222 (603) 2059 8993 (662) 694 7753 (852) 3922 3567 (9122) 6653 3053 (813) 3512 7421

Media
Jessie Qian (China, Hong Kong) Shubham Majumder (India) Prem Jearajasingam (Malaysia) Alex Pomento (Philippines) (852) 3922 3568 (9122) 6653 3049 (603) 2059 8989 (632) 857 0899 (852) 3922 4691 (9122) 6653 3040 (813) 3512 7886 (822) 3705 8670 (603) 2059 8982 (603) 2059 8993 (65) 6231 2830 (9122) 6653 3052 (813) 3512 7474 (822) 3705 8670 (852) 3922 4731 (852) 3922 3573 (852) 3922 3581 (9122) 6653 3042 (813) 3512 7885 (813) 3512 7433 (65) 6231 2838 (65) 6231 2839 (8862) 2734 7522 (662) 694 7727 (852) 3922 3587 (852) 3922 4626 (852) 3922 3562 (9122) 6653 3054 (6221) 515 7338 (813) 3512 7886 (822) 3705 8670 (852) 3922 3592 (813) 3512 7877 (813) 3512 7880 (813) 3512 7854 (813) 3512 5984 (822) 3705 8641 (822) 3705 8659 (65) 6231 2835 (8862) 2734 7526 (8862) 2734 7516 (8862) 2734 7517 (8862) 2734 7523 (852) 3922 3565 (852) 3922 3634 (9122) 6653 3049 (6221) 515 7343 (813) 3512 7875 (603) 2059 8989 (65) 6231 2842

Transport & Infrastructure

Gary Pinge (Asia) Anderson Chow (Asia, China) Jonathan Windham (Asia, China) Wei Sim (China, Hong Kong) Janet Lewis (Japan) Eunsook Kwak (Korea) Heather Kang (Korea) Sunaina Dhanuka (Malaysia) (852) 3922 3557 (852) 3922 4773 (852) 3922 5417 (852) 3922 3598 (813) 3512 7475 (822) 3705 8644 (822) 3705 8677 (603) 2059 8993 (852) 3922 4075 (6221) 515 7338 (813) 3512 7296 (603) 2059 8989 (632) 857 0899 (4420) 3037 4271 (4420) 3037 4272 (4420) 3037 4276 (4420) 3037 4273 (8621) 2412 9008 (8621) 2412 9005 (9122) 6653 3054 (852) 3922 4076 (852) 3922 4636 (65) 6231 2841 (612) 8232 3935 (852) 3922 3570 (813) 3512 7855 (852) 3922 3582 (852) 3922 4735 (612) 8232 6539 (612) 8232 8388 (813) 3512 7560 (852) 3922 3585 (852) 3922 4073 (852)3922 3564 (852) 3922 3576 (8621) 2412 9002 (9122) 6653 3053 (6221) 515 7335 (813) 3512 7878 (813) 3512 7850 (603) 2059 8989 (603) 2059 8982 (632) 857 0899 (65) 6231 2838 (8862) 2734 7516 (662) 694 7741

Automobiles/Auto Parts
Kenneth Yap (Indonesia) Clive Wiggins (Japan) Dan Lucas (Japan) Eunsook Kwak (Korea) Linda Huang (Taiwan) Ismael Pili (Asia, Japan) Nick Lord (Asia, China, Hong Kong) Sarah Wu (China) Seshadri Sen (India) Ferry Wong (Indonesia) Chin Seng Tay (Malaysia, Spore) Nadine Javellana (Philippines) Matthew Smith (Taiwan) Alastair Macdonald (Thailand)

Oil and Gas

David Johnson (Asia, China) Jal Irani (India) Polina Diyachkina (Japan) Christina Lee (Korea) Edward Ong (Malaysia) Sunaina Dhanuka (Malaysia) Ashwin Sanketh (Singapore)

Banks and Non-Bank Financials

Utilities
Carol Cao (China, Hong Kong) Adam Worthington (Indonesia) Kakutoshi Ohori (Japan) Prem Jearajasingam (Malaysia) Alex Pomento (Philippines)

Pharmaceuticals
Abhishek Singhal (India) Naomi Kumagai (Japan) Christina Lee (Korea)

Commodities
Jim Lennon Adam Rowley Jonathan Butcher Max Layton Bonnie Liu Henry Liu Rakesh Arora

Property
Matt Nacard (Asia) Eva Lee (China, Hong Kong) Chris Cheng (China, Hong Kong) Unmesh Sharma (India) Chang Han Joo (Japan) Hiroshi Okubo (Japan) Tuck Yin Soong (Singapore) Elaine Cheong (Singapore) Corinne Jian (Taiwan) Patti Tomaitrichitr (Thailand) Andrew Dale (Asia) Xiao Li (China) YeeMan Chin (China) Rakesh Arora (India) Adam Worthington (Indonesia) Polina Diyachkina (Japan) Christina Lee (Korea)

Chemicals/Textiles
Jal Irani (India) Christina Lee (Korea) Sunaina Dhanuka (Malaysia)

Conglomerates
Gary Pinge (Asia) Leah Jiang (China) Kenneth Yap (Indonesia) Ashwin Sanketh (Singapore)

Data Services
Andrea Clohessy (Asia)

Economics
Bill Belchere (Asia) Rajeev Malik (ASEAN, India) Richard Gibbs (Australia) Paul Cavey (China) Richard Jerram (Japan)

Consumer
Mohan Singh (Asia) Jessie Qian (China, Hong Kong) Unmesh Sharma (India) Toby Williams (Japan) Heather Kang (Korea) HongSuk Na (Korea) Edward Ong (Malaysia) Alex Pomento (Philippines) Linda Huang (Taiwan)

Resources / Metals and Mining

Quantitative
Martin Emery (Asia) Viking Kwok (Asia) George Platt (Australia) Raelene de Souza (Australia) Tsumugi Akiba (Japan)

Technology
Warren Lau (Asia) Damian Thong (Japan) David Gibson (Japan) George Chang (Japan) Yukihiro Goto (Japan) Do Hoon Lee (Korea) Michael Bang (Korea) Patrick Yau (Singapore) Chia-Lin Lu (Taiwan) Daniel Chang (Taiwan) James Chiu (Taiwan) Nicholas Teo (Taiwan)

Emerging Leaders
Jake Lynch (Asia) Minoru Tayama (Japan) Robert Burghart (Japan) Heather Kang (Korea)

Strategy/Country
Tim Rocks (Asia) Daniel McCormack (Asia) Desh Peramunetilleke (Asia) Mahesh Kedia (Asia) Michael Kurtz (China) Seshadri Sen (India) Ferry Wong (Indonesia) Chris Hunt (Japan) Peter Eadon-Clarke (Japan) Prem Jearajasingam (Malaysia) Edward Ong (Malaysia) Alex Pomento (Philippines) Tuck Yin Soong (ASEAN, Singapore) Daniel Chang (Taiwan) Alastair Macdonald (Thailand)

Industrials
Inderjeetsingh Bhatia (India) Christopher Cintavey (Japan) Janet Lewis (Japan) Michael Na (Korea) Sunaina Dhanuka (Malaysia) David Gambrill (Thailand)

Telecoms
Tim Smart (Asia, China) Bin Liu (China) Shubham Majumder (India) Kenneth Yap (Indonesia) Nathan Ramler (Japan) Prem Jearajasingam (Malaysia) Ramakrishna Maruvada (Philippines, Singapore, Thailand)

Insurance
Mark Kellock (Asia) Seshadri Sen (Asia, India) Makarim Salman (Japan)

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Sales
Regional Heads of Sales
Peter Slater (Boston) Michelle Paisley (China, Hong Kong) Ulrike Pollak-Tsutsumi (Frankfurt) Thomas Renz (Geneva) Ajay Bhatia (India) Stuart Smythe (India) Chris Gray (Indonesia) Gino C Rojas (Philippines) Greg Norton-Kidd (New York) Luke Sullivan (New York) Scot Mackie (New York) Sheila Schroeder (San Francisco) (1 617) 598 2502 (852) 3922 3516 (49) 69 7593 8747 (41) 22 818 7712 (9122) 6653 3200 (9122) 6653 3200 (6221) 515 7304 (632) 857 0761 (1 212) 231 2527 (1 212) 231 2507 (1 212) 231 2848 (1 415) 835 1235

Regional Heads of Sales contd

Giles Heyring (Singapore, Malaysia) Mark Duncan (Korea, Taiwan) Angus Kent (Thailand) Michael Newman (Tokyo) Charles Nelson (UK/Europe) Rob Fabbro (UK/Europe) Nick Ainsworth (Generalist) (65) 6231 2888 (8862) 2734 7510 (662) 694 7601 (813) 3512 7920 (44) 20 3037 4832 (44) 20 3037 4865 (852) 3922 2010

Sales Trading contd

Brendan Rake (India) Edward Robinson (London) Robert Risman (New York) Isaac Huang (Taiwan) Jon Omori (Tokyo) (9122) 6653 3204 (44) 20 3037 4902 (1 212) 231 2555 (8862) 2734 7582 (813) 3512 7838

Alternative Strategies
Convertibles - Roland Sharman Depository Receipts - Robert Ansell Derivatives - Wayne Edelist Futures - Tim Smith Structured Products - Andrew Terlich (852) 3922 2095 (852)3922 2094 (852) 3922 2134 (852) 3922 2113 (852) 3922 2013

Sales Trading
Adam Zaki (Asia) Mona Lee (Hong Kong) Mike Keen (Europe) (852) 3922 2002 (852) 3922 2085 (44) 20 3037 4905

March 09