Bharti Airtel -Competitive pressure aggravated by regulatory uncertainty : Motilal Oswal

 We are downgrading FY13/14 EBITDA estimates for Bharti by 4-6% and EPS by 23%
largely on lower India mobile RPM/margins given adverse pricing environment.
 Our recent industry interactions suggest pricing pressures continue in 1QFY13; industry
has not been able to fully pass on the impact of: 1) increase in service tax, and 2)
regulatory restrictions on sales of certain bundled top-up vouchers.
 We are incorporating INR2.3b forex loss in 1QFY13 for Bharti primarily due to estimated
4-5% loan-weighted depreciation in African currencies during the quarter. We are also
tweaking our Africa business estimates to incorporate currency swings as well as lower
subscriber adds/margins. We now expect FY13/14 EBITDA of USD1.3/1.6b implying an
EBITDA CAGR of 21%.
 Lack of regulatory clarity on 2G spectrum auction remains an overhang given 1) potential
spectrum liability, and 2) pricing pressure from challengers with unviable business
models.
 Maintain Buy with a revised target price of INR370 (INR 400 earlier) based on 7.5x
FY14 EV/EBITDA for India & SA business, 5x EV/EBITDA for Africa business and INR142b
impact for potential regulatory outlay.

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Pricing trends negative for second consecutive quarter
 Our recent industry interactions suggest price declines have continued in
1QFY13; industry has not been able to pass on increase in service tax and
impact from regulatory restrictions on sales of certain bundled top-up
vouchers.
 While Bharti continues to be aggressive on pricing, we believe this is largely a
defensive strategy aimed at protecting its revenue market share which has
been under pressure over past several quarters.
 Bharti is simultaneously attempting to improve yields in some of the leadership
circles like Delhi where competition is relatively benign.
 We have downgraded our FY13/14 India mobile RPM estimates for Bharti by
~3% to 42.6p (down 2% YoY) /43.8p (up 3% YoY).


Valuation and view
 We are downgrading FY13/14 EBITDA estimates by 4-6% and EPS by 23% on lower
India mobile RPM assumptions given adverse pricing environment.
 Lack of regulatory clarity on 2G spectrum auction remains an overhang given 1)
potential spectrum liability and 2) pricing pressure from challengers with unviable
business models.
 The stock trades at EV/EBITDA of 6.8x FY13 and 5.5x FY14. Maintain Buy with a
revised target price of INR370 (INR400 earlier) based on 7.5x FY14 EV/EBITDA for
India & SA business, 5x EV/EBITDA for Africa business and INR142b impact for
potential regulatory outlay.