All eyes on auctionscontent.indiainfoline.com/wc/research/research...spectrum holdings would ensure that auction intensity remains high. Idea Cellular faces acid test in its 900MHz

Bharti Airtel ‐ BUY

CMP: Rs357 Target: Rs450

Upside: 26.0%

Idea Cellular ‐ BUY

CMP: Rs152 Target: Rs195

Upside: 28.0% Horizon: 9‐12 months

Prices as on March 02, 2015

Sector view: Overweight

Nifty: 8,957

Weight in Nifty: 1.6%

Sector Update

Change in Estimates Rating Target

Telecom

This report is published by IIFL ‘India Private Clients’ research desk. IIFL has other business units with independent research teams separated by 'Chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc. The views and opinions expressed in this document may at times be contrary in terms of rating, target prices, estimates and views on sectors and markets.

March 03, 2015

All eyes on auctions

Telecom companies are set for aggressive bidding in the upcoming auctions for 800, 900, 1800 and 2100MHz bands if one goes by the earnest money deposited by eight operators. A set of parallel developments such as incumbents’ renewal compulsion in the crucial 900MHz, need for additional 3G capacity in metros/A circles and Ril Jio on the lookout to enhance spectrum holdings would ensure that auction intensity remains high. Idea Cellular faces acid test in its 900MHz renewal bid for nine circles and we estimate total upfront payment of ~Rs58bn for the company across 3 bands. Bharti is not under as intense a pressure since it has 1800MHz option to fall back on corresponding to respective 900MHz expiries. We believe it may buy 3G spectrum in circles where it currently has none and look to add capacities in select metros or A circles.

Separately, TRAI also released its Q3 FY15 gross revenue data which shows expected RMS gains for Bharti and Idea with >6% qoq growth as compared to 4.9% qoq increase in industry gross revenues. Overall, we believe Bharti does have some flexibility in auction strategy while Idea faces a tough task in its renewals. Our BUY stays on both the stocks with a bias towards Bharti.

Spectrum auctions: Bharti, Idea look to renew 900MHz expiries Upcoming spectrum auctions would potentially witness hectic bidding by incumbents as well as Ril Jio; both Bharti and Idea have key renewals coming in 900MHz circles which account for ~35‐73% of gross revenues. Our payout forecasts imply upfront payments amounting to ~9‐19% of respective FY15E debt.

Flexibility in auction creates bias towards Bharti Bharti would start bidding for its 900MHz renewals with fall back option of 1800MHz in those circles; this gives Airtel relative flexibility to an extent which creates a positive bias towards Bharti; even so, we retain BUY on both the stocks with unchanged 9‐12mth target prices.

Financial summary Bharti Idea

Y/e 31 Mar (Rs m) FY16E FY17E FY16E FY17E

Revenues 1,036,544 1,151,601 372,394 424,827

yoy growth (%) 11.6 11.1 17.6 14.1

Operating profit 354,498 393,847 123,262 141,043

OPM (%) 34.2 34.2 33.1 33.2

Reported PAT 66,047 78,284 28,776 28,797

yoy growth (%) 29.8 18.5 1.3 0.1

EPS (Rs) 16.5 19.6 8.0 8.0

P/E (x) 21.6 18.2 19.0 19.0

Price/Book (x) 2.0 1.9 2.1 1.9

EV/EBITDA (x) 5.5 4.8 6.9 5.7

Debt/Equity (x) 0.8 0.7 1.1 0.8

ROE (%) 9.9 10.7 11.8 10.7

RoCE (%) 12.9 15.2 12.1 11.7 Source: Companies, India Infoline Research

Telecom

2

Earnest deposit shows aggressive bidding on cards The earnest money deposited by eight operators for the 3 auctions (1800MhHz and 900MHz considered as one since holding in one band would make bidder eligible for another) indicates an aggressive level of bidding; the earnest money for upcoming auctions for Bharti, Idea and Vodafone is much higher than that required for just renewing existing licenses, an indication that incumbents are looking to expand holdings even at current reserve prices as well as plug gap in 1800MHz/3G portfolio. Below we discuss the upcoming renewals for Bharti, Idea and Rcom, alternative scenarios and payouts across the 900MHz, 1800MHz and 2100MHz. Earnest money deposited: Ril Jio leads the pack Operator Earnest money (Rs mn) Points allocated

Vodafone 37,000 26,825

Bharti 43,360 30,945

Idea 40,000 28,765

Telenor 7,250 5,699

Aircel 5,000 3,947

Tata Tele 15,005 11,695

Rcom 11,750 9,317

Ril Jio 45,000 32,005

Total 204,365 Source: DoT, India Infoline Research Bharti Airtel: likely fresh buying in 2100MHz on top of 900MHz renewals Bharti has about 40MHz (~44% of its total 900MHz holdings) across six circles coming up for renewal latest by April 2016 in the 900MHz band. The company is the top operator in these six circles which account for ~35% of its gross revenues. Bharti has already renewed 900MHz in Delhi and Kolkata in the Feb’ 2014 auctions. We note that Bharti has also prudently bought a minimum 5MHz (and a total of 97MHz) in 1800MHz in all the expiring circles in the previous auction that can provide a fall back option and mitigate the roll over risk in 900MHz; on the flip side, assuming it opts out of 900MHz if the prices go beyond any plausible business case, it still would have to spend on higher capex in 1800MHz. Though pressure on 900MHz renewals is not as intense as that on Idea, we anyway expect Bharti to renew majority of its 900 expiries and also acquire 1800MHz to augment existing portfolio as well as for future 4G needs. It would also look to expand 3G coverage from present 13 circles where it has 2100MHz though only one block of 5MHz currently on offer might just tempt the company to wait till additional 3 blocks are made available by end CY15. Albeit, we conservatively factor in 3G buying in select circles as well as augment 3G capacity in key metros like Delhi which have amongst the most lucrative data potential. Overall, we build in Rs104bn for 900MHz, Rs10bn for 1800MHz and Rs97bn for 2100MHz translating in to total payout of Rs212bn. Upfront payment based on auction payment terms would amount to ~Rs62bn for the current fiscal which forms ~9% of FY15E debt.

Earnest money deposited by various telcos indicate aggressive bidding on cards Bharti’s 900MHz renewals contribute ~35% of its gross revenues though it has prudently bought spectrum in 1800MHz to mitigate the roll over risk in 900MHz Bharti might look at 2100MHz in select circles where it does not have 3G spectrum; co opting to wait for 3 blocks of 2100MHz that would be available in end CY15 is a possibility not built in our payout estimates We expect ~Rs62bn or ~9% of FY15E debt in upfront payment in the current fiscal

Telecom

3

Idea Cellular faces acid test in 900MHz renewals Idea has nine key circles coming up for renewal by April 2016 in the 900MHz band; these circles account for ~90% of its entire 900MHz holding and responsible for ~73% of its gross revenues. Given the dependence, we believe Idea faces a tough task in renewing these licenses since others like Bharti, Vodafone (with its own 900MHz renewals) and Ril Jio would not give up without a fight. Idea did buy 5‐10MHz in 1800MHz in seven of the nine expiring circles while the balance two circles UP (west) and Gujarat (only 1.6MHz) do not have any fall back options. Even so, we expect Idea renewal bids to be aggressive supported by funds raised in mid CY14 and amongst the lowest debt/EBIDTA (Q3 FY15 annualized at 1.1x) in the industry. Alternatively Idea may forego 900MHz in 1‐2 circles where the cost dynamics vis‐à‐vis shifting to 1800MHz may be feasible or the data potential may not be large enough to justify the 900MHz investment. Moreover, bidding for 1800MHz instead of 900MHz would free up some resources to potentially acquire spectrum in 2100MHz though even in that case company may have financial space to accommodate just 1 circle at most say Maharashtra (where it is the leader and accounts for ~15% of its gross revenues) or Gujarat (No 2 operator, accounting for 7% of revenues). We factor in Rs177bn in 900MHz, Rs22bn in 1800MHz and Rs18bn in 2100MHz bands. The upfront payment works to ~Rs58bn which is 19% of Idea’s FY15E debt. Rcom: 900MHz expiries can be offset by 1800MHz buys Rcom has seven 900MHz renewals coming up in Dec’ 2015 and it has not bought any spectrum in 1800MHz in the February 2014 auctions which can mitigate some of the renewal risks. These seven circles account for ~32% of Rcom’s gross revenues and we believe company can adopt a strategy of either renewing all of its 900MHz licenses or use a judicious mix of 1800MHz and 900MHz buys to lower the risk of outsized payments; however unlike Idea whose renewals cover circles that are important from a immediate data monetization perspective, Rcom’s expiring licenses are in B and C category circles where intuitively the data potential may take a longer time to fructify. Renewal revenues at risk as % of gross revenues

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Bharti

Idea

Rcom

%

Source: TRAI, India Infoline Research

Idea faces acid test in its nine circles on 900MHz which account for ~73% of its gross revenues Idea may forego 900MHz in circles with least data potential in the medium term and try to bid in 2100MHz to expand 3G footprint

Rcom can renew its 900MHz licenses in say key circles like MP, WB and Bihar and use 1800MHz for rest; it can also buy 800MHz in few of the expiring circles

Telecom

4

Bharti has fall back options in 1800MHz to mitigate roll over risk in 900MHz

Circles Existing DOE RMS (%)

Rank Feb' 14 auctions

1800MHz 900MHz 1800MHz 900MHz

Delhi 2.0 8.0 Nov‐14 36.1 1 7.0 6.0

Mumbai 9.2 ‐ Sep‐21 23.2 2 6.0 5.0

Kolkata 1.8 6.2 Nov‐14 26.0 2 5.0 7.0

Maharashtra 8.2 ‐ Sep‐21 18.4 3 - ‐

Gujarat 6.2 ‐ Sep‐21 16.6 3 - ‐

AP 2.2 7.8 Dec‐15 39.5 1 8.8 ‐

Karnataka 2.2 7.8 Feb‐16 46.8 1 8.8 ‐

TN 3.0 6.2 Sep‐21 32.0 1 5.0 ‐

Kerala 6.2 ‐ Sep‐21 15.5 3 5.0 ‐

Punjab ‐ 7.8 Dec‐15 33.8 1 8.2 ‐

Haryana 6.2 ‐ Sep‐21 17.2 3 - ‐

UP (W) 6.2 ‐ Sep‐21 20.6 3 - ‐

UP (E) 1.0 6.2 Feb‐24 28.6 2 - ‐

Rajasthan 2.0 6.2 Apr‐16 42.8 1 8.2 ‐

MP 8.0 ‐ Sep‐21 23.4 2 5.8 ‐

WB 1.8 4.4 Feb‐24 30.7 2 4.4 ‐

HP ‐ 6.2 Dec‐15 44.3 1 10.2 ‐

Bihar 3.0 6.2 Feb‐24 46.6 1 - ‐

Orissa 1.8 6.2 Feb‐24 39.8 1 5.0 ‐

Assam 4.4 1.8 Jul‐24 36.9 1 - ‐

NE 1.8 4.4 Dec‐15 45.3 1 7.0 ‐

J&K ‐ 6.2 Feb‐24 41.6 1 2.6 ‐

Total 77.2 91.6 97.0 18.0 Source: DoT, TRAI, India Infoline Research Note: coloured cells indicate upcoming license expiries

Bharti total payout seen at ~Rs212bn Bharti auction estimates

No of renewals in 900MHz 6

Revenues at risk (Rs mn) 49,777

Revenues at risk (% of total GR) 34.6

Estimated 900MHz payout 104,070



Upfront payment 61,516

% of FY15E debt 8.8

Total payout (Rs mn) 211,640 Source: DoT, TRAI, Company, India Infoline Research

Telecom

5

Idea faces acid test in its nine 900MHz renewals

Circles Spectrum owned DoE RMS (%)

Rank Feb' 14 auctions

1800MHz 900MHz 1800MHz 900MHz Delhi 8.0 ‐ Oct‐21 12.3 3 0.6 5.0

Mumbai 4.4 ‐ Dec‐26 10.1 5 2.0 ‐

Kolkata 4.4 ‐ Jan‐28 5.6 6 ‐ ‐

Maharashtra 2.0 7.8 Dec‐15 31.4 1 9.0 ‐

Gujarat ‐ 6.2 Dec‐15 22.2 2 1.6 ‐

AP 1.8 6.2 Dec‐15 21.8 2 6.0 ‐

Karnataka ‐ 6.2 Apr‐16 11.0 4 5.0 ‐

TN 4.4 ‐ Jan‐28 4.3 7 ‐ ‐

Kerala 1.8 6.2 Dec‐15 38.8 1 10.0 ‐

Punjab ‐ 7.8 Apr‐16 23.5 2 8.0 ‐

Haryana ‐ 6.2 Dec‐15 28.2 2 6.0 ‐

UP (W) 1.8 6.2 Dec‐15 31.3 1 ‐ ‐

UP (E) 6.2 ‐ Oct‐21 13.0 3 ‐ ‐

Rajasthan ‐ 6.2 Oct‐21 13.1 3 ‐ ‐

MP 1.8 6.2 Dec‐15 39.5 1 7.0 ‐

WB 4.4 ‐ Jan‐28 7.8 5 ‐ ‐

HP 4.4 ‐ Oct‐21 11.7 4 ‐ ‐

Bihar 4.4 ‐ Dec‐26 11.8 3 ‐ ‐

Orissa 4.4 ‐ Jan‐28 4.8 7 ‐ ‐

Assam 4.4 ‐ Jan‐28 3.8 6 ‐ ‐

NE 4.4 ‐ Jan‐28 4.3 6 5.0 ‐

J&K 4.4 ‐ Jan‐28 8.4 5 ‐ ‐

Total 67.4 65.2 52.6 5.0 Source: DoT, TRAI, India Infoline Research Note: coloured cells indicate upcoming license expiries

Idea total payout estimated at ~Rs218bn Idea auction estimates








% of FY15E debt 18.9


Telecom

6

Rcom has seven expiries in B & C category circles

GSM DOE

Feb' 14 auctions

Circles 1800MHz 900MHz GSM 1800MHz

Delhi 4.4 ‐ Jan‐28 ‐

Mumbai 4.4 ‐ Jan‐28 0.6

Kolkata 6.2 ‐ Sep‐21 ‐

Maharashtra 4.4 ‐ Jan‐28 ‐

Gujarat 4.4 ‐ Jan‐28 ‐

AP 4.4 ‐ Jan‐28 ‐

Karnataka 4.4 ‐ Jan‐28 ‐

TN 4.4 ‐ Jan‐28 ‐

Kerala 4.4 ‐ Jan‐28 ‐

Punjab 4.4 ‐ Jan‐28 ‐

Haryana 4.4 ‐ Jan‐28 ‐

UP (W) 4.4 ‐ Jan‐28 ‐

UP (E) 4.4 ‐ Jan‐28 ‐

Rajasthan 4.4 ‐ Jan‐28 ‐

MP ‐ 6.2 Dec‐15 ‐

WB ‐ 6.2 Dec‐15 ‐

HP ‐ 6.2 Dec‐15 ‐

Bihar 1.8 6.2 Dec‐15 ‐

Orissa ‐ 6.2 Dec‐15 ‐

Assam ‐ 6.2 Dec‐15 ‐

NE 1.8 4.4 Dec‐15 ‐

J&K 4.4 ‐ Jan‐28 ‐

Total 71.4 41.6 0.6 Source: DoT, TRAI, India Infoline Research Note: coloured cells indicate upcoming license expiries

Rcom total payout estimated at ~Rs57bn Rcom auction estimates








% of FY15E debt 5.2


Telecom

7

TRAI Q3 update: Industry YoY revenue growth best since Q1 FY13

Q3 FY15 wireless industry gross revenues grew at 4.9% qoq and 12.2% yoy, the highest YoY increase since Q1 FY13; corresponding figures for Q3 FY14 were 3.4% and 10.1%. The YoY acceleration was driven, as expected, by Bharti (+13.5%), Vodafone (+14%) and Idea (+22%) which yet again outpaced the industry growth by a wide margin. Sequentially both Bharti and Idea outgrew industry at 6.4% and 6.7% respectively while Vodafone was in line at +5% qoq. Rcom’s gross revenue declined for fifth quarter in a row though the magnitude was small at ‐0.5% qoq; the decline stands in contrast to >6% growth at peers. The top three operators gained 77bps revenue share to 72.1% with Bharti and Idea driving most of the incremental RMS delta. Among regional operators, Aircel witnessed continued deceleration to +1.1% qoq from +5‐7% levels seen in the previous quarters. Telenor and Tata Teleservices recovered from seasonally weak Q2 but RMS remained flat qoq. Wireless GR growth YoY highest since Q1 FY13

(4.0)

(2.0)

0.0

2.0

4.0

6.0

8.0

Q1 FY11

Q2 FY11

Q3 FY11

Q4 FY11

Q1 FY12

Q2 FY12

Q3 FY12

Q4 FY12

Q1 FY13

Adj. Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

Q4 FY14

Q1 FY15

Q2 FY15

Q3 FY15

% qoq


Trend in revenue market share

GR share (%) Q3

FY13 Q4

FY13 Q1

FY14 Q2

FY14 Q3

FY14 Q4

FY14 Q1

FY15 Q2

FY15 Q3

FY15 Bharti 30.4 29.9 30.9 30.5 30.7 30.6 31.2 30.6 31.0

Vodafone 22.5 23.0 23.4 23.1 23.1 23.5 23.3 23.4 23.4

BSNL+MTNL 6.8 7.1 6.6 6.9 6.7 6.5 5.6 5.8 5.6

Idea 14.8 15.7 16.2 15.9 16.2 16.7 17.1 17.3 17.6

Rcom 7.9 7.8 7.6 7.9 7.6 7.2 6.7 6.6 6.2

Tata 8.5 8.2 7.5 7.6 7.5 6.7 7.1 7.2 7.2

Aircel 5.2 4.9 5.0 5.3 5.4 5.6 5.6 5.8 5.6

Telenor 2.2 1.8 1.7 1.9 2.1 2.2 2.3 2.4 2.4

Sistema 1.1 0.9 0.7 0.7 0.7 0.8 0.7 0.8 0.8

Quadrant Tele 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2Source: TRAI, India Infoline Research

Wireless gross revenues increased at 12.2% yoy and ~5% qoq as Bharti, Idea posted strong growth in seasonally strong Q3 Bharti and Idea together gained ~75bps RMs in Q3 FY15

Telecom

8

Bharti RMS back at 31% on strong 6.4% GR growth Bharti bounced back in Q3 with a strong 6.4% gross revenue growth driven by revival in traffic and robust data contribution. Its Q3 total minutes grew a modest 1.4% qoq but data share jumped 170bps qoq. Company gained ~40bps RMS to 31%. Revenue share gain was well distributed across most of its key leadership circles like Delhi, AP, Karnataka and TN. In circles where it is either 2nd or 3rd operator, the performance was more mixed with ~90bps RMS gain in Mumbai offset by revenue share loss in Maharashtra. Industry leading growth continues at Idea; GR up 6.7% qoq Idea operating performance has now become highly consistent in terms of volume and industry leading growth; since Q1 FY14, Idea has, on average, grown ~180bps above industry run rate on sequential basis. For Q3 FY15, the story was no different as Idea posted GR growth of 6.7% qoq while YoY growth at ~22% was nearly 10ppts ahead of sector. In terms of circle level details, the performance was mixed with RMS loss in Maharashtra and ~40‐60bps gain in AP and Kerala. Idea’s eight key circles recovered momentum and grew by 6.7% qoq Idea has garnered ~140bps RMS in past four quarters

6.0

9.0

12.0

15.0

18.0

21.0

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

Q4 FY14

Q1 FY15

Q2 FY15

Q3 FY15

%


Bharti growth revived in Q3 with RMS gain spread across its key leadership circles

Since Q1 FY14, Idea has grown on average ~180bps above industry gross run rate on sequential basis

Bharti RMS regained 31% mark… …with revenue share gain in key leadership circles

24.0

26.0

28.0

30.0

32.0

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

Q4 FY14

Q1 FY15

Q2 FY15

Q3 FY15

%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

Q4 FY14

Q1 FY15

Q2 FY15

Q3 FY15

% Karnataka Delhi AP


Telecom

9

Rcom GR decline persists, regional operators a mixed bag Rcom gross revenues declined for the fifth successive quarter in a row by 0.5% qoq and its RMS now stands at 6.2% with Aircel not much behind at 5.6%. We note tha Rcom reported 2.4% qoq increase in domestic voice business in Q3. Regional operators like Aircel and Telenor performance was a mixed bag; Aircel GR growth slowed to 1.1% qoq as its key TN circle revenues declined 5.2% qoq but compensated to some extent by robust growth in Delhi (+4.8% qoq) and Mumbai (19.9% qoq). This was however not enough to prevent RMS loss of ~20bps qoq. Telenor revenues jumped to 3.7% qoq from 1.4% in the previous quarter driven by ~4‐6% revenue growth in both UP circles and Maharashtra while revenue share was sequnetially unchanged. Tata Teleservices revenue growth at +4.9% qoq was much better in the past several quarters if one excludes the ~12% qoq spurt seen in Q1 FY15; RMS remained stable qoq at 7.2%. Vodafone back on track after Q2 hiccup Vodafone gross revenues recovered after a brief hiccup in Q2 to post 5% qoq growth, largely in line with industry. Company lost RMS in key leadership circles like Mumbai and posted divergent performance in challenger circles like Maharashtra (‐12bps qoq) and TN (+45bps qoq).

Vodafone RMS has been fairly stable in the past several quarters

15.0

18.0

21.0

24.0

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

Q4 FY14

Q1 FY15

Q2 FY15

Q3 FY15

%


Rcom GR revenue decline persists for fifth quarter in a row while regional operators performance was a mixed bag in Q3 with flat to lower RMS for Aircel and Telenor

Vodafone RMS has been stable as growth tracks the industry run rate

Rcom GR declined for fifth consecutive quarter Slowdown in Aircel, Telenor GR growth qoq

(6.0)

(5.0)

(4.0)

(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

4.0

5.0

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

Q4 FY14

Q1 FY15

Q2 FY15

Q3 FY15

% qoq

(15.0)

(10.0)

(5.0)

0.0

5.0

10.0

15.0

Q1 FY13

Q2 FY13

Q3 FY13

Q4 FY13

Q1 FY14

Q2 FY14

Q3 FY14

Q4 FY14

Q1 FY15

Q2 FY15

Q3 FY15

% qoq Aircel Telenor


Telecom

10

Bharti: 1‐yr fwd EV/EBIDTA Idea: 1‐yr fwd EV/EBIDTA

4

6

8

10

12

14

16

Apr‐04

Feb‐05

Dec‐05

Oct‐06

Aug‐07

Jun‐08

Apr‐09

Feb‐10

Dec‐10

Oct‐11

Aug‐12

Jun‐13

Apr‐14

Feb‐15

xEV/E Mean

+1 std dev ‐1 std dev

4

8

12

16

20 Apr‐07

Sep‐07

Feb‐08

Jul‐08

Dec‐08

May‐09

Oct‐09

Mar‐10

Aug‐10

Jan‐11

Jun‐11

Nov‐11

Apr‐12

Sep‐12

Feb‐13

Jul‐13

Dec‐13

May‐14

Oct‐14

Mar‐15

EV/E Mean

Mean+1SD Mean‐1SDx

Source: Companies, BSE, India Infoline Research

Reiterate BUY on Bharti, Idea but auction flexibility creates bias towards Bharti We expect heightened bidding activity in the upcoming auctions on the back of diametrically opposing requirements for various players; incumbents like Bharti, Vodafone and Idea would look to renew their expiring 900MHz licenses while Ril Jio would probably look to expand spectrum portfolio with buying across bands. Even within incumbents, since only renewal 900MHz is up for grabs with no new supply, we expect Idea to face aggressive bidding in its nine expiring circles though fund raising and amongst the lowest debt/EBIDTA provide comfort on its renewal capabilities. Our total payout forecasts imply Bharti and Idea would have to garner funds worth ~9‐19% of FY15E debt for upfront payments in the current fiscal. We retain our estimates for now and reiterate BUY on both Bharti and Idea since extant valuations adequately factor in renewal related payouts. However, a relatively better spectrum profile and lower revenues at renewal risk creates a positive bias towards Bharti.

Expect elevated bidding activity in upcoming auctions as Idea, Bharti face important expiries in 900MHz Retain BUY on Bharti and Idea with unchanged 9‐12mth target prices

11

‘Best Broker of the Year’ – by Zee Business for contribution to brokingNirmal Jain, Chairman, IIFL, received the award for The Best Broker of the Year (for contribution to broking in India) at India's Best Market Analyst Awards 2014 organised by the Zee Business in Mumbai. The award was presented by the guest of Honour Amit Shah, president of the Bharatiya Janata Party and Piyush Goel, Minister of state with independent charge for power, coal new and renewable energy.

'Best Equity Broker of the Year' – Bloomberg UTV, 2011IIFL was awarded the 'Best Equity Broker of the Year' at the recently held Bloomberg UTV Financial Leadership Award, 2011. The award presented by the Hon'ble Finance Minister of India, Shri Pranab Mukherjee. The Bloomberg UTV Financial Leadership Awards acknowledge the extraordinary contribution of India's financial leaders and visionaries from January 2010 to January 2011.

'Best Broker in India' – Finance Asia, 2011IIFL has been awarded the 'Best Broker in India' by Finance Asia. The award is the result of Finance Asia's annual quest for the best financial services firms across Asia, which culminated in the Country Awards 2011

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investment recommendation/advice or an offer or solicitation of an offer to buy/sell any securities. The opinions expressed in the Report are our current opinions as of the date of the Report and may be subject to change from time to time without notice. IIL or any persons connected with it do not accept any liability arising from the use of this document.

d) Investors should not solely rely on the information contained in this Report and must make investment decisions based on their own investment

objectives, judgment, risk profile and financial position. The recipients of this Report may take professional advice before acting on this information.

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e) IIL has other business segments / divisions with independent research teams separated by 'chinese walls' catering to different sets of customers having varying objectives, risk profiles, investment horizon, etc and therefore, may at times have, different and contrary views on stocks, sectors and markets.

f) This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state,

country or other jurisdiction, where such distribution, publication, availability or use would be contrary to local law, regulation or which would subject IIL and its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this Report may come are required to inform themselves of and to observe such restrictions.

g) As IIL along with its associates, are engaged in various financial services business and so might have financial, business or other interests in other

entities including the subject company/ies mentioned in this Report. However, IIL encourages independence in preparation of research report and strives to minimize conflict in preparation of research report. IIL and its associates did not receive any compensation or other benefits from the subject company/ies mentioned in the Report or from a third party in connection with preparation of the Report. Accordingly, IIL and its associates do not have any material conflict of interest at the time of publication of this Report.

h) As IIL and its associates are engaged in various financial services business, it might have:‐

(a) received any compensation (except in connection with the preparation of this Report) from the subject company in the past twelve months; (b) managed or co‐managed public offering of securities for the subject company in the past twelve months; (c) received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) engaged in market making activity for the subject company.

i) IIL and its associates collectively do not own 1% or more of the equity securities of the subject company/ies mentioned in the report as of the last day of the month preceding the publication of the research report.

j) The Research Analyst/s engaged in preparation of this Report or his/her relative

(a) does not have any financial interests in the subject company/ies mentioned in this report; (b) does not own 1% or more of the equity securities of the subject company mentioned in the report as of the last day of the month preceding the publication of the research report; (c) does not have any other material conflict of interest at the time of publication of the research report.

k) The Research Analyst/s engaged in preparation of this Report:‐ (a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co‐managed public offering of securities for the subject company in the past twelve months; (c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the subject company or third party in connection with the research report; (f) has not served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the subject company.

We submit that no material disciplinary action has been taken on IIL by any regulatory authority impacting Equity Research Analysis. A graph of daily closing prices of securities is available at http://www.nseindia.com/ChartApp/install/charts/mainpage.jsp, www.bseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock‐quotes. (Choose a company from the list on the browser and select the “three years” period in the price chart).

Published in 2015. © India Infoline Ltd 2015 India Infoline Limited (Formerly “India Infoline Distribution Company Limited”), CIN No.: U99999MH1996PLC132983, Corporate Office – IIFL Centre, Kamala City, Senapati Bapat Marg, Lower Parel, Mumbai – 400013 Tel: (91‐22) 4249 9000 .Fax: (91‐22) 40609049, Regd. Office – IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B‐23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604 Tel: (91‐22) 25806650. Fax: (91‐22) 25806654 E‐mail: [email protected] Website: www.indiainfoline.com, Refer www.indiainfoline.com for detail of Associates. National Stock Exchange of India Ltd. SEBI Regn. No. : INB231097537/ INF231097537/ INE231097537, Bombay Stock Exchange Ltd. SEBI Regn. No.:INB011097533/ INF011097533/ BSE‐Currency, MCX Stock Exchange Ltd. SEBI Regn. No.: INB261097530/ INF261097530/ INE261097537, United Stock Exchange Ltd. SEBI Regn. No.: INE271097532, PMS SEBI Regn. No. INP000002213, IA SEBI Regn. No. INA000000623, SEBI RA Regn.:‐ Applied for

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