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Citi Recommends Telcos for demreged Tower Business

June 6, 2007

Citigroup in its research report continues to be Bullish on the prospects of Bharti Airtel. Citi factors into its price targets the valuations of Telecom Towers these companeis have which are likely to be hived off as separate entities and may also be listed on NSE or BSE.

Bharti Airtel Leads the Pack:
Bharti’s towerco has a headstart given: 1) the highest tower market share (~40%), 2) unconditional rollout plans (30,000 towers in FY08), and, most importantly, 3) an MoU with Vodafone that imparts greater visibility on average tenancy and operating margins.

Citi has set a 12-month forward target price of Rs 960 is based on core DCF of Rs 800 and a towerco option value of Rs158.

Reliance Communications:
In the case of RCOM, however, Citi uses EV/EBITDA in the absence of a detailed balance sheet and lack of transperency from Management. 12-month target price of Rs510 is based on 9.6x FY09E EV/EBITDA, at a 15% discount to Bharti’s target multiple (ex- towerco) to reflect the uncertainty regarding the timing of GSM rollout and the associated challenges. Citi also maintains a Medium Risk rating on RCom.

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