Bharti Hexacom: A Strong Debut but What Next in 2024?

Bharti Hexacom, a subsidiary of Bharti Airtel, recently made a strong debut in the stock market. Its shares listed at a 32% premium over the issue price, marking a significant milestone for the company. In this article, we’ll delve into the history of Bharti Hexacom, explore its future plans, and analyze what makes it a compelling investment opportunity.

Incorporated in 1995, Bharti Hexacom provides wireless services primarily in the Rajasthan  and North East regions of India. Over the years, it has become a key player in the telecom industry, serving around 27 million wireless subscribers in these circles. The company’s wireless business constitutes the majority of its revenue, while broadband services contribute a smaller portion.

Successful IPO

Bharti Hexacom’s initial public offering (IPO) was a resounding success. The IPO raised ₹4,275 crore through an offer-for-sale of 75 million shares. The issue garnered strong interest from investors, with bids exceeding 30 times the number of shares offered. The IPO’s price band was set at ₹542 to ₹570 per share. Notably, this IPO marked the first major listing in the 2024-25 fiscal year.

Listing and Market Performance

When Bharti Hexacom shares debuted on the stock exchanges, they listed at ₹755.20 on the BSE and ₹755 on the NSE, representing a 32% premium over the issue price of ₹570 per share. Post-listing, the stock surged further, reaching a high of ₹880 on the NSE. Market participants anticipated double-digit returns, emphasizing the company’s robust business model.

Business Model and Prospects

Bharti Hexacom’s core business revolves around providing communication solutions, including mobile, fixed-line, and broadband services. Key highlights include:

1. Market Leadership: Bharti Hexacom holds a revenue market share of 52.7% in the North East region, making it a dominant player. In Rajasthan, it ranks second with an RMS of 40.4%.
2. Parentage: As a subsidiary of Bharti Airtel, Bharti Hexacom benefits from strong parentage. Airtel holds a 70% stake, while the remaining 30% is owned by Telecommunications Consultants India.
3. Growth Potential: The company operates in high-growth markets, particularly in Rajasthan and the North East. These regions have relatively lower teledensity and untapped potential for post-paid and data subscribers.
4. Positive Outlook: Analysts expect Bharti Hexacom’s average revenue per user (ARPU) to grow steadily due to tariff hikes and Airtel’s premiumization strategy. The company’s EBITDA is also projected to rise, given its strong market position.

Risks Associated with Bharti Hexacom IPO

1. High Debt Position: Bharti Hexacom has a relatively high level of debt. As of the latest financials, its total debt stands at ₹9,432 crore. Investors should closely monitor the company’s ability to manage and reduce this debt burden.
2. Volatile Financial Performance: While the company has generated positive cash flows in the last three years, its financial performance has been somewhat volatile. The return on equity (ROE) and return on capital employed (ROCE) have fluctuated. Investors should assess the stability of the company’s earnings and growth prospects.
3. Competition from Reliance Jio: Bharti Hexacom faces intense competition from Reliance Jio, which is a major player in the Indian telecom industry. Jio’s aggressive pricing strategies and expanding network pose a challenge to Bharti Hexacom’s market share.
4. Regulatory and Industry Risks: The telecom sector is dynamic and subject to regulatory changes. Bharti Hexacom operates in a highly regulated industry, and any adverse regulatory decisions could impact its operations and profitability.
5. Capital-Intensive Nature: The telecom business requires significant capital investments in infrastructure, technology upgrades, and network expansion. Bharti Hexacom must continue investing to stay competitive, which can strain its financials.

Strengths and Opportunities

1. Brand Recognition: Bharti Hexacom benefits from strong brand recognition through its flagship brand, Airtel. This recognition contributes to customer loyalty and trust.
2. Market Share: The company holds a revenue market share of around 53% in the northeast region, surpassing Jio’s share of 43% as of 9MFY24. This dominant position provides a competitive edge.
3. Growing Demand for Connectivity: Bharti Hexacom is well-positioned to capitalize on the increasing demand for connectivity in India. As the adoption of 5G technology grows, it could act as a growth catalyst.

Valuation

• The stock is currently valued at a price-to-earnings (P/E) ratio of 58.9 and a price-to-book (P/B) ratio of 7.2. Investors should assess whether these valuations align with their risk tolerance and growth expectations.

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What Next in Bharti Hexacom?

Bharti Hexacom, a subsidiary of Bharti Airtel, has ambitious plans for network expansion. Let’s explore how the company aims to enhance its coverage:

1. Investment in Network Expansion: Bharti Hexacom continuously invests in network expansion to improve connectivity and reach more customers. As of December 31, 2023, the company had invested a substantial amount (approximately ₹206 billion) in capital expenditure to build a future-ready digital infrastructure. This investment includes expanding its telecom towers and improving network quality.
2. Geographical Focus: Bharti Hexacom primarily operates in the Rajasthan and North East telecommunication circles in India. These regions include states such as Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura. The company aims to cover both urban areas and select rural pockets with its services.
3. 5G Services: The company is targeting to provide 5G services in urban areas by March 2024. As 5G technology gains prominence, Bharti Hexacom intends to leverage it to enhance network capabilities and offer faster, more reliable connectivity.
4. Brand Recognition: Bharti Hexacom enjoys strong brand recognition through its flagship brand, Airtel. This recognition helps attract customers and encourages adoption of its services.
5. Market Share: The company holds a significant revenue market share in the North East region (around 53%) and ranks higher than Reliance Jio in this circle. This dominant position allows it to expand its footprint.
6. Challenges: Despite its strengths, company faces intense competition from Reliance Jio. Additionally, operating in a highly capital-intensive and regulated industry presents challenges.

Conclusion

Bharti Hexacom’s successful debut and promising future make it an attractive investment proposition. As India’s telecom landscape evolves, the company is well-positioned to capitalize on market trends and consumer preferences. Investors should keep an eye on this telecom player as it continues to expand its footprint and enhance shareholder value.

In summary, Bharti Hexacom’s journey from IPO to listing exemplifies its resilience and growth potential. With a customer-centric approach and strategic vision, the company aims to stay ahead in the dynamic telecom industry.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.