The initial public offering (IPO) of Bharti Hexacom, a wholly-owned subsidiary of telecom major Bharti Airtel, will open for subscription today (April 3). This is the first IPO of the new financial year FY25 and the first from the Bharti Group since the Bharti Infratel issue launched in 2012.
Bharti Hexacom aims to raise ₹4,275 crore through the issue and the expected valuation of the company is likely to be over ₹28,500 crore.
Ahead of the IPO opening, the company raised around ₹1,924 crore from anchor investors, including Blackrock Global Funds, Pictet, Smallcap World Fund, Capital Group, American Funds, Fidelity Funds, Abu Dhabi Investment Authority, Morgan Stanley, HSBC, among others.
Analysts have recommended investors to 'Subscribe' to the IPO as the company has strong parentage, and high growth potential, and also it is available at a reasonable valuation.
Marwadi Financial Services: Subscribe
"We assign a subscribe rating to this IPO as the company has strong parentage and an established brand along with a presence in markets with high growth potential. Also, it is available at a reasonable valuation as compared to its peers," Marwadi Financial Services said in its IPO note.
Considering the FY24-annualized EPS (earnings per share) of ₹7.52 on a post-issue basis, the company will list at a P/E (price-earnings) of 75.80 times with a market capitalisation of Rs 28,500 crore, whereas its peer Bharti Airtel is trading at a P/E of 63.3 times, said Marwadi Financial Services.
StoxBox: Subscribe
"The issue is valued at a P/E of 75.8 times on the upper price band based on FY24 earnings, which is fairly valued. We, therefore, recommend a subscribe rating for the issue," said Prathamesh P Masdekar of StoxBox.
One of the key focus areas, as per the analyst, is prudent capital allocation and improving return on capital employed, which he said is reflected in the capital expenditure on both spectrum and non-spectrum spending.
AUM Capital: Subscribe
AUM Capital in its IPO note said that operation synergies and cost rationalisation through its parent Bharti Airtel gives Bharti Hexacom an operational advantage. "The Bharti group has been one of the pioneers in the launching of 5G services across the country and Bharti Hexacom is expected to leverage this advantage. Smart TVs' and the advent of OTT platforms have become another focal point."
"It aims to maintain an efficient capital structure with high balance sheet flexibility. It is vouching to repay its debt obligations through internal accruals as it holds liquid investments and cash worth ₹2,000 crore at the end of December 31, 2023," the brokerage said while recommending a 'Subscribe' to the IPO.
The IPO, which closes on April 5, is completely an offer-for-sale (OFS), without any fresh equity issue component. The company's only public shareholder, Telecommunications Consultants India will offload 7.5 crore equity shares or a 15% stake in the OFS.
Promoter Bharti Airtel owns a 70% stake in the company and the remaining 30% stake or 15 crore equity shares are held by Telecommunications Consultants India
The company will be selling its shares in the range of ₹542-570 per share. Investors can bid for a minimum of 26 equity shares in one lot and multiples thereof.
Shares of the company are commanding a premium of ₹52 in the unlisted market today.
However, it is important to note that grey market premiums are just an indicator of how the company's shares are stacked up in the unlisted market and are subject to change rapidly.
The company has set aside 75% of the issue size for qualified institutional buyers (QIBs), 15% for non-institutional investors (NIIs/HNIs), and the remaining 10% for retail investors.
Since the issue is an OFS, Bharti Hexacom will not receive any proceeds. All the proceeds will be allotted to the selling shareholder in the company.
In fiscal 2014, there were 14 players that had cellular mobile service licenses from the Department of Telecommunication. In 2016, there was a price war in the industry that forced certain entities to exit or consolidate with larger players.
As of December 31, 2023, there were only five service providers, of which two are public sector units – Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd. The top three players – Airtel, Reliance Jio Infocomm Ltd and Vodafone Idea Ltd hold approximately 92% customer share in the Indian wireless telecom market as of December 31, 2023.
Bharti Hexacom is a wholly owned subsidiary of Bharti Airtel and was incorporated on April 20, 1995. The company runs mobile services in Rajasthan and the Northeast telecommunication circles of India, which comprises Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura. It has a market share of 40% in Rajasthan and 50% in the Northeast.
Bharti Hexacom, as per its annual report, is targeting to cover all the urban areas and a few pockets of rural areas with 5G services by March this year. Airtel’s 5G Plus offers up to 30 times faster download speeds than 4G, it claimed in its annual report adding that the 5G handset ecosystem is gradually evolving with more choices for customers at affordable price points.
For FY23, the Airtel unit recorded a net profit of ₹549 crore. Its revenue from operations remained strong rising 22% to ₹6,719 crore.
For the six months ended September, the company posted a revenue of ₹3,420 crore, compared to ₹3,167 crore in the same period a year ago. However, its net profit declined to ₹69 crore from ₹195 crore in the year-ago period. The profit was impacted by higher tax costs and exceptional loss.
SBI Capital Markets, Axis Capital, BOB Capital Markets, ICICI Securities, and IIFL Securities are the book-running lead managers to the issue. KFin Technologies is the registrar.
Bharti Hexacom will finalise the basis of allotment of IPO shares by April 8 and investors can trade in the IPO shares from April 12.
Bharti Hexacom aims to raise ₹4,275 crore through the issue and the expected valuation of the company is likely to be over ₹28,500 crore.
Ahead of the IPO opening, the company raised around ₹1,924 crore from anchor investors, including Blackrock Global Funds, Pictet, Smallcap World Fund, Capital Group, American Funds, Fidelity Funds, Abu Dhabi Investment Authority, Morgan Stanley, HSBC, among others.
Bharti Hexacom IPO review
Analysts have recommended investors to 'Subscribe' to the IPO as the company has strong parentage, and high growth potential, and also it is available at a reasonable valuation.
Marwadi Financial Services: Subscribe
"We assign a subscribe rating to this IPO as the company has strong parentage and an established brand along with a presence in markets with high growth potential. Also, it is available at a reasonable valuation as compared to its peers," Marwadi Financial Services said in its IPO note.
Considering the FY24-annualized EPS (earnings per share) of ₹7.52 on a post-issue basis, the company will list at a P/E (price-earnings) of 75.80 times with a market capitalisation of Rs 28,500 crore, whereas its peer Bharti Airtel is trading at a P/E of 63.3 times, said Marwadi Financial Services.
StoxBox: Subscribe
"The issue is valued at a P/E of 75.8 times on the upper price band based on FY24 earnings, which is fairly valued. We, therefore, recommend a subscribe rating for the issue," said Prathamesh P Masdekar of StoxBox.
One of the key focus areas, as per the analyst, is prudent capital allocation and improving return on capital employed, which he said is reflected in the capital expenditure on both spectrum and non-spectrum spending.
AUM Capital: Subscribe
AUM Capital in its IPO note said that operation synergies and cost rationalisation through its parent Bharti Airtel gives Bharti Hexacom an operational advantage. "The Bharti group has been one of the pioneers in the launching of 5G services across the country and Bharti Hexacom is expected to leverage this advantage. Smart TVs' and the advent of OTT platforms have become another focal point."
"It aims to maintain an efficient capital structure with high balance sheet flexibility. It is vouching to repay its debt obligations through internal accruals as it holds liquid investments and cash worth ₹2,000 crore at the end of December 31, 2023," the brokerage said while recommending a 'Subscribe' to the IPO.
Bharti Hexacom IPO size
The IPO, which closes on April 5, is completely an offer-for-sale (OFS), without any fresh equity issue component. The company's only public shareholder, Telecommunications Consultants India will offload 7.5 crore equity shares or a 15% stake in the OFS.
Promoter Bharti Airtel owns a 70% stake in the company and the remaining 30% stake or 15 crore equity shares are held by Telecommunications Consultants India
Bharti Hexacom IPO price band
The company will be selling its shares in the range of ₹542-570 per share. Investors can bid for a minimum of 26 equity shares in one lot and multiples thereof.
Bharti Hexacom IPO GMP
Shares of the company are commanding a premium of ₹52 in the unlisted market today.
However, it is important to note that grey market premiums are just an indicator of how the company's shares are stacked up in the unlisted market and are subject to change rapidly.
Bharti Hexacom IPO structure
The company has set aside 75% of the issue size for qualified institutional buyers (QIBs), 15% for non-institutional investors (NIIs/HNIs), and the remaining 10% for retail investors.
Bharti Hexacom IPO objective
Since the issue is an OFS, Bharti Hexacom will not receive any proceeds. All the proceeds will be allotted to the selling shareholder in the company.
Competition
In fiscal 2014, there were 14 players that had cellular mobile service licenses from the Department of Telecommunication. In 2016, there was a price war in the industry that forced certain entities to exit or consolidate with larger players.
As of December 31, 2023, there were only five service providers, of which two are public sector units – Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd. The top three players – Airtel, Reliance Jio Infocomm Ltd and Vodafone Idea Ltd hold approximately 92% customer share in the Indian wireless telecom market as of December 31, 2023.
Company Overview
Bharti Hexacom is a wholly owned subsidiary of Bharti Airtel and was incorporated on April 20, 1995. The company runs mobile services in Rajasthan and the Northeast telecommunication circles of India, which comprises Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura. It has a market share of 40% in Rajasthan and 50% in the Northeast.
Bharti Hexacom, as per its annual report, is targeting to cover all the urban areas and a few pockets of rural areas with 5G services by March this year. Airtel’s 5G Plus offers up to 30 times faster download speeds than 4G, it claimed in its annual report adding that the 5G handset ecosystem is gradually evolving with more choices for customers at affordable price points.
For FY23, the Airtel unit recorded a net profit of ₹549 crore. Its revenue from operations remained strong rising 22% to ₹6,719 crore.
For the six months ended September, the company posted a revenue of ₹3,420 crore, compared to ₹3,167 crore in the same period a year ago. However, its net profit declined to ₹69 crore from ₹195 crore in the year-ago period. The profit was impacted by higher tax costs and exceptional loss.
Bharti Hexacom IPO BRLM
SBI Capital Markets, Axis Capital, BOB Capital Markets, ICICI Securities, and IIFL Securities are the book-running lead managers to the issue. KFin Technologies is the registrar.
Bharti Hexacom IPO listing date
Bharti Hexacom will finalise the basis of allotment of IPO shares by April 8 and investors can trade in the IPO shares from April 12.
Note To Readers
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First Published: Apr 3, 2024 9:20 AM IST
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