Shares of Bharti Hexacom soared by 13% in intra-day trading on Friday, reaching a record high of Rs 1,454 on the Bombay Stock Exchange (BSE). This surge followed a positive upgrade from the global brokerage firm Jefferies, which raised its target price for the stock to Rs 1,600 per share, marking a significant endorsement for the telecom company.
Jefferies attributed its bullish stance on Bharti Hexacom to several factors, including the increasing competitive pressure from Reliance Jio and market share losses faced by Vodafone Idea. The brokerage emphasized that the telecom industry is poised for multiple tariff hikes over the next few years, reinforcing its optimistic outlook for Bharti Hexacom.
This recent uptick in stock price marks the fourth consecutive day of gains for Bharti Hexacom, resulting in a remarkable 22% increase during this period. The stock has now surpassed its previous high of Rs 1,368.85, reached on June 26, 2024. As of 10:43 AM, the stock was trading at Rs 1,403.10, outpacing the broader market as the BSE Sensex experienced a modest decline of 0.08%. The trading volume was robust, with 3.1 million equity shares changing hands across the National Stock Exchange (NSE) and BSE.
Bharti Hexacom operates as a communications solutions provider in India, delivering consumer mobile services, fixed-line telephone, and broadband services primarily in the Rajasthan and North East telecom circles, which include states like Arunachal Pradesh, Manipur, and Tripura. The company offers its services under the Airtel brand, leveraging the reputation of its parent company, Bharti Airtel.
Analysts at Jefferies project that Bharti Hexacom will achieve a compound annual growth rate (CAGR) of 19% in revenues and 25% in EBITDA (earnings before interest, taxes, depreciation, and amortization) over the period from FY24 to FY27. They predict that strong EBITDA growth, combined with moderating capital expenditures, could lead to an impressive 66% CAGR in free cash flow to equity (FCFE) during the same timeframe. This robust growth trajectory is expected to maintain Bharti Hexacom’s valuations at a premium compared to Bharti Airtel’s Indian operations.
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In a recent update from Reliance Industries Limited (RIL) during its Annual General Meeting (AGM), the company announced its ambition to double Jio’s revenues and EBITDA within the next three to four years. Jefferies highlighted that to achieve a revenue base of Rs 1 trillion, Jio may require several tariff hikes, particularly with the backdrop of expanding its home broadband and data center businesses. The brokerage noted Jio’s recent tariff hikes as a significant step toward this goal, with expectations of another hike likely in mid-2025.
In contrast, Vodafone Idea’s (VIL) recent capital-raising efforts may assist in stabilizing its market share; however, its revenue market share has declined to 15.5% as of Q1 FY25. Jefferies cautioned that without significant improvements in operating cash flows, VIL might face challenges in meeting its government payment obligations due from FY26.
Amidst this competitive landscape, Bharti Hexacom has demonstrated considerable improvement in its operating performance over the past few years, largely driven by an increase in average revenue per user (ARPU) due to rising data consumption and strategic tariff revisions. The company’s financial risk profile is anticipated to strengthen further, with expectations of increased accruals.
The successful listing of Bharti Hexacom in April 2024 has enhanced its financial flexibility, granting it better access to capital markets. Furthermore, the strong ties with Bharti Airtel are expected to provide ongoing benefits, positioning Bharti Hexacom favorably in a rapidly evolving telecom sector.
