Bharti Hexacom Ltd IPO

Published by Sharekhan Education | April 3, 2024

Bharti Hexacom Ltd IPO has an issue size of Rs. 4275 Cr and price band is Rs. 542-570. The issue opens on Wednesday, 3rd April 2024 and closes on Friday, 5th April 2024.

 

Company Overview:

The company is a communications solutions provider offering consumer mobile services, fixed-line telephone and broadband services to customers in the Rajasthan and the North-East telecommunication circles in India. They had an aggregate of 27.1mn customers across both the circles. They offer services under the brand ‘Airtel’.  Airtel owns 70% of the company, while the Government of India through Telecommunications Consultants India Ltd owns the remaining 30%.

 

Objects of issue:

The entire IPO is an offer for sale and company will not receive any proceeds from the same. The company expects that the listing of the equity shares will enhance its visibility and brand image. Listing will also provide liquidity to its shareholders and a public market for its equity shares in India. Minimum application is to be made for 26 shares and in multiples thereon. Post allotment, shares will be listed on both BSE and NSE.

 Industry Overview:

There are five service providers currently in the Indian telecom market. The top three players – Bharti Airtel, Reliance Jio and Vodafone Idea hold approximately 92% market share, leading to an oligopolistic industry, in line with the global trend. China, Germany, and UK also have just three telecom players each. CRISIL expects the number of wireless customers to grow at a CAGR of 1-1.5% over FY23-28, driven by higher smartphone penetration, increased affordability of mobile phones and continued demand for data and telecom services. Wireless teledensity is expected to reach 85% approximately by FY28.

Competitive Strengths:

The company has a comprehensive portfolio of service offerings with three layers – digital infrastructure, digital experience, and digital services. They derive significant synergies from their relationship with Airtel and its affiliates, including through Indus Tower’s infrastructure, inter circle roaming arrangements, its national long-distance network and corporate functional support. They also derive operational efficiencies by centralizing and sharing certain key functions across the businesses such as finance, legal, information technology, strategy, procurement, and human resources.

Business Strategy:

The company plans to focus on key revenue generating cities and high value catchment areas and expand the coverage in rural areas. Their strategy is to premiumize portfolio with continuous upgrades from 2G to 4G/5G customers, upgrading customers within its 4G plans for higher data packs, contextual data monetization, and through converged offerings. They  intend to increase the share of post-paid customers, which will result in an increase in ARPU.

Key Concerns:

The company operates in a highly regulated sector. Its licenses and spectrum allocations are subject to terms and conditions, ongoing review, and varying interpretations, each of which may result in modification, suspension, early termination that could adversely affect its business. The Indian telecom sector is highly competitive making it difficult for the operators to maintain their market share. The business itself is highly working capital- intensive.

Financials:

The company has delivered Revenue growth of 19.5% CAGR over FY21-23. EBITDA has increased by 62.7% CAGR over the same time-period. EBITDA margin has expanded from 22.9% to 42.3%. Debt/Equity has reduced from 3 to 1.5. At the upper end of the price band (₹542-570) the issue is valued at 12.5x EV/EBITDA on FY23 earnings.

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