Bharti Hexacom makes a stellar debut, lists at 42.7% premium

• The stock listed at ₹813 as compared to its issue price of ₹570.
• The company’s market cap is at ₹40,687 crore, as per the Bombay Stock Exchange.
• The grey market was expecting 16% listing gains from the stock.

Bharti Hexacom’s stock sparkled on market debut, as it closed 42.7% higher than its issue price on Friday. The stock closed at ₹813 as compared to its issue price of ₹570.

This was in spite of weakness in the broader markets. Sensex tanked 793 points on Friday, while Nifty fell 234 points after hitting new peaks in the last few sessions.

The company’s market cap is at ₹40,687 crore, as per the Bombay Stock Exchange.

The grey market was expecting 16% listing gains from the stock. “Healthy listing around 10-12% is justified due to a great opportunity for long-term investors to hold mid-cap telecommunications solutions providers and to play long term in India’s telecom structural average revenue per user (ARPU) growth story,” said Prashanth Tapse, senior VP of research at Mehta Equities.

In spite of it being a total offer for sale, the issue was subscribed 30 times the shares on offer, with good interest from institutional investors. Qualified institutional buyers (QIBs) subscribed 30 times over, while non-institutional investors subscribed 10 times. The retail portion was subscribed 2.8 times over.

The company has raised ₹1,923.7 crore from anchor investors ahead of opening the issue to the public. Its anchor investors include Blackrock Global Funds, Fidelity Funds, Abu Dhabi Investment Authority and more.

About the IPO

The company is Bharti Airtel’s subsidiary and provides telecom services in Rajasthan and the North East.

“The relationship between Bharti Hexacom and Airtel presents a compelling synergy, leveraging Airtel's brand strength, diverse service offerings and sustainability focus to drive sustained market growth. We recommend allotted investors to hold Bharti Hexacom from a long-term perspective,” said Shinde.

The company’s revenues have been rising steadily, but its profits have been wavering in the last three years. In FY21, its revenue and profitability were impacted by low average revenue per user (ARPU). It was addressed by a tariff hike in November 2021 by the company.

Further, our restated profit in FY22 is significantly attributable to exceptional items (net) amounting to ₹1,951 crore, which comprises gain on account of a commercial settlement with a service provider, settlement with a strategic vendor, and charge on account of levies,” the company said.

In the nine months of FY24 ending December, its revenue from operations was at ₹5,220 crore, which is 7.8% higher than the ₹4,846 crore it reported in the same period of FY23. Its profits went up by 34% to ₹622 crore as compared to ₹463 crore in the same period.

Apart from intense competition and a heavy churn rate in the industry, Bharti Hexacom is also vulnerable to regulatory pressures. Apart from its business continuity depending on its ability to rebid and acquire spectrum, its revenues face the risk of regulatory ceilings on pricing, pricing pressure, a reduction in ARPU and more.

As of December 31, 2023, its total outstanding borrowings stood at ₹3,771 crore. Not only can this limit its ability to undertake certain types of transactions, but it also makes its business vulnerable to fluctuations in interest rates.

“We require significant capital to fund our capital expenditure and if we are unable to raise additional capital, our business, financial condition and results of operations could be adversely affected,” the company said in its RHP.

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