Bharti Hexacom gets rating upgrade from Jefferies; stock surges 155% in 5 months

Shares of Bharti Hexacom, a subsidiary of telecom major Bharti Airtel, rallied nearly 13% to hit a fresh record high in early trade on Friday, in an otherwise weak broader market, as sentiment was lifted by rating upgrade by Jefferies. The foreign brokerage has upgraded the stock to 'Buy' and raised the target price to ₹1,600 per share from ₹1,260 earlier, indicating an upside potential of 24% from the previous closing price. The brokerage believes that the company will benefit the most from the expected tariff hikes over the next few years among its peers.

Jefferies in a note says that the telecom operators may need multiple tariff hikes over the next few years. This was attributed to Jio's aim to double revenues and EBITDA over the next three-four years (as mentioned in the AGM) and Vodafone's market share loss which may widen the gap between its current operating cash flows and the payments due.

The brokerage has raised Bharti Hexacom’s FY26 and FY27 revenue and EBITDA estimates by 5-12%. “…we now model a 10% tariff hike in mid-FY26, in addition to the 10% hike we were modeling in 2QFY27," it says.

Jefferies expects Bharti Hexacom’s annual growth of 19% and 25% in revenues and EBITDA, respectively. "Strong EBITDA growth, along with moderating capex could drive a 66% annual growth in its FCFE (free cash flow to equity) over FY24-27. Bharti Hexacom's faster growth should keep its valuations at a premium to Bharti Airtel's India ops."

Cheering the news, shares of Bharti Hexacom surged as much as 12.7% to hit a new all-time high of ₹1,454, while the market capitalisation climbed over ₹70,500 crore. The telecom stock has more than doubled in five months, from its listing price of ₹755.20 on April 12, 2024.

At the current level, Bharti Hexacom shares trade 155% higher than its IPO price of ₹570 apiece. The counter has gained over 23% in the last one month.

The Delhi-based Bharti Hexacom raised ₹4,275 crore via IPO, at a total market value of ₹28,500 crore, received a good response from investors, with the issue subscribing by 29.88 times. The public issue of the telecom company, which was entirely an issue of an offer for sale (OFS) of 7.5 crore shares by its only public shareholder, Telecommunications Consultants India, was offered at a price band of ₹542-570 per share per share and lot size of 26 shares and in multiple thereafter. 

Ahead of the IPO, the company raised ₹1,923.75 crore from anchor investors by allocating 3.37 crore shares at the upper end of the price band of ₹570 per share.

Established in April 1995, Bharti Hexacom is the largest mobile telephony services in Rajasthan and North Eastern circles in India, which comprises the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.  The company, which offers its services under the brand ‘Airtel’, also provides fixed line and broadband services in Rajasthan. As of September 30, 2023, Bharti Hexacom had invested ₹20,300 crore in capital expenditure in its future-ready digital infrastructure.

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