Bharti Hexacom IPO: 5 Things to Know

India's IPO market is burning hot! Buoyed by foreign investors seeking alternatives to China and a flurry of exciting debuts by major players like Ola Electric Mobility and Swiggy, the country is on track for another blockbuster year.

This trend has propelled India to the top of the IPO game, surpassing even China and Japan in terms of new listings over the past year.

The momentum appears relentless, with 27 companies already securing regulatory approval to raise Rs 285 billion (bn), while an additional 36 await clearance to access a potential pool of Rs 405 bn.

Amidst this surge, Airtel's unit Bharti Hexacom has also thrown its hat into the ring. On 19 March 2024, the company received regulatory approval to raise funds, further adding to the dynamism of India's IPO landscape.

It will be the first IPO from the Bharti Group after over a decade. The last IPO to have come out from the Bharti Group was Bharti Infratel, now known as Indus Towers, which was listed back in 2012.

About Bharti Hexacom

Bharti Hexacom is a wholly-owned subsidiary of Bharti Airtel.

The government-owned company Telecommunications Consultants holds a 30% stake in Bharti Hexacom. Bharti Airtel has the remaining 70% of Bharti Hexacom.

The company is engaged in the business of wireless services, fixed lines and broadband services in the vertical of Rajasthan and particularly in the Northeastern parts.

As of 30 September 2023, with an aggregate of 29.1 million customers across both circles, it has a presence in 486 census towns.

The customer market share of the company has grown consistently in Rajasthan from 33.1% as of 31 March 2021 to 35.1% as of 30 September 2023 and in the North East from 43.6% to 49.4%.

Bharti Hexacom offers its services under the Airtel brand.

Bharti Hexacom IPO is expected to launch in the first week of April and seek a valuation of more than Rs 280 bn.

Bharti Hexacoms IPO size is expected to be about Rs 43 bn.

The IPO will be completely offer-for-sale (OFS) of up to 100 m equity shares by its existing shareholders.

The company has a unique strategy to premiumise its portfolio by drawing in and keeping exceptional clients and giving them an experience through our usage of data science and omnichannel approach.

#2 A Look at the Financials

The company has demonstrated robust financial performance, with revenue from operations witnessing a compound annual growth rate (CAGR) of 12.7% between the financial years 2021 and 2023.

The company was able to grow its volumes on the back of its long-term relationship with customers.

Similarly, its net profit surged significantly, from a net loss of Rs 103.4 bn to Rs 54.9 bn in FY23.

Net profit was only 54.9 bn in FY23 against Rs 167.5 bn profit in FY22. However, owing to exceptional items and higher interest costs, the PAT margin of the company was not consistent in the last three years. In FY23 the same was at 8.35% but it has come down to 2% in the first half of FY24

Bharti Hexacom Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in bn)	460.2	540.5	657.9
Revenue Growth (%)	-	17.4	21.7
Net Profit (Rs in bn)	-103.4	167.5	54.9
Net Worth (Rs in bn)	189.9	357.3	397.2

Data Source: Company's Red Herring Prospectus (RHP)

The operating margin of the company has improved quite well in the past three years. In FY21 the same was 25% that has surged to 44.5% in FY23 and 52.4% in the first half of FY24.

Revenue growth of Bharti Hexacom stood at Rs 34.2 bn for six months ending improved 8% YoY from Rs 31.6 bn in the corresponding year. Net Profit reduced significantly to Rs 0.7 bn from Rs 1.9 bn a year bank on account of exceptional items.

#3 Peer Comparison

As per the company's red herring prospectus, these are the industry peers of Bharti Hexacom.

Peer Comparison

Company	Revenue from Operations (2023)(Rs in bn)	EPS (Basic) (in Rs)	Return on Net Worth (%)
Bharti Hexacom	65.8	10.9	13.8
Bharti Airtel	1,391.40	14.8	15.8
Vodafone Idea	421.8	-8.4	NA

Data Source: Company's Red Herring Prospectus (RHP)

Among the listed peers, Bharti Hexacom has the low revenue from operations in 2023, at Rs 65.8 bn.

JG Chemicals has a competitive EPS 10.9 compared to the other companies. Bharti Airtel, its holding company has a slightly higher EPS, while Vodafone Idea has negative EPS figures.

#4 Arguments in Favour of the Business

• Bharti Hexacom enjoys the backing of the renowned brand Airtel, which holds 70% of our outstanding equity share capital. Airtel boasts a global presence, serving over 500 million customers across 17 countries in Africa and South Asia. In India, Airtel commands a substantial revenue market share of approximately 37%, leveraging the strength of its well-established brand.
• In terms of market positioning, Bharti Hexacom holds the top position in the North East circle for the six months ended September 2023, as well as for FY22-23. In the Rajasthan circle, the company has narrowed the market share gap with the leader, securing the second position in the six months ended September 2023.
• The company boasts an extensive sales and distribution network spanning rural and urban areas in the Rajasthan and North East circles. With 617 distributors and 59 company-operated stores as of September 2023, along with 88,586 retail touchpoints, Bharti Hexacom stands out for its widespread retail presence, catering to high-value customers and ensuring a superior customer experience.
• As part of its growth strategy, the company focuses on enhancing its portfolio by transitioning customers from 2G to 4G/5G, upgrading customers to higher data packs within 4G plans, facilitating pre-paid to post-paid conversions, implementing contextual data monetization, and offering converged solutions. These initiatives are aimed at driving Average Revenue Per User (ARPU) growth in the absence of tariff hikes.
• With a presence in 486 census towns across the two operating circles and ownership of 23,748 network towers, Bharti Hexacom is well-equipped to serve its customer base. Furthermore, customers stand to benefit from Airtel's extensive pan-India telecommunication network, infrastructure, and overseas operations, enhancing the overall value proposition.

#5 Risk Factors

• The Indian telecom sector is one of the highest competitive in the world making it difficult for the operators to maintain its market share. Bharti Hexacomis also faces competition from other companies such as Reliance Jio Infocom, Vodafone Idea Limited and BSNL. In the Rajasthan and North East circles, where it is operating, its market shares declined in the past decades.
• The company is operating in a highly regulated telecommunications market. 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, expiry on completion of the term or additional payments that could adversely affect its business.
• The company is deriving its revenues from providing mobile telephone services in Rajasthan and the North East circle, and any unfavourable developments in such regions could adversely affect the business operations and financial condition of the company.
• As per the DRHP, certain outstanding legal proceedings are running against the Company and its Promoters. Any adverse outcome in any of these proceedings may adversely affect the reputation, business operations and financial condition of the company.

Conclusion

In 2023, the telecom sector achieved a remarkable milestone with the world's largest and fastest 5G deployment. Within just six months of its introduction, India amassed 20 million 5G connections, spanning over 700 districts, and aims to reach 40 million connections by the end of 2024.

Moreover, India has transitioned from being a telecom technology importer to a developer, notably with the creation of an indigenous 4G/5G stack. This homegrown technology has not only garnered interest domestically but has also attracted significant global attention.

Amidst this digital transformation, India has shifted its focus towards achieving self-reliance in manufacturing telecom equipment, supported by the government's Production Linked Incentive (PLI) scheme worth Rs 121.9 bn.

This initiative has spurred 31 companies to commit to additional manufacturing in the telecom equipment sector.

Looking ahead, India is now poised to lead the world in 6G technology. This strategic vision, coupled with strong backing from Airtel, positions the company favourably to seize market opportunities and consolidate its presence in the industry.

Nevertheless, it is always prudent to conduct thorough research before making any investment decisions.

Ensure that the investment aligns with your financial objectives and matches your risk tolerance level.

For more information on IPOs, check out the list of upcoming IPOs.

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