Bharti Hexacom Ltd. (Subscribe)

Highlights

Bharti Hexacom Limited (BHL) is a subsidiary company of Bharti Airtel Limited incorporated on 1995, engage in the business of providing communication solutions which offers consumer mobile services, fixed-line telephone and broadband services to customers in the Rajasthan and the North East telecommunication circles in India, which comprises the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.

The company offers services under ‘Airtel’ brand and have a distinct strategy to premiumize their portfolio by acquiring and retaining quality customers and deliver an experience to them through its omnichannel approach and use of data science.
As of 9MFY24, the company were present in 486 census towns and had an aggregate of 27.1 mn customers across both the circles. Their customer market share has grown consistently in Rajasthan from 33.1 pct as of FY21 to 35 pct as of 9MFY24 and in the North East from 43.6 pct to 49.8 pct between the same period.

Also, they have the highest number of Visitor Location Register (VLR) customers (6.4 mn) and a VLR market share of 52.3 pct in the North East circle and the 2nd highest in the Rajasthan circle with 23.2 mn customers and a VLR market share of 38.7 pct, as of 9MFY24.
BHL 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.

Out of the total proceeds of Rs. 42,750 mn, the company will not receive any proceeds from the Offer Proceeds and all the Offer Proceeds will be received by the Selling Shareholder post deduction of Offer related expenses. The Company expects that listing of the Equity Shares will enhance its visibility and brand image and provide liquidity to its Shareholders.

Key Highlights

• The customer base in the Rajasthan circle is estimated to increase at 1.4-1.5 pct CAGR between FY23-28, to reach 69-69.5 mn, with a tele density of 82-83 pct. By FY28, the number of internet customers is projected to reach 62.5-63 mn from 46.9 mn in FY23, clocking a CAGR of approximately 6.0 pct. The customer base in the Northeast circle is expected to grow at 1.0-1.5 pct CAGR between FY23-28, to 13.2-13.5 mn, with tele density at 81-82 pct. By FY28, internet customers in the Northeast are projected to reach 12.5-13.5 mn, at a CAGR of 6.0-7.0 pct.
• The company rely on a robust network infrastructure with a mix of owned and leased assets. It utilized 24,874 network towers, of which they owned 5,092 towers and leased the remaining 19,782 towers, as of 9MFY24.
• BHL has a spectrum portfolio with varied pool of mid band spectrum (1800/2100/2300 MHz bands) along with spectrum holding in 900 Mhz, 3500 MHz and 26 Ghz bands. Over the years, they chose not to acquire the expensive 700 Mhz band for its 5G network.
• None of their existing spectrum expires before the year 2030, the validity of its spectrum pool ranges between the years 2030 and 2042 and the company do not expect to incur any significant capital expenditure towards spectrum acquisition until the specific spectrum band expires.
• The company continue to expand their network coverage across the regions in which they operate with a focus on key revenue generating cities and high value catchment areas to increase its customer base and enhance customer experience.
• Over the FY21 to 9MFY24 the company has reduced it net debt to EBITDA from 6.8x to 2.9x and the company is comfortable at this level. Also, the company will pay its debt with its internal accruals.
• Sales of the company has grown by ~19.5 pct CAGR during the period FY21-23 while EBITDA and grew ~59.4 pct CAGR over the same period respectively. During FY23, company reported sales of Rs. 65,790 mn which increased by ~21.7 pct YoY, while EBITDA increased by ~52.1 pct YoY to Rs. 28,884 mn as EBITDA margin improved sharply from 35.12 pct in FY22 to 43.90 pct in FY23. As of FY23 the company reported profit of Rs. 5,492 mn which was declined by ~67.2 pct YoY due to higher profit base in FY22 because of exceptional items. During 9MFY24 the Sales/EBITDA/Profit came at Rs. 52,208 mn/Rs. 25,765 mn/Rs. 2,818 mn.

Key Risk

• Churn rate in the mobile telecommunications industry in India is high. If company unable to retain their customers which may have an adverse effect on its business.
• Reduction in revenue earn for its telecom services, due to regulatory ceilings on pricing, or owing to pricing pressure, reduction in ARPU, may have an adverse effect on its business.
• The company derive (97.65 pct) revenues from providing mobile telephone services in Rajasthan and the North East circle and any unfavourable developments in such regions could adversely affect its business and cash flows.

Financial Performance and KPI’s

Valuation

At the upper end of the price band, the issue quotes at PE 75.8x its FY24 annualised earnings which appears to be fully priced. One can Subscribe from a longer-term perspective.

Disclaimer: The views shared in blogs are based on personal opinions and do not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Investing using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.