Bharti Hexacom IPO: Should you subscribe to the Bharti Group's issue?

The initial public offering of Bharti Hexacom, which is set to hit Dalal Street on Wednesday, April 3, 2024, has mostly garnered positive ratings and review from the analysts. The issue, which is entirely an offer-for-sale (OFS), appears to be pricey on the FY24 numbers but analysts see it as a strong bet for a long-term perspective. Bharti Hexacom's IPO is being offered in the range of Rs 542-570 apiece and investors can apply for a minimum of 26 equity shares and its multiples thereafter. The issue will close for bidding on Friday, April 5 and the details of anchor investors will be announced later on Tuesday evening. Aditya Gaggar, Director of Progressive Shares said that Bharti Hexacom enjoys over 40 per cent market share in the Rajasthan circle and over 51 per cent market share in North East circle and thereby enjoys leadership. The IPO is completely an offer-for-sale (OFS) in nature, he said. "The one-time accounting adjustments kept the net profit on a de-growth mode, but at the gross level, it has marked growth. Based on 9MFY24 earnings, the issue appears fully priced. One can invest in the IPO from a long term perspective," Gaggar added. Bharti Hexacom, incorporated in 1995, provides fixed-line telephone and broadband services to customers in Rajasthan and North East telecom circles in India. The company provides services in states such as Rajasthan and Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. The issue is entirely an offer-for-sale (OFS) by Telecommunications Consultants India, which is offering 7.5 crore equity shares, amounting to Rs 4,275 crore, at the upper end of the price band. The company will not receive any proceeds from the issue. Considering the FY24-annualized EPS of Rs 7.52 on a post-issue basis, the company is going to list at a P/E of 75.80 times with a market cap of Rs 28,500 crore, whereas its peer namely Bharti Airtel, is trading at a P/Eof 63.3 times, said Marwadi Financial Services. "We assign a 'subscribe' rating to this IPO as the company has strong parentage and an established brand along with a presence in markets with high growth potential. Also, it is available at a reasonable valuation as compared to its peers," it said. Bharti Airtel is the promoter company of Bharti Hexacom, which holds 70 per cent stake, or 35 crore equity shares, of the company, while  remaining 30 per cent stake, or 15 crore equity shares are owned by non-promoter Telecommunications Consultants India. Bharti Hexacom had invested Rs 206 billion in digital infrastructure capital expenditures to be future-ready by December 31, 2023. The company has 2.71 crore customers across 486 census towns. There were 616 distributors and 89,454 retail touchpoints in the distribution network as of December 31, 2023. Operation synergies and cost rationalization through its parent Bharti Airtel gives it an operational advantage. The Bharti group has been one of the pioneers in the launching of 5G services across the country and Bharti Hexacom is expected to leverage this advantage. Smart TVs’ and advent of OTT platforms has become another focal point, said AUM Capital's IPO note. It aims to maintain an efficient capital structure with high balance sheet flexibility. It is vouching to repay its debt obligations through internal accruals as it holds Liquid Investments and Cash worth Rs 2,000 crore at the end of Dec 31, 2023. We would hence recommend a 'subscribe' to the issue, it said. Bharti Hexacom reported a net profit of Rs 281.80 crore with a revenue of Rs 5,420.80 crore for the nine months ended on December 31, 2023. The company reported a net profit at Rs 549.20 crore with a revenue of Rs 6,719.20 crore for the financial year ended on March 31, 2023. Bharti Hexacom has reserved 75 per cent of the net offer for qualified institutional investors (QIBs), while non-institutional investors (NIIs) will have 15 per cent of shares reserved for them. Retail investors will have the remaining 10 per cent of the net issue reserved for them. SBI Capital Markets, Axis Capital , BoB Capital Markets, ICICI Securities and IIFL Securities are the book running lead managers of the Bharti Hexacom IPO, while Kfin Technologies is the registrar for the issue. Shares of the company are likely to be listed at both BSE and NSE on April 10, Wednesday as the tentative date of listing.