Bharti Hexacom IPO sees muted bidding response on Day 1; GMP inches higher

The initial public offering (IPO) of Bharti Hexacom saw a muted response from the investors during the first few hours of the bidding process on day one. Bidding for the issue, which had kicked-off on Wednesday, April 3, was little participation from all categories of investors.

The New Delhi-based Bharti Hexacom is selling its shares in the price band of Rs 542-570 apiece. Investors can apply for a minimum of 26 shares and its multiples thereafter. It is looking to raise Rs 4,275 crore via IPO, which is entirely an offer-for-sale (OFS) of 7,50,00,000 equity shares.

According to the data, the investors made bids for 44,67,580 equity shares, or 11 per cent , compared to the 4,12,50,000 equity shares offered for the subscription by 1.35 pm on Wednesday, April 03. The three-day bidding for the issue will conclude on Friday, April 05.

The allocation for retail investors was subscribed 30 per cent, while the portion reserved for non-institutional investors saw a subscription of only 10 per cent. However, the quota set aside for qualified institutional bidders (QIBs) attracted bids for only five per cent of their reservation at the same time.

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 grey market premium of Bharti Hexacom has surged before the bidding opened on day one. Last heard, the company was commanding a premium of Rs 55-60 in the unofficial market, suggesting a listing pop of about 10-11 per cent for the investors. However, the premium in the grey market stood around Rs 35-40 earlier, when the issue was announced.

Brokerage firms, tracking the issue, are mostly positive on it. They have suggested subscribing to the issue on the back of strong parentage, rising demand for its service, sound financials and high entry barriers. However, some analysts are skeptical of the full OFS nature and pricey valuations of the issue.

Bharti Hexacom, a well-established communication service provider, boasts a large customer base in its operating regions. The company leverages strong brand recognition, a supportive parent company, and an extensive distribution and service network to capitalize on high-growth markets, said Swastika Investmart.

"There are some other concerns as well, like its geographic concentration, reliance on third-party infrastructure, and intensely competitive industry. Additionally, the IPO valuation appears fully priced, potentially limiting upside potential. Given these factors, we maintain a neutral recommendation for the Bharti Hexacom IPO," it said.

Ahead of its IPO, Bharti Hexacom has raised Rs 1,924 crore from anchor investors as the company allocated 3,37,50,000 shares at a price of Rs 565 apiece. Bharti Hexacom has reserved 75 per cent of the net offer for the qualified institutional investors (QIBs), while non-institutional investors (NIIs) will get 15 per cent of shares. Retail investors will get 10 per cent of the net offer.

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.

The domestic telecommunication market is effectively operating with a duopoly structure. Bharti Hexacom is positively impacted by the synergies arising from the arrangement with the BAL and its affiliates. BHL is present in Rajasthan and North-East telecommunication circles, which has a huge growth potential considering the current teledensities, said Choice Broking.

"It has implemented a series of tariff hikes, significantly improving its operating and financial performance. Considering higher entry barrier for the new players, continued capex requirement and higher spectrum costs, we believe there will be continued improvement in the operating & financial performance of the company in the medium-term," it added with a 'subscribe' rating for the IPO.

Axis Capital, SBI Capital Markets, 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.