Evaluating Bharti Hexacom Ltd IPO opportunity; Should you invest?

Take a closer look at the exclusive details of Bharti Hexacom Ltd’s IPO inside

About the Issue:  

Bharti Hexacom Ltd is launching its initial public offering (IPO) for equity shares valued at Rs 5 each. The IPO price range is set between Rs 542 and Rs 570 per equity share, resulting in a total issue size of Rs 4,275 crore at the upper price band.  

The IPO is scheduled to commence on April 03, 2024, and will conclude on April 05, 2024. The market lot size for the IPO is 26 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 13 lots, equivalent to 338 shares or a total investment of Rs 1,92,660 assuming the upper price band.   

Objects of the Issue  

Considering that the offer is solely designated as an offer for sale, it's important to emphasize that the company won't be receiving any funds from this offering, as it's facilitated by the promoter selling shareholder. Instead, the proceeds from the offer for sale will accrue to the promoter selling shareholder.

Promoter holding  

Bharti Airtel Ltd is the promoter of the company. The promoter currently holds a pre-issue shareholding stake of 70 per cent in the company.   

Company profile  

The company was initially established in 1995 under the name 'Hexacom India Ltd.' In 2004, following majority equity acquisition by Airtel, its name was changed to 'Bharti Hexacom Ltd'. Airtel now holds a 70 per cent stake in the company, while the Government of India, through Telecommunications Consultants India Ltd (TCIL), owns the remaining 30 per cent of equity stake.

The company operates as a communication solutions provider, delivering consumer mobile services, fixed-line telephone, and broadband services to customers in the Rajasthan and North East telecommunication circles of India, encompassing the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura. These services are offered under the brand name 'Airtel.' In terms of market share, it held the top position in the North East circle throughout the nine months ending December 31, 2023, as well as during the fiscal years 2023 and 2022.

As of December 31, 2023, the company operated in 486 census towns and served a combined total of 27.1 million customers across both telecommunication circles. Its customer market share has shown consistent growth in Rajasthan, increasing from 33.1 per cent as of March 31, 2021, to 35 per cent as of December 31, 2023. Similarly, in the North East circle, its market share rose from 43.6 per cent to 49.8 per cent during the same period.

As of December 31, 2023, the company had made a substantial investment of Rs 206 billion in capital expenditure to develop its future-ready digital infrastructure. It leverages significant synergies from its association with its Promoter, Airtel, benefiting from the expansive digital infrastructure, digital experience, and digital services offered to its customers.

Financials  

While the company has consistently achieved significant top-line growth, there are lingering concerns regarding its profitability. Following substantial losses in FY21, the company underwent a remarkable turnaround in FY22, attracting investors with outstanding profit figures. The company experienced difficulty in maintaining its performance, resulting in a roughly 67 per cent decline in net profit for FY23 compared to FY22. If the current growth rate observed over the first nine months persists, the net profit figures for FY24 are anticipated to decline further. Additionally, the company is grappling with high levels of total borrowings.

Valuation and outlook  

The issue is priced with a P/BV ratio of 6.45 times, calculated using its Net Asset Value (NAV) of Rs 88.32 as of December 31, 2023. When we calculate the PE ratio for the company by considering the annualized FY24 earnings relative to the fully diluted paid-up equity capital, the resulting PE ratio stands at 76.

Despite outperforming its listed peers, the company's financials do not provide robust support for optimism regarding investment. Given the lacklustre performance of the company and the associated risks, we advise investors to refrain from engaging with the issue at this time.