Bharti Hexacom up 13% on Jefferies' upgrade to 'Buy' with Rs 1,600 target

The stock hit a new high of Rs 1,454, as Jefferies expects Jio's rising focus on growth and Vodafone Idea's market share losses to drive Bharti Hexacom's operating performance in the medium-term.

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Shares of Bharti Hexacom hit a record high of Rs 1,454, as they surged 13 per cent on the BSE in Friday’s intra-day trade after the global brokerage firm Jefferies upgraded the stock to ‘Buy’, and raised the scrip's target price to Rs 1,600 per share.

The brokerage firm cited Reliance Jio's rising focus on growth and Vodafone Idea's market share losses, coupled with the telecom industry's need for multiple tariff hikes over the next few years as reasons to go bullish on Bharti Hexacom.

The stock is trading higher for the fourth straight day, surging 22 per cent during the period. It has surpassed its previous high of Rs 1,368.85 that it touched on June 26, 2024.

At 10:43 AM, Bharti Hexacom was trading 9 per cent higher at Rs 1,403.10, compared to the 0.08 per cent decline in the BSE Sensex. A combined 3.1 million equity shares had changed hands on the NSE and BSE. 

Bharti Hexacom is a communications solutions provider offering consumer mobile services, fixed-line telephone and broadband services to customers in the Rajasthan and North East telecommunication circles in India, which comprises Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. It offers services under the Airtel brand name.

Over FY24-27, analysts at Jefferies expect Bharti Hexacom to deliver 19/25 per cent compound annual growth rates (CAGR) in revenues/Ebitda (earnings before interest, taxes,  depreciation and amortisation).

Strong Ebitda growth, along with moderating capex could drive a 66 per cent CAGR in its FCFE (free cash flow to equity) over FY24-27. Bharti Hexacom's faster growth should keep its valuations at a premium to Bharti Airtel's India operations, the brokerage firm noted.

At its Annual General Meeting (AGM) in August 24, Reliance Industries (RIL) had mentioned its aim to double Jio's revenues and Ebbitda over the next 3-4 years. “In our view, at a revenue base of Rs 1 trillion, Jio may require multiple tariff hikes to achieve this, even after assuming scaled-up home broadband and Data center businesses. Jio's recent lead of tariff hikes is a step in this direction, and its rising focus on monetisation gives us confidence of another tariff hike likely in mid-2025,” the brokerage firm said.

While VIL's capital raise may help it maintain its market share, recent data shows that its revenue market share has fallen further in Q1FY25 to 15.5 per cent. By the time VIL completes its network investments, it may see a further decline in market share.

Amidst lower market share, the company will need higher tariff hikes to bridge the gap between its current operating cash flows and the payments due to the government from FY26, Jefferies stated.

Meanwhile, Bharti Hexacom’s operating performance has significantly improved over the past few years, largely on account of improvement in average revenue per user (ARPU) because of increasing data consumption and tariff revisions.

The financial risk profile of the company is expected to improve further over the medium-term, with expectation of further increase in accrual.

Listing of the company in April 2024, has also enhanced its financial flexibility, providing it greater access to capital markets. Moreover, the company will continue to benefit from the financial flexibility arising from strong links with Bharti Airtel, according to CRISIL Ratings.