Stock of this recently listed IPO has zoomed 72% over issue price in 4 days

The strong demand for Bharti Hexacom stock is seen following a robust response to the company's Rs 4,275-crore IPO, which was subscribed nearly 30 times.

Shares of telecom service provider Bharti Hexacom hit a new high of Rs 961.40 as they rallied 8 per cent on the BSE in Thursday's intra-day trade. Bharti Hexacom stock has surged 22 per cent in the past two trading days. With the past 2-day rally, the stock price of Bharti Hexacom has zoomed 72 per cent over its issue price of Rs 570. The stock recorded this gain in just four trading sessions.

Bharti Hexacom stock made a stellar debut by surging 43 per cent on Friday, April 12, 2024. The robust listing followed a strong response to the company's Rs 4,275-crore initial public offering (IPO), which was subscribed nearly 30 times.

Bharti Hexacom, a subsidiary of Bharti Airtel, provides fixed-line telephone and broadband services primarily in two circles—Rajasthan and North East (NE)—and accounts for about 7 per cent of total customers.

Last week, JM Financial initiated coverage of Bharti Hexacom stock with a 'Buy' rating and a price target of Rs 790, citing healthy estimated growth in average revenue per user (ARPU) and operating profit (Ebitda).

The brokerage firm expects Bharti Hexacom’s ARPU to grow at 10 per cent CAGR, consisting of 6-7 per cent ARPU CAGR due to regular tariff hikes; and 3-4 per cent ARPU CAGR due to Bharti Airtel’s premiumisation strategy.

Bharti Hexacom’s FY24-26/FY24-30 Ebitda CAGR could be higher at about 17 per cent/15 per cent due to presence in high growth potential markets as Rajasthan/NE circle has relatively lower teledensity; and relatively lower penetration of high ARPU post-paid and data subs, said the brokerage in a note.

The brokerage firm sees Bharti Hexacom as a mid-cap pure-play on wireless ARPU growth story vis-à-vis Bharti Airtel (which sees 25-30 per cent of its value coming from other than India wireless business (like Enterprise, Broadband & Africa business). The stock however, trading above its initial coverage target price of Rs 790 per share.

Meanwhile, analysts at IIFL Securities expect two rounds of significant (15-20 per cent each) tariff hikes in the next three years. The brokerage firm believes that tariff hikes are imminent post elections, driven by the need for improvement in return ratios as Reliance Industries (RIL) is likely to consider an IPO of JIO Platforms.

“With the government keen on ensuring a three-player market, we do not see the regulator frowning upon tariff hikes. Notwithstanding the spending weakness in the low-income and rural segments, we expect down-trading to be limited considering the stable nature of telecom,” the brokerage firm said in telecom sector update.