JM Financial initiates coverage on newly-listed Bharti Hexacom, signals 38% upside
JM Financial initiated coverage on Bharti Hexacom Ltd (BHL), which listed at a premium of 32.5% today, with a buy recommendation and a price target of Rs 790. Shares of the company were trading on BSE at Rs 767 on Day 1.
“We expect BHL’s ARPU to grow at 10% CAGR, consisting of two elements: 6-7% ARPU CAGR due to regular tariff hikes; and 3-4% ARPU CAGR due to Bharti Airtel’s premiumisation strategy.” read the report by JM Financial.
The broker further added that BHL’s FY24-26/ FY24-30 EBITDA CAGR could be higher at 17%/15% due to its presence in high growth potential markets as Rajasthan/NE circle has a relatively lower teledensity and a relatively lower penetration of high ARPU post-paid and data subscribers.
India wireless Average Revenue Per User (ARPU) is on a structural uptrend given the consolidated industry, and as industry needs ARPU to rise to INR 275-300 in 3-4 years to meet future capex needs.
BHL provides consumer wireless (mobile), fixed-line and broadband services in Rajasthan and North East circles under Bharti’s brand “Airtel”. BHL serves 27 million wireless subscribers in these two circles; wireless business constitutes 97-98% of its revenue while the balance 2-3% is from broadband business.
Dayanand Mittal of JM Financial states “The stock could potentially double in 3-4 years on the back of 15-17% EBITDA compounding story. We see BHL as a mid-cap pure-play on wireless ARPU growth story vis-à-vis Bharti (which sees 25-30% of its value coming from other than India wireless business).”
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