Introduction:
On the back of a big rally from global brokerage Jefferies, shares of Bharti Hexacom jumped 13% to a record high of Rs 1,454 in intra-day trade on the BSE. Bharti raised Hexacom’s target price to Rs 1,600 per share, indicating that the company was expected to perform well in a changing telecom environment.
Drivers
Jefferies Upgrade: The primary catalyst for the surge was Jefferies’ upgrade of Bharti Hexacom to a ‘Buy’ rating. The brokerage cited several factors for this positive revision:
Competitive Dynamics: Jefferies noted Reliance Jio’s increasing focus on expanding its market presence and Vodafone Idea’s ongoing market share erosion.
Bharti Hexacom Hits Record High: Jefferies Upgrades Stock to ‘Buy’ with Rs 1,600 Target:
Tariff Hikes: The brokerage anticipates that the telecom sector will require multiple tariff increases over the coming years to sustain growth and profitability.
Sectoral Trends: Jefferies highlighted that the current market environment—characterized by Jio’s aggressive growth strategies and Vodafone Idea’s declining market share—favors Bharti Hexacom. Additionally, the expected need for tariff hikes aligns with the company’s potential to capitalize on higher average revenue per user (ARPU) and improved data consumption trends.
Stock Performance
Tariff Hikes: The brokerage anticipates that the telecom sector will require multiple tariff increases over the coming years to sustain growth and profitability.
- Tariff Hikes: The brokerage anticipates that the telecom sector will require multiple tariff increases over the coming years to sustain growth and profitability.
- Current Trading: As of 10:43 AM, the stock was trading 9% higher at Rs 1,403.10, outperforming the BSE Sensex, which saw a modest decline of 0.08%. Approximately 3.1 million shares were traded across the NSE and BSE.
Financial Outlook
Growth Projections: Analysts at Jefferies project robust growth for Bharti Hexacom over FY24-27, with revenue and EBITDA expected to grow at compound annual growth rates (CAGR) of 19% and 25%, respectively. Free cash flow to equity (FCFE) is anticipated to see a substantial 66% CAGR during the same period.
- Valuation Premium: The strong earnings growth and moderating capital expenditure are expected to sustain the company’s premium valuation compared to Bharti Airtel’s India operations.
Industry Context
Reliance Jio’s Strategy: Reliance Industries has outlined ambitious plans to double Jio’s revenues and EBITDA over the next 3-4 years. This will likely involve multiple tariff hikes, especially given the revenue base of Rs 1 trillion and Jio’s recent tariff increases.
- Vodafone Idea’s Challenges: Despite efforts to raise capital, Vodafone Idea’s market share has continued to decline, with its revenue market share dropping to 15.5% in Q1FY25. Jefferies predicts that the company will face increasing challenges in maintaining its market position without further tariff increases.
Company Performance and Financial Flexibility
Operational Improvements: Bharti Hexacom has shown significant operational improvements, particularly in ARPU and data consumption. The company’s financial risk profile is expected to enhance further, aided by its recent listing in April 2024, which has improved its access to capital markets.
- Strategic Advantages: The company’s strong relationship with Bharti Airtel continues to provide financial flexibility and strategic benefits, as noted by CRISIL Ratings.
Conclusion
Jefferies’ upgrade reflects a favorable outlook for Bharti Hexacom, driven by positive sectoral trends and strong company performance. The anticipated tariff hikes and competitive dynamics in the telecom sector position Bharti Hexacom well for sustained growth.
Investors are responding positively, as evidenced by the significant uptick in the company’s share price.
Frequently Asked Questions FAQ:
1. Why did Bharti Hexacom’s stock price increase by 13%?
Bharti Hexacom’s stock price surged by 13% following an upgrade by Jefferies, which raised its target price for the stock to Rs 1,600 per share. The upgrade was driven by Jefferies’ positive outlook on Bharti Hexacom’s growth prospects amid favorable industry trends and its potential to benefit from tariff hikes and market shifts.
2. What factors contributed to Jefferies’ upgrade of Bharti Hexacom?
Jefferies’ upgrade was based on several key factors:
- Competitive Landscape: Reliance Jio’s focus on growth and Vodafone Idea’s declining market share.
- Industry Trends: Anticipated need for multiple tariff hikes in the telecom sector.
- Company Performance: Improved average revenue per user (ARPU) and data consumption, leading to stronger financial metrics.
3. How has Bharti Hexacom performed in the stock market recently?
Bharti Hexacom’s stock has been on an upward trend, hitting a record high of Rs 1,454. It has been trading higher for four consecutive days, gaining 22% over this period. It surpassed its previous high of Rs 1,368.85 from June 26, 2024.
4. What are the growth projections for Bharti Hexacom?
Jefferies projects that Bharti Hexacom will experience strong growth over FY24-27, with revenues and EBITDA expected to grow at compound annual growth rates (CAGR) of 19% and 25%, respectively. Free cash flow to equity (FCFE) is expected to grow at a CAGR of 66% during this period.
5. How does Bharti Hexacom’s valuation compare to Bharti Airtel’s?
Bharti Hexacom is expected to maintain a premium valuation compared to Bharti Airtel’s India operations due to its faster growth rate and improving financial performance.
6. What role do tariff hikes play in Bharti Hexacom’s future prospects?
Tariff hikes are expected to be crucial for the telecom industry’s growth. Jefferies anticipates that the need for multiple tariff increases will benefit Bharti Hexacom, as the company can leverage improved ARPU and data consumption trends to drive higher revenue.
7. How does the competitive environment affect Bharti Hexacom?
Bharti Hexacom is positioned to benefit from Vodafone Idea’s market share losses and Reliance Jio’s expansion plans. The competitive environment creates opportunities for Bharti Hexacom to capture a larger market share and enhance its financial performance.
8. What is the impact of Bharti Hexacom’s recent listing on its financials?
The company’s listing in April 2024 has improved its financial flexibility and access to capital markets. This enhanced financial position supports Bharti Hexacom’s growth plans and strategic initiatives, further strengthening its market position.
9. What are the key risks facing Bharti Hexacom?
Potential risks include the competitive pressures from Reliance Jio, regulatory changes, and market volatility. Additionally, while Vodafone Idea’s financial recovery efforts may impact the market dynamics, the extent of their success is a factor to watch.
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