With shares of the telecom operator trading at Rs 755.20, a 32% premium over its issue price of Rs 570 per share on the BSE on Friday, Bharti Hexacom (BHL) had a spectacular debut on the stock market.

The National Stock Exchange (NSE) has the stock listed at Rs 755. Following listing, it increased to Rs 769 on the NSE.

As of 10:02 am, BHL was up 34% over its issue price on the BSE, trading at Rs 764. On the NSE and BSE, 21.2 million equity shares were exchanged. By contrast, the S&P BSE Sensex dropped by 0.51% to 74,659.

Offering mobile, landline, and internet services to consumers in Rajasthan and the North Eastern (NE) regions of India, the telecom firm is in the business of communication solutions.

In these two rings, BHL provides service to over 27 million wireless customers (subs). Wireless revenue accounts for 97–98% of BHL's total income, with broadband revenue making up the remaining 2-3%. Additionally, the Rajasthan circle generates around 78% of its revenue, with the NE circle contributing the remaining 22%. With a revenue market share (RMS) of 52.7 percent in 9MFY24 (up from 42% in FY21), BHL leads the market in the Northeast. In Rajasthan, its RMS of 40.4 percent (up from 32.7 percent in FY21) places it in second place.

Promoting company Bharti Airtel owns 70% of the company; TCIL (Telecommunications Consultants India), a government-owned company, presently owns 15% of the company; post-IPO, public investors control 15%.

The business is closely related to the "Airtel" organization. Because of one-time accounting changes, the net profit continued to decline, while the gross profit showed rise. 9MFY24 results suggest that the issue is priced fully. According to Way2Wealth Brokers' IPO letter, the company is confident in keeping its dominance and enjoys virtual supremacy in the telecom circles in which it operates.

Purchase, sell, or hang onto?

With a BUY (target price of Rs 790) based on 10x FY26 EV/EBITDA, JM Financial Institutional Securities has started covering BHL (in line with valuation of Bharti Airtel's India wireless division).

Given the concentrated nature of the sector, India's average revenue per user (ARPU) is structurally increasing. However, the industry need ARPU to climb to Rs 275–300 in 3–4 years in order to fulfill future capital demands. 

The brokerage company projects a 10 percent compound annual growth rate (CAGR) for BHL's ARPU, of which 6–7% will come from regular pricing rises and 3–4% from Bharti Airtel's premiumization approach.

Since it is in a high growth potential market (Java/NE circle, which has comparatively lower teledensity and relatively lower penetration of high ARPU postpaid and data subs), BHL's FY24-26/ FY24-30 EBITDA CAGR might be higher, at about 17%/15%.

"We have used 10x multiple factoring in potential concentration risk due to BHL's entire dependence on Rajasthan and NE circles and also on wireless business, though higher multiples can be argued for BHL given 2-3 per cent higher EBITDA growth potential," JM Financial stated in a research.

Due to a 15%–17% EBITDA compounding narrative, the stock may double in three to four years. When compared to Bharti, which sees 25–30% of its value coming from sources other than India's cellular industry, the brokerage firm views BHL as a midcap pure-play on the growth narrative of wireless ARPU. The brokerage company stated that recurring tariff rises, upgrades, and data monetization are the primary drivers for the structural climb in ARPU.