Global brokerage firm Jefferies has initiated coverage on Bharti Hexacom, a wholly-owned subsidiary of telecom major Bharti Airtel, with a ‘Buy’ rating and a price target of ₹1,080, citing strong growth outlook and healthy margin expansion.
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Jefferies’ price target on Bharti Hexacom is the highest on the street, which implies a potential upside of 34% from the stock’s closing levels on Monday.
According to Jefferies, Bharti Hexacom is the best play on Indian telecom. It offers a way to invest in those parts of Bharti Airtel’s business that are growing faster, have higher return on capital employed (ROCE) and have better free cash flow (FCF) conversion.
The foreign brokerage expects a 16% revenue CAGR (compound annual growth rate) between financial year 2024 – 2027 and 21% EBITDA CAGR over FY24-27.
The CAGR in revenue and EBITDA which coupled with moderation in capex would result in 40% CAGR in FCF, Jefferies said in a note.
Furthermore, it said that Bharti Hexacom’s strong cash generation should drive deleveraging of ₹5,500 crore (14% of market capitalization) and help reduce net debt to EBITDA ratio to 0.4 times by FY27 and could potentially boost dividend payouts.
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Domestic brokerage house JM Financial also initiated coverage on Bharti Hexacom ahead of its stock market debut. It had assigned a ‘Buy’ rating and a price target of ₹790 per share.
JM Financial said it sees Bharti Hexacom Ltd as a midcap pure-play on structural wireless ARPU growth story.
Bharti Hexacom is a communications solutions provider offering consumer mobile services,fixed-line telephone, and broadband services to customers in the Rajasthan and the North East telecommunication circles in India, which comprises the states of Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.
The company has a spectrum portfolio with a varied pool of mid-band spectrum, which has enabled us to offer 5G plus services to customers.
Sunil Mittal-driven telco Bharti Airtel holds a 70% stake or 35 crore shares in the company.
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Shares of Bharti Hexacom had debuted on the bourses on April 12 this month at a 32% premium to its issue price of ₹570. The stock settled 0.74% lower at ₹807.30 apiece on the NSE on Monday.
