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Synopsis : ICICI Securities initiates coverage on Bharti Hexacom with an 'Add' rating, citing its superior return ratios and growth potential. Despite a smaller market share, Bharti Hexacom's strong performance earns a target price of Rs 1,075.
ICICI Securities has initiated coverage on Bharti Hexacom Ltd, a recent debutant and a part of Bharti Airtel’s larger ecosystem, with an 'Add' rating. This rating is a notch below its 'Buy' rating for Bharti Airtel Ltd. Bharti Hexacom, despite catering to only 7% of the mobile market, is considered 'small but beautiful' by ICICI Securities. They highlighted that Bharti Hexacom's structure allows for a superior capital framework, resulting in higher return ratios and sustained growth.
ICICI Securities described Bharti Hexacom as 'The Little Giant'. Despite its smaller market share, Bharti Hexacom has achieved significant success, with its stock price climbing 81.46% over its IPO issue price of Rs 570, reaching Rs 1,034.35 apiece. The company's strong performance across various metrics such as subscribers, ARPU, revenue, cash EBITDA, cash flow, and invested capital has outperformed peers over the past three years. Additionally, Bharti Hexacom boasts the best return ratios among its competitors and is expected to have the highest dividend payout in the sector. The strong ecosystem of Bharti Airtel further enhances its position.
Bharti Airtel remains ICICI Securities' preferred pick due to its healthy estimated cash EBITDA growth of 15.3% over FY24-27 and a 6.3% free cash flow yield by FY27. In contrast, Bharti Hexacom is expected to see a higher EBITDA growth at a CAGR of 21.9% over the same period, though with a relatively lower FCF yield of 4.3%.
ICICI Securities believes Bharti Hexacom deserves a premium valuation multiple over Bharti Airtel due to its superior return ratios and prolonged growth potential. They have assigned a 15% premium to Bharti Hexacom compared to Bharti India's multiple of 12x for FY26 EBITDA, reflecting their 'small but beautiful' hypothesis. The target price suggested for Bharti Hexacom's stock is Rs 1,075.
Disclaimer: We provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
Related Questions
1. What rating did ICICI Securities give to Bharti Hexacom Ltd?
ICICI Securities gave Bharti Hexacom Ltd an 'Add' rating.
2. How did ICICI Securities describe Bharti Hexacom?
ICICI Securities described Bharti Hexacom as 'The Little Giant'.
3. What is the target price suggested for Bharti Hexacom's stock?
The target price suggested for Bharti Hexacom's stock is Rs 1,075.
4. What is the expected EBITDA growth rate for Bharti Hexacom over the period FY24-27?
Bharti Hexacom is expected to see an EBITDA growth rate of 21.9% over the period FY24-27.
5. What percentage premium did ICICI Securities assign to Bharti Hexacom compared to Bharti India for FY26 EBITDA?
ICICI Securities assigned a 15% premium to Bharti Hexacom compared to Bharti India for FY26 EBITDA.
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