The first IPO for the new fiscal FY25 is that of Bharti Hexacom, a 70 per cent subsidiary of telecom giant Bhart Airtel (Airtel). The company is an integrated telecom player offering mobile, fixed line and broadband services in few specific circles in India – Rajasthan and North-East.

The IPO, an offer for sale by Government of India entity — Telecommunications Consultants India Limited (TCIL), which currently owns 30 per cent stake in the company, is open till April 5. TCIL plans to offload15 per cent stake (or 7.5 crore shares) in the company for ₹4,275 crore (at upper end of price band of ₹542-570 ), which implies a market-cap of around ₹28,500 crore.

At the upper band, the issue is priced at trailing PE of 76 times (9MFY24 EPS annualised). However, earnings during this period are impacted by pre-tax exceptional items and adjusting for this, the trailing PE will be around 45-50 times. This is as compared to parent Airtel trading at estimated FY24 PE of 59 times.

In terms of EV/EBITDA, annualising 9M FY24 numbers, Hexacom is valued at around 11 times. Compared to this, Airtel trades at FY24 EV/EBITDA of 11.8 times.

Although it is priced cheaper than Airtel, we recommend investors can give this IPO a pass for the following reasons. One, larger pan-India players like Airtel can benefit from better synergies driven by scale and growing enterprise business, which is reflected in superior margins of Airtel (EBITDA margins at 53.8 per cent compared to Hexacom margins at 49.35 per cent). Hence, this discount in valuation versus large players will remain and unlikely to get bridged.

Two, even on an absolute basis, 11 times EV/EBITDA appears expensive given the fact that growth is now slowing (refer financials).


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 Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland and Tripura.

A simple way to understand its business is to look at it as Bharti Airtel or Reliance Jio, but only with regional operations, sans other business of the pan-India players (enterprise/business services, submarine cables, data centres). Hexacom is Airtel’s telecom arm in these regions and form part of Airtel’s consolidated operations and results.

Hence, unlike Airtel’s India operations in which mobile revenue account for around 75 per cent, in the case of Hexacom 97 per cent of revenue is from mobile services and the balance from fixed line/broadband services.

Hexacom currently has 40. 4 per cent and 52.7 per cent revenue share in Rajasthan and the North East circles, respectively. Against this, Reliance Jio’s market share was 46.1 per cent in Rajasthan and 39.8 per cent in North East.  

Teledensity in Rajasthan at 79.5 per cent and in the North East at 79.9 per cent is lower than the national average of 84.5 per cent.  Per Crisil estimates, the  wireless customer base in Rajasthan and North-East is estimated to grow during FY23-28 at a CAGR of 1.4-1.5 per cent and 1-1.5 per cent, respectively. This is within the range of growth expected for entire country CAGR of 1-1.5 per cent. For the foreseeable future, the wireless business will remain the driver, with other segments having only a marginal impact.

Growth for Hexacom will depend on whether it is able to grow market share and improve blended ARPU in these two circles which are around 5 per cent lower than Airtel’s blended ARPU of ₹208. Tariff rationalisations post elections, increase in penetration of data customers which is at 59.4 per cent for Hexacom against 60.2 per cent for Airtel and 99.8 per cent for Reliance Jio are factors to watch. In the long term, 5G will be a driver, but unlikely to have much impact in the near term.

However, it is important to note that the performance of Hexacom is unlikely to be meaningfully differentiated or better than that of Airtel. Hence, there is no strong case for investors to prefer Hexacom over Airtel.


For the 3-year period FY21-24 (9M annualised), Hexacom revenue and EBITDA grew at a strong CAGR of 15 and 44 per cent. However, going forward, investors need to temper their expectations on growth. The growth in earlier years was driven by consolidation in industry as Airtel (and Hexacom in the two circles) and Reliance Jio gained market share and benefitted from tariff increases, while weaker peers Vodafone Idea’s and BSNL’s business slumped due to financial issues.

During this period, Hexacom EBITDA margins have moved up from 24.71 per cent to 49.35 per cent now. It needs to be noted that margin improvement from here at best is likely to be marginal and not significant, given the fact that even pan-India players which benefit from higher synergies like Airtel and Reliance Jio have EBITDA margins of 53.8 and 52.7 per cent.

The deceleration in growth is already reflected in the top line for 9MFY24. During this period, y-o-y revenue growth for Hexacom has decreased to 8 per cent versus growth of 21.7 per cent in FY23.

Given lower growth going forward and much of EBITDA improvements already behind, the stock appears pricey at 11 times EV/EBITDA.