The target price assigned by Motilal Oswal indicates an upside potential of 21% from the stock’s Monday’s closing price of Rs 1,341 on the BSE.
Moreover, given lower teledensity and lower internet penetration in Hexacom circles (vs. pan-India), the brokerage firm believes Hexacom can potentially grow a few percentage points faster than Airtel on both subscribers and ARPU.
Hexacom offers wireless, fixed broadband, and enterprise services in Rajasthan and the North East, covering 6% of India’s GDP and 7% of its population. However, telephony and internet penetration in these regions lag behind national levels, creating growth opportunities through higher subscriber additions, ARPU improvements, and data upgrades.
“Further, with significantly lower penetration of fixed broadband in Hexacom’s circles and the recent ramp-up of Fixed Wireless Access (FWA) offerings, we believe Hexacom’s wired broadband business could also grow at a faster clip,” the Motilal report said.
The analysts at the domestic brokerage firm, in their report, have also quoted another factor for their preference for Bharti Hexacom over Bharti Airtel, which is lower capital misallocation concerns.Also read: Metal sector shines amid dollar weakness, trade uncertainty. Mayuresh Joshi explains what’s nextTariff repairs have significantly improved FCF (5% yield) for both Airtel and Hexacom. With high-cost debt repayments mostly complete and leverage under control, investor concerns now focus on Airtel’s capital allocation. While Airtel’s chairman hinted at potential overseas acquisitions, its past record has been mixed—taking a decade to turn around Africa operations while struggling in South Asia. Though no immediate acquisitions are planned, potential overseas deals remain a risk.
Hexacom, with fewer inorganic growth opportunities, is likely to focus on deleveraging and improving shareholder returns. Therefore, lower capital misallocation concerns make Hexacom a preferred choice over Airtel, even at a slight valuation premium (15% higher than Airtel’s India business, excluding Indus).
Other key takeaways from Motilal Oswal’s report
- With Bharti’s focus on rural connectivity, Hexacom is gaining market share rapidly in both its circles. It holds 50%+ SMS share in the North East, gaining 500bps over three years (vs. 100bps for RJio). In Rajasthan, Hexacom’s SMS share rose by 210bps to 35.5%, outperforming RJio’s 140bps gain. Hexacom’s blended SMS share of 38% is notably higher than Airtel’s pan-India 33%, narrowing the gap with RJio to 150bps, compared to 700bps pan-India. On Visitor Location Registry (VLR), Hexacom trails RJio by just 70bps, significantly lower than the 600bps gap nationwide.
- Bharti’s continued focus on premiumization, upgrading non-data subs to data, prepaid subs to postpaid subs, and ultimately to converged homes has led to industry-leading ARPU on a pan-India basis. Hexacom follows a similar strategy and is the market leader on ARPU in both its circles, benefiting from tariff repair and also a significant improvement in its data subscriber proportion to 76% by 9MFY25 from 56% in FY21.
- Hexacom’s strong SMS gains, non-data to data upgrades, and premiumization strategy have driven significant market share growth in both Rajasthan (+13pp RMS in five years) and the North East (57% RMS, undisputed leader). From Sep’19 to Sep’24, Hexacom’s AGR surged 3.5x, outpacing RJio (2x) and Vi (45%), reducing its RMS gap with RJio to just 20bps in Sep’24 (vs. a 300bps gap with Airtel pan-India). Given Bharti’s continued outperformance over RJio, Hexacom is expected to become the RMS leader in its circles by FY25-end.
Also read: Metal stocks rise as Jefferies maintains bullish stance on Indian metals
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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