Bharti Hexacom Can Rally 22%, Projects Motilal Oswal Initiating Buy On Long-Term Growth Outlook

Bharti Hexacom Ltd. received a 'buy' rating from Motilal Oswal Financial Services Ltd, as the brokerage initiated coverage while picking the stock as a preferred play on India's wireless growth story. Motilal Oswal analysts ha have set a target price of Rs 1,625 apiece for the counter, implying an upside potential of 22%.

Bharti Hexacom is a licensed operator of wireless and fixed-line services under the Airtel brand in the Rajasthan and Northeast circles of India. Hence, it's providing a great exposure to two high-growth businesses, Motilal Oswal Financial Services pointed out. In these regions, there's lower penetration of telecommunication devices and internet, which makes the potential for Bharti Hexacom to grow a few percentage points faster than Bharti Airtel Ltd., it said.

Bharti Hexacom's broadband business can also grow at a faster pace because of lower penetration of fixed broadband in Rajasthan and Northeast circles. Moreover, there's a ramp of fixed-wireless access offerings, which will support the broadband business, the brokerage said.

Bharti Hexacom faces lower competition in the regions mentioned earlier. It's in close competition with Reliance Jio on subscriber market share. It's trailing Rjio by 150 basis points, Motilal Oswal Financial Services said.

The top two service providers account for 77% of subscriber market share and 88% of revenue market share in their operating region. The higher consolidated market share provides better pricing power and lower customer acquisition costs, which helps in boosting margins. One disadvantage of the highly consolidated market share is that further subscriber market share gain will be lower in its operating regions, the brokerage said.

Bharti Hexacom follows a similar strategy to drive growth in average revenue per user by premiumisation of the subscribers' mix. This strategy helps Bharti Hexacom to benefit from tariff repair and also a significant improvement in its data subscriber proportion to 76% in nine months of FY25.

Motilal Oswal Financial Services estimated a 23% Ebitda CAGR for Bharti Hexacom for the period from financial year 2024 to 2027.

Increase in competition, adverse regulatory environment, concentration in select states, and dependence on parent Bharti Airtel are some of the key risks to Bharti Hexacom's growth story. A merger with Bharti Airtel at an unfavorable swap ratio will also be adverse for Bharti Hexacom.