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Robust FCF generation and deleveraging continues in 1Q

* Bharti Hexacom (BHL) reported a strong 1QFY27, with ~4% QoQ growth in customer wireless revenue and overall EBITDA, driven by ~2.6% QoQ growth (similar to BHARTI) in wireless ARPU to INR259.

* Similar to BHARTI, BHL’s subscriber net adds moderated in homes and offices due to calibration in subscriber acquisition strategy amid higher FWA CPE prices. However, BHL’s share of Airtel’s WiFi net adds surged to ~16% (vs. its ~6.3% share in BHARTI’s overall WiFi base).

* Reported segmental capex surged~68% YoY to INR3.8b (though down ~35% QoQ), while cash capex spiked ~23% YoY (+3% QoQ).

* Despite elevated cash capex, FCF generation (after leases and interest payments) improved to INR10.5b (vs. INR8.9b YoY, INR23.1b in FY26), which led to a further ~INR10b reduction in net debt (leverage now modest at 0.2x).

* Over the last one year, BHL has underperformed BHARTI (market cap -16% vs. +12% for BHARTI); as a result, its implied premium to BHARTI’s India business on one-year forward EV/EBITDA has shrunk from ~40% to ~11% currently. We believe the GoI stake sale remains a key overhang; however, given better return ratios and lower capital misallocation risks (vs. BHARTI), we believe there is a case for BHL to trade at a premium (though it has lower growth avenues).

* We raise our FY27-28E revenue and EBITDA by ~1-2%. We model a ~14%/18%/31% CAGR in BHL’s customer revenue/EBITDA/adj. PAT over FY26-29E, driven by ~15% tariff hike in 3QFY27 and continued premiumization and market share gains.

* We ascribe a DCF-based FY28E EV/EBITDA of 13.9x to BHL (which is at ~20% premium to our multiple for Bharti’s India business). We reiterate our BUY rating with a revised TP of INR2,050 (earlier INR1,875).

A healthy wireless performance led by a strong ARPU uptick

* Wireless ARPU grew 2.6% QoQ (similar to Airtel) to INR259 (+5% YoY, above our est. of INR256), due to one extra day QoQ and continued premiumization of subscriber mix.

* The paying subscriber base inched up ~210k (vs. our est. +200k).

* Reported wireless revenue grew 3.7% QoQ to INR24b (+9% YoY, vs. our est. INR23.4b). Underlying customer revenue grew ~3.6% QoQ (+8% YoY, vs. ~2.5/3.8% QoQ for RJio/Bharti).

* Wireless EBITDA at INR13.2b (+11% YoY, vs. our est. 12.7b) was up ~4.4% QoQ (vs. ~3.3% QoQ R-Jio, including FTTH) and was also slightly ahead of ~4.1% QoQ growth for Airtel’s India wireless business.

* Wireless EBITDA margins expanded ~35bp QoQ to 55.3% (+90bp YoY, vs. +40bp QoQ to 54.7% for R-Jio including FTTH) and were stronger than ~15bp QoQ improvement for Airtel’s India wireless business to 60.8%.

* Incremental wireless EBITDA margins stood at ~64% for BHL (vs. ~72%/65% for RJio/Bharti)

Valuation and view

* BHL provides a pure-play exposure to BHARTI’s fast-growing wireless and HBB segments in circles with lower data and HBB penetration.

* Over the last one year, BHL has underperformed BHARTI (market cap -16% vs. +12% for BHARTI); as a result, its implied premium to BHARTI’s India business on one-year forward EV/EBITDA has shrunk from ~40% to ~11% currently. We believe the GoI stake sale remains a key overhang; however, given better return ratio and lower capital misallocation risks (vs. BHARTI), we believe there is a case for BHL to trade at a premium (though it has lower growth avenues).

* Driven by stronger performance in 1QFY27, we raise our FY27-28E revenue and EBITDA by ~1-2%. We model a ~14%/18%/31% CAGR in BHL’s customer revenue/EBITDA/adj. PAT over FY26-29E, driven by ~15% tariff hike in 3QFY27, continued premiumization and market share gains.

* We ascribe a DCF-based Sep’28E EV/EBITDA of 13.9x to BHL (which is at ~20% premium to our multiple for Bharti’s India business). We reiterate our Buy rating on BHL, with a revised TP of INR2,050 (earlier INR1,875). The LT risk-reward remains favorable (bull case: INR2,535; bear case: INR1,530).

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