Company Update : Bharti Hexacom Ltd By Motilal Oswal Financial Services Ltd
Broadly in-line 4Q; incremental wireless EBITDA margin slightly weaker than Airtel
* Hexacom’s overall 4Q revenue at INR22.9b (+23% YoY, in line) was up ~2% QoQ, as the residual flow-through of the wireless tariff hike was offset by two fewer days QoQ.
* Overall, 4Q EBITDA at INR11.7b (+33% YoY, inline) was up 1.4% QoQ as network opex declined 2% QoQ (2% below our est.).
* Reported EBITDA margin dipped ~15bp QoQ to 51% (+400bp YoY, 10bp above our est.) but remained below 57.8% for Bharti’s India operations (ex-Indus).
* Depreciation and amortization rose by a further ~16% YoY (flat QoQ) to INR5.3b, while net finance cost declined ~9% QoQ (+6% YoY) to INR1.2b.
* Reported PAT stood at INR4.7b, up 80% QoQ (2.1x YoY), boosted by tax reversals. Adjusted for exceptional items, PAT at INR3.8b rose 4% QoQ (+71% YoY) and was 8% above our est., mainly due to lower tax rate.
Capex spikes, while net debt further declined QoQ
* Overall capex spiked ~50% QoQ to INR4.25b (-14% YoY).
* Hexacom’s overall net debt (ex-leases) declined ~INR6b QoQ to INR36.9b (vs. INR42.8b QoQ). Including the impact of leases, Hexacom’s consolidated net debt stood at INR72.6b (vs. INR78.9b QoQ).
* Net debt (ex-leases) to EBITDAaL declined further to 0.87x (vs. 1.03x QoQ, vs. 1.53x for Bharti’s India SA business).
* Hexacom’s consolidated free cash flow (post-leases, interest payments, but before spectrum prepayments) stood at INR6.6b (vs. INR5.1b QoQ). For FY25, Hexacom generated FCF of ~INR20b, before spectrum prepayments.
Wireless: Residual tariff hike benefit offset by two fewer days QoQ
* Data volume for Hexacom inched up 6% QoQ (vs. +2% QoQ in 3QFY25, slightly better than +5% QoQ for RJio, including FTTH and Airtel India).
* Data usage per sub improved to 27.7GB/month (vs. 26.2GB QoQ, 33.6GB reported by R-Jio, including FTTH, and higher than 25.1 GB for Airtel on a panIndia basis).
* Voice usage on the network was up ~1% QoQ (+5% QoQ in 3QFY25, +2% QoQ for R-Jio and Airtel), with minutes of usage (MoU) per subscriber moderating slightly to 1,139mins/month (vs. 1,150 mins QoQ, ~1,024 mins for R-Jio, and slightly lower vs. 1,163 mins for Airtel on a pan-India basis).
* Hexacom added 162 towers QoQ (vs. 163 in 3QFY25) to take the total towers to ~26.5k. Revenue per site was up ~1% QoQ to INR280k/month (+17% YoY, vs. flat QoQ uptick to INR262k for Airtel).by two fewer days QoQ
* Hexacom’s wireless ARPU was broadly stable QoQ (similar to Airtel) at INR242 (19% YoY, vs. our est. of INR243), as residual tariff hike flowthrough was offset by two fewer days QoQ
* Hexacom reported 515k paying net adds (vs. 491k net adds QoQ and our est. 300k net adds) and contributed ~10% of Bharti’s 4QFY25 subscriber net adds (vs. ~7.8% share in Airtel’s paying subs base).
* The subscriber mix continues to improve as Hexacom added 710k smartphone net adds QoQ, as Hexacom’s share of Bharti’s 4G net adds increased to ~10% (vs. 7% QoQ and 7.8% share of Airtel’s 4G subscriber base). The share of data subs in Hexacom’s mix improved further by ~50bp QoQ to 76.7%, but remained below Airtel’s at 77.8% (flat QoQ).
* Hexacom’s wireless revenue rose 1.4% QoQ (vs. 2.4%/1.9% QoQ for RJio, including FTTH, and Airtel’s India wireless) to INR22.3b (+22% YoY, in line).
* Wireless EBITDA at INR12b (+34% YoY, inline) was up ~2% QoQ (vs. 2.4% QoQ for R-Jio, including FTTH, and ~2% QoQ for Airtel).
* Wireless EBITDA margin improved ~25bp QoQ to 53.8% (+480bp YoY, vs. stable QoQ at 52.8% for R-Jio), though lower than 40bp QoQ improvement at 59.2% for Airtel.
* Incremental EBITDA margin stood at ~72% (vs. ~53% for RJio), but lower than ~85% for Airtel’s India wireless business. The weaker flow-through versus Airtel is likely driven by QoQ inferior in-roamer vs. out-roamer mix.
* Similar to the sharp ~39% QoQ increase in India wireless capex for Bharti, Hexacom’s wireless capex also jumped ~64% QoQ to INR3.7b (-21% YoY).
Homes and Offices: Net subscriber additions remain elevated, likely on FWA ramp-up
* Hexacom’s Homes BB subs base reached ~0.45m (47% YoY) on acceleration in net adds to ~53k (versus 44k QoQ). Hexacom accounted for ~6.5% of Airtel’s Homes BB net adds (vs. ~4.5% share in Airtel’s Homes BB subscriber base).
* However, similar to Airtel, reported Homes ARPU decline continued with a further 2% QoQ dip to INR490/month (-8% YoY, vs. ~2% QoQ dip for Airtel to INR543/month)
* Homes and Offices revenue was up ~10% QoQ to INR0.7b (+30% YoY, inline) and was better than ~6% QoQ growth for Airtel.
* Homes and Offices EBITDA at INR0.23b was up ~18% QoQ (+16% YoY, vs. 7% QoQ growth for Airtel), as margins improved ~230bp QoQ to 32.9% (-380bp YoY). Comparatively, Airtel’s Home BB margins expanded ~50bp QoQ to 49.9%.
* Capex in Homes Business declined ~1% QoQ to INR0.6b (though up 2.25x YoY).
Other highlights: Data engagement remains ahead of Airtel’s India wireless business
* Data volume for Hexacom inched up 6% QoQ (vs. +2% QoQ in 3QFY25, slightly better than +5% QoQ for RJio, including FTTH and Airtel India).
* Data usage per sub improved to 27.7GB/month (vs. 26.2GB QoQ, 33.6GB reported by R-Jio, including FTTH, and higher than 25.1 GB for Airtel on a panIndia basis).
* Voice usage on the network was up ~1% QoQ (+5% QoQ in 3QFY25, +2% QoQ for R-Jio and Airtel), with minutes of usage (MoU) per subscriber moderating slightly to 1,139mins/month (vs. 1,150 mins QoQ, ~1,024 mins for R-Jio, and slightly lower vs. 1,163 mins for Airtel on a pan-India basis).
* Hexacom added 162 towers QoQ (vs. 163 in 3QFY25) to take the total towers to ~26.5k. Revenue per site was up ~1% QoQ to INR280k/month (+17% YoY, vs. flat QoQ uptick to INR262k for Airtel).
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