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Bharti Hexacom Ltd. (BHL), a telecom & broadband service provider in the Rajasthan and North-East telecommunication circles under the brand name “Airtel”; and also a subsidary of telecommunication giant Bharti Airtel Ltd., is coming up with an IPO to raise around Rs. 4,300cr, which opens on 3 rd Apr. and closes on 5 th Apr. 2024. The price band is Rs. 542 - 570 per share.
The IPO only consists of OFS portion. Thus, the company will not receive any proceeds from the issue.
Telecommunications Consultants India Ltd. (TCIL), a sole public (non[1]promoter group) shareholder and a Government of India owned entity is participating in the OFS issue and offloading 7.5cr shares. However, post[1]IPO, the shareholding between the promoter & promoter group and public will remain unchanged to 70% and 30%, respectively.
As per the DRHP filed with the SEBI, TCIL initially planned to sell up-to 10cr equity shares.3

Key competitive strengths:
Established leadership and large customer base in the area of operations
Presence in markets with high growth potential
Strong parentage and established brand
Building a future ready network
Extensive distribution and service network
Experienced management team

Risk and concerns:

General slowdown in the global economic activities
Unfavorable government policies & regulations
Unfavorable outcome towards One Time Spectrum Charges
Geographical revenue concentration risk
Capital intensive operations
Difficulty in maintaining the profitability
Competition

Below are the key highlights of the company:

The Indian telecommunication market is divided into 22 circles and comprises of wire-less services (or mobile services) and wire-line services (or fixed-line services). As of 31st Dec. 2023, wire-less services accounted for 97.3% of total telecom customers, while the rest 2.7% was for wire[1]line services. A telecom service (telco) provider needs to acquire spectrum in each circle to provide comprehensive coverage to its consumers. Also it needs to acquire a unified license with authorizations for access services in each circle. Spectrum is periodically auctioned by the government, thus, if a new teleco plans to launch services in a particular region, it will have to buy both spectrum and a license for the entire circle.
In FY14, there were 14 telecos providing telecom services in India. With an intention to gain subscriber market share, telcos ventured into a price-war, which was economically un-sustainable for small telcos. Consequently, some telcos exited the market and couple of them merged with stronger players, thereby leading to a consolidation in the market. Currently, there are mainly four pan-India telecom service providers in India, namely, Reliance Jio Infocomm Ltd. (RJio), Bharti Airtel Ltd. (BAL), Vodafone India Ltd. (VIL) and Bharat Sanchar Nigam Ltd. (BSNL). During 9M FY24, top-2 players i.e. RJio and BAL has cornered around 80% of the market in terms of revenue and 72% in terms of subscriber base. Mainly due to financial stress, VIL’s position in the market is continuously declining since FY18. So despite being an oligopolistic operating structure of the market, since FY22, the domestic telecom market effectively resembles a duopoly operating structure, thereby providing an operating leverage to top-2 players.
Peer comparison and valuation: The domestic telecommunication market is effectively operating with a duopoly structure. BHL, being promoted by BAL, is positively impacted by the synergies arising from the arrangement with the BAL and its affiliates. BHL is present in Rajasthan and North-East telecommunication circles, which has a huge growth potential considering the current teledensities. Since Nov. 2021, BHL implemented series of tariff hikes (leveraging the duopoly structure), a significantly improved its operating and financial performance. Considering higher entry barrier for the new players, continued capex requirement and higher spectrum costs, we believe, there will be continued improvement in the operating & financial performance of the company in the medium-term. At higher price band, BHL is demanding an EV/TTM sales multiple of 5.4x, which is at discount to peer average of 6.5x. in-line to the peer average of 3.9x. Thus, considering the above observations, we are assigning a “SUBSCRIBE” rating for the issue.