Reduce Bharti Hexacom Ltd for the Target Rs.1,550 by Emkay Global Financial Services Ltd
Bharti Hexacom (Hexacom) reported in-line results, with 2.3% QoQ revenue growth to Rs24.1bn and 1% QoQ EBITDA growth to Rs12.7bn. Revenue growth was led by Home Services (up 20.6% QoQ) on strong subscriber additions, while Mobile Services grew only 1.6% QoQ on a marginal decline in ARPU. Capex elevated to Rs5.9bn (Rs3.4bn in Q3FY26), largely toward Mobile Services, resulting in OFCF of Rs7.3bn (Rs9.4bn in Q3FY26). While Hexacom continues to execute well, lack of tariff hikes and increase in smartphone prices will weigh on ARPU growth. We had earlier highlighted the street’s optimistic ARPU expectations (refer: Great operations, greater expectations). The street has started trimming FY28E ARPU estimates – Rs309 currently vs Rs327 in Aug25. We maintain REDUCE and trim TP by ~9% to Rs1,550 from Rs1,700. Higherthan-expected ARPU improvement, significant market-share gains from peers, and momentum in Home Services are key risks to our thesis.
Consistent Mobile Services revenue growth, backed by subscriber additions
The Mobile Services segment reported results in line with street estimates. Revenue grew to Rs23.1bn (1.6% QoQ) as ARPU declined to Rs252 from Rs253, due to lower days in the quarter and impact of the West-Asia crisis on international roaming revenue. The company is focusing on increasing postpaid penetration and 4G/5G subscriber addition to drive ARPU. However, higher memory prices leading to an increase in smartphone prices could weigh on 4G/5G subscriber growth for the industry. Mobile services EBITDA margin was largely flat QoQ, at 55%. Capex was elevated, at Rs4.3bn (vs Rs2.2bn in Q3FY26), resulting in OFCF of Rs8.4bn (vs Rs10.3bn in Q3FY26).
Home Services growth accelerates; capex continues to pressure cashflow
Home Services revenue scaled to Rs1.2bn (+20.6% QoQ) on account of record-high (148k) customer additions, while ARPU was flat. EBITDA margin improved by ~225bps QoQ to 38.1%. Heightened capex (Rs1.6bn), however, dragged cashflow (outflow of Rs1.1bn). The company is prioritizing Fiber over FWA (fixed wireless access), as chip prices have risen. However, the higher cost of connecting homes using Fiber in hilly terrains makes FWA inevitable.
Outlook and valuations:
Expensive valuations In line with our industry thesis, we remain guarded on our ARPU growth forecasts and build in 12.5%/15.4% revenue/EBITDA CAGR, respectively, over FY26-28E vs 13.8%/17.5% for the street. The stock trades at 14.3x FY27E EV/EBITDA. Considering optimistic growth expectations and expensive valuations, we see the risk-reward unfavorable. We maintain REDUCE and trim TP by ~9% to Rs1,550, as we prune our target multiple to 13x (from 14x) on FY28E EBITDA.
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