Bharti Hexacom IPO price band fixed at ₹542-570/sh, issue to open on April 3

• Bharti Hexacom IPO will open for subscription to the public on April 3 and close on April 5.
• The Bharti Airtel subsidiary intends to raise as much as ₹4,275 crore, in a complete offer for sale.
• Bharti Hexacom provides telecom services in Rajasthan and the North East but does not own Airtel or Bharti trademarks.
  

Bharti Airtel’s subsidiary, Bharti Hexacom, has fixed a price band of ₹542-₹570 per share for its initial public offer (IPO). The issue will open for subscription to the public on April 3 and close on April 5.

Bharti Hexacom provides telecom services in Rajasthan and the North East. The issue, which intends to raise as much as ₹4,275 crore, is a complete offer-for-sale — wherein the company will receive no proceeds from the sale.

Telecommunications Consultants India will offload 15% of its equity as a part of the issue. Ahead of the stake sale, Telecommunications Consultants India holds a 30% stake, with 70% held by Bharti Airtel.

SBI Capital Markets, Axis Capital, BOB Capital Markets, ICICI Securities, and IIFL Securities are the book running lead managers of the public issue.

Financials & risk factors

While the revenue of the company has been rising steadily, its profits have been wavering in the last three years. In FY21, its revenue and profitability were impacted by low average revenue per user (ARPU). It was addressed by a tariff hike in November 2021 by the company.

“Further, our restated profit in FY22 is significantly attributable to exceptional items (net) amounting to ₹1,951 crore, which comprises gain on account of a commercial settlement with a service provider, settlement with a strategic vendor, and charge on account of levies,” the company said.

In the nine months of FY24 ending December, its revenue from operations was at ₹5,220 crore, which is 7.8% higher than the ₹4,846 crore it reported in the same period of FY23. Its profits went up by 34% to ₹622 crore as compared to ₹463 crore in the same period.

Source: RHP

Apart from intense competition and a heavy churn rate in the industry, Bharti Hexacom is also vulnerable to regulatory pressures. Apart from its business continuity depending on its ability to rebid and acquire spectrum, its revenues face the risk of regulatory ceilings on pricing, pricing pressure, a reduction in ARPU and more.

As of December 31, 2023, its total outstanding borrowings stood at ₹3,771 crore. Not only can this limit its ability to undertake certain types of transactions, it also makes its business vulnerable to fluctuations in interest rates.

“We require significant capital to fund our capital expenditure and if we are unable to raise additional capital, our business, financial condition and results of operations could be adversely affected,” the company said in its RHP.

Without Bharti & Airtel trademarks

In spite of it being promoted by Bharti Airtel, Bharti Hexacom does not own the Airtel trademark. It is registered in favour of its promoter. They have entered into a trademark license agreement with the promoter, where they have been granted a non-exclusive, revocable, conditional license. It also does not own the Bharti trademark.

The company is also engaged in a long-standing legal issue related to Adjusted Gross Revenue (AGR) demand by the government. Bharti Hexacom and Bharti Airtel have filed a review petition against the Supreme Court order dated July 23, 2021. The Apex court had dismissed clarification / modification applications filed by the telecom service providers for correction of errors in the AGR demands. The matter is pending adjudication before the Supreme Court.

They have also filed a curative petition in the AGR matter against the orders dated October 24, 2019 and January 16, 2020 of the Supreme Court. It is also pending adjudication before the Supreme Court. It has already provided for the aggregate demand of ₹1,817 crore.

“So any adverse outcome in this matter would not have any adverse impact on our financial condition,” the company said.

(With inputs from PTI)