Bharti Hexacom IPO opens to a tepid response with 34% of the issue subscribed

• The Bharti Airtel subsidiary provides telecom services in Rajasthan and the North East.
• The issue is a complete offer-for-sale where Telecommunications Consultants India will offload 15% stake.
• It has raised ₹1,923.7 crore from anchor investors ahead of opening the issue to the public.

As much as 34% of Bharti Hexacom’s ₹4,275 crore public offer was subscribed by the end of the first day of the issue, on Wednesday. It has received a similar amount of interest from all classes of investors. The issue will close on April 5.

The company is Bharti Airtel’s subsidiary and provides telecom services in Rajasthan and the North East. It has fixed a price band of ₹542-₹570 per share for its initial public offer (IPO).

The issue 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.

It has raised ₹1,923.7 crore from anchor investors ahead of opening the issue to the public. Its anchor investors include Blackrock Global Funds, Fidelity Funds and Abu Dhabi Investment Authority and more such.

Source: BSE

Its revenues have been rising steadily, but 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.

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.