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Business News/ Markets / Stock Markets/  Bharti Hexacom share price gains 7% as Jefferies initiates coverage and sees 19% upside: 4 Key reasons
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Bharti Hexacom share price gains 7% as Jefferies initiates coverage and sees 19% upside: 4 Key reasons

Stock Market Today: Bharti Hexacom share price gained almost 7% in morning trades on Tuesday. It thereby has given handsome returns of more than 50% to investors over the issue price since listing. Jefferies has initiated coverage with buy ratings, indicating 19% more upside. Here are 4 Key reasons

Bharti Hexacom share price gains 7%: Jefferies initiates coverage and sees 7% upside (https://www.bhartihexacom.in/)Premium
Bharti Hexacom share price gains 7%: Jefferies initiates coverage and sees 7% upside (https://www.bhartihexacom.in/)

Stock Market Today: Bharti Hexacom share price gained almost 7% in morning trades on Tuesday. With these gains Bharti Hexacom has given more than 50% returns to investors over the issue price of 570. The stock had seen a dream debut and listing at 755 levels a few days back . Bharti Hexacom share price thereafter has been adding to its gains.

Jefferies India Pvt Ltd has initiated coverage on Bharti Hexacom with a buy rating and target price of 1080 for Bhart Hexacom indicating another more than 19% gains.

4  Key reasons why Jefferies expects 19% more gains

Among 4 key reasons for more gains for Bharti Hexacom, Jefferies include Strong growth outlook, margin gains, Strong free cash flow generation and lower capital intensity required to drive higher Returns on Capital Employed (ROCEs) 

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Strong growth expectations:  Bharti Hexacom presents a solid growth outlook  because it operates in markets with lower tele-density and have seen higher translation of tariff hikes into ARPUs (average revenues per user). 

Jefferies anticipates that Bharti Hexacom will continue to acquire significant market  due to its its aggressive network development and excellent execution. The trend of gains in share seen over FY20–24 may continue moving forward

Consequently, over FY24–27, Jefferies projects that Bharti Hexacom would generate 16% CAGR (compound annual Growth rate)  in revenues, driven by 12% CAGR in ARPU and 4% CAGR in mobile customers.

Healthy margin expansion: Over FY24–27, substantial operating leverage and robust topline growth should allow for a 600bps increase in margin to 53% for Bharti Hexacom as per Jefferies.

 Jefferies' expectations imply incremental Ebitda margins of 64% over FY24–27, which is higher than Bharti Airtel but reasonable given the lack of lower-margin enterprise business,

Bharti Hexacom should be able to generate a 21% Ebitda CAGR over FY24–27 thanks to a robust development of its margins.

Robust FCF production to strengthen the balance sheet: Bharti Hexacom's robust Ebita growth and decreasing capex intensity put it in a good position to generate a 40% CAGR in Free Cash flows (estimated).

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Strong cash creation should contribute to the deleveraging of Rs5500 Crore (14% of market capitalization), lower the net debt to Ebitda ratio to 0.4x, and possibly increase dividend payments.

Reduced capital intensity to boost ROCEs: Bharti Hexacom's network investments per site are 30% lower than Bharti Airtel's India operations because it doesn't invest in its own fiber and because spectrum prices are cheaper in its markets.

This should allow for higher ROCEs and has made it possible to reduce the net/debt to Ebitda ratio by 25%. Jefferies projects Bharti Hexacom's ROCE to nearly double to 17.5% over FY24–27, mostly as a result of a 10ppt increase in EBIT margin during this time.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

 

 

 

 

 

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ABOUT THE AUTHOR
Ujjval Jauhari
Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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Published: 16 Apr 2024, 10:21 AM IST
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