Bharti Hexacom free cash flow and deleveraging support telecom growth

Investment View and Rating

Motilal Oswal Financial Services retains its Buy rating on Bharti Hexacom and raises the target price to Rs 2,050 from Rs 1,875. The broker views Bharti Hexacom as a pure-play exposure to Bharti’s fast-growing wireless and home broadband segments in circles with relatively lower data and home-broadband penetration.

Bharti Hexacom is considered deserving of a premium to Bharti’s India business because of its better return ratios and lower capital-misallocation risk, although it has fewer growth avenues. A prospective Government of India stake sale remains a key overhang.

Strong 1QFY27 Financial Performance

Bharti Hexacom reported a strong 1QFY27, with revenue, EBITDA and adjusted profit after tax all exceeding Motilal Oswal’s estimates.

Wireless Business Drives Growth

Wireless performance was the principal driver of the quarter. Reported wireless revenue grew 3.7% quarter on quarter to Rs 24.0 billion, while underlying customer revenue increased about 3.6% to Rs 22.4 billion.

Wireless ARPU rose 2.6% sequentially and 5% year on year to Rs 259, above the broker’s Rs 256 estimate. The improvement was supported by one additional day in the quarter and continued strengthening in subscriber mix. Paying subscribers increased by 210,000 to 29.0 million.

• Data subscribers reached 23.1 million, representing 79.8% of the subscriber base.
• Data usage per data subscriber increased to 36.2 GB per month.
• Wireless EBITDA rose 4.4% quarter on quarter to Rs 13.2 billion.
• Wireless EBITDA margin increased 34 basis points to 55.3%.

Homes and Offices Segment

The homes and offices segment reported revenue of Rs 1.27 billion, up 61.4% year on year and 7.9% sequentially, but 8.1% below the broker’s estimate. Segment EBITDA of Rs 502 million was 17.1% below estimate despite a 12.3% sequential increase.

Net additions moderated to 75,000 from 148,000 in 4QFY26 as the subscriber-acquisition strategy was calibrated amid higher fixed-wireless-access customer-premises-equipment prices. Reported home-broadband ARPU remained stable sequentially at Rs 482 per month.

Bharti Hexacom’s share of Airtel WiFi net additions increased to about 16%, compared with its approximately 6.3% share of Airtel’s overall WiFi base.

Management Commentary and Growth Priorities

Management said capital expenditure remains focused on 5G densification and scaling the homes business. It plans to use a combination of fixed wireless access and fibre in Rajasthan and the Northeast, given the difficult terrain.

Management considers home broadband a substantial opportunity and did not change its market assessment or growth expectations despite slower 1QFY27 additions. It attributed softer mobile additions to seasonality, noting that additions have historically been stronger in the second half.

Cash Generation and Deleveraging

Cash generation and deleveraging strengthened during the quarter. Segmental capital expenditure was Rs 3.8 billion, up 68% year on year but down about 35% sequentially.

Despite higher cash capital expenditure, free cash flow after leases and interest payments improved to Rs 10.5 billion from Rs 8.9 billion a year earlier. Net debt excluding leases declined by about Rs 10.7 billion sequentially to Rs 9.6 billion, taking net debt to EBITDAaL to 0.2 times.

Estimates and Valuation

Motilal Oswal raised its FY27E and FY28E revenue and EBITDA estimates by about 1–2% following the stronger quarter. Its FY26–FY29E forecasts imply compound annual growth of about 14% in customer revenue, 18% in EBITDA and 31% in adjusted profit after tax.

The growth outlook is driven by an assumed approximately 15% tariff increase in 3QFY27, premiumisation and market-share gains. The broker uses a sum-of-the-parts approach for valuation.

The mobility valuation is derived from a discounted-cash-flow approach implying 13.4 times September 2028E EBITDA. Aggregate company valuation implies 13.9 times September 2028E EV/EBITDA.

Key Sensitivity and Risk

The investment case remains sensitive to ARPU and subscriber outcomes. Every Rs 10 change in FY27E ARPU changes FY27E EBITDA by about Rs 2.6 billion. A prospective Government of India stake sale remains a key overhang.