Brokerage Jefferies is bullish on the recently listed Bharti Hexacom, a Bharti Airtel group company, because of its strong growth prospects and healthy margin expansion.
Jefferies initiated coverage on the stock with a “buy” rating and a price target of Rs 1,080. The price target is the most aggressive on the Street, as it forecasts a nearly 34 percent upside in the counter.
The bullish comments led to a nearly 9 percent spike in the share. At 9.44 am, Bharti Hexacom was trading at Rs 869.85 on the NSE.
Going by Jefferies' target price, those who invested in Bharti Hexacom IPO can almost double their money from the issue price of Rs 570 if they stay with the counter for a year.
According to Jefferies, Bharti Hexacom represents a strong investment opportunity in the Indian telecom sector. It allows investors to capitalize on the segments of Bharti Airtel's business that are experiencing faster growth, higher return on capital employed (RoCE), and better free cash flow (FCF) conversion rates, the brokerage stated.
The foreign brokerage forecasts a 16 percent compound annual growth rate in revenue and a 21 percent CAGR in EBITDA from FY24 to FY27. This growth, coupled with a reduction in capital expenditure, is expected to lead to a 40 percent CAGR in FCF, Jefferies said.
It also expects Bharti Hexacom's robust cash generation to facilitate debt reduction of Rs 5,500 crore (equivalent to 14 percent of market capitalization) and contribute to lowering the net debt to EBITDA ratio to 0.4 times by FY27, potentially leading to increased dividend payouts.
Another brokerage JM Financial had also initiated coverage on Bharti Hexacom ahead of its market debut, with a “buy” rating and a price target of Rs 790.
JM Financial sees Bharti Hexacom as a midcap company focused on the structural growth story of wireless ARPU (average revenue per user) in the Indian telecom sector.
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