Govt's 30% in Bharti Hexacom worth about Rs 3,100 cr: JM Financial

The government's 30% stake in Bharti Hexacom is worth around ₹3,100 crore, brokerage J M Financial said, adding that if Bharti Airtel buys the shares, it would potentially lead to improved circle efficiency for the telco.

Back in 2004, Sunil Mittal-led Bharti Airtel had raised its holding in unlisted Bharti Hexacom (BHL) to 70% by acquiring Rajiv Malhotra-headed Shyam Telecom's 37.5% stake in the company for ₹430 crore.

State-run Telecommunications Consultants India Ltd (TCIL) holds the 30% stake in Bharti Hexacom, which runs mobile services in Rajasthan and parts of the Northeast.


"Our calculation suggests the potential value of the government's 30% stake in Bharti Hexacom is unlikely to be significantly above ₹3,100 crore, based on the company's FY23 Ebitda of ₹2,500 crore, which is fairly optimistic assuming Ebitda more than doubles over the ₹1,150 crore FY21 (level)," J M Financial said in a note seen by ET. More so, due to scalability challenges, state-level nuances and absence of digital play, it added.

The department, however, expects to raise at least ₹7,000 crore from the stake sale, ET reported recently, citing a government official.

The brokerage, however, does not perceive these as a major concern, saying that buying the government's 30% stake in Hexacom would "provide Bharti with additional flexibility to operate and grow the circle with improved efficiencies".

This, since Bharti Hexacom runs mobile and telemedia services in Rajasthan and the Northeast, and has operational and financial synergies with Airtel.

Last week, Airtel had informed stock exchanges it would conduct an extraordinary general meeting (EGM) on February 26 to seek shareholders' nod to invest ₹2,800 crore annually between FY23 and FY27 in Bharti Hexacom.

J M Financial's ₹3,100 crore estimated valuation of the government's 30% Bharti Hexacom stake is also based on an assumed "7.5x FY23 EV/Ebitda multiple, which is at a reasonable 25% discount to 10x implied EV/Ebitda multiple," which the brokerage attributes to Bharti's India wireless business to account for scalability challenges for Hexacom's operation.

SBI Capital Markets, a government-appointed financial consultant, had recently valued TCIL's 30% stake in Bharti Hexacom at over ₹8,000 crore.

The Department of Telecommunications (DoT) plans to raise money after obtaining necessary approvals to publicly list Bharti Hexacom, following negotiations with parent, Bharti, which has the first right of refusal.

"Coming out with an initial public offer (IPO) for Bharti Hexacom is a long-term process, and may take up to a year although we have received a valuation from our transactional consultant," a senior DoT official told ET.