Motilal Oswal Financial Services has downgraded Bharti Hexacom Limited BHL to a neutral rating, revising its target price to Rs 1900, citing valuation concerns despite the company’s growth potential.

According to Motilal Oswal, Bharti Hexacom is trading at a 37 percent premium to the valuation of Bharti Airtel’s Indian business, a gap they believe is difficult to justify in the current market scenario. The downgrade comes after the stock rallied over 230 percent from its IPO price of Rs 570, touching an all-time high of Rs 1938 on June 4, before correcting by more than 4 percent to Rs 1800 on Friday.

Valuation concerns and downgrade rationale

The stock is currently trading at 19 times forward EV EBITDA, compared to 7 times at the time of IPO, indicating a sharp re-rating driven by bullish expectations in the telecom space. This sharp rise has raised concerns of overheating, leading to the revised outlook.

Motilal Oswal noted that Bharti Hexacom’s trading multiples exceed its fair valuation based on its contribution to Bharti’s overall business. BHL contributes around 7.5 percent to Bharti Airtel’s India wireless and home broadband EBITDA, making it difficult to support such a steep premium in valuation.

Risks from government stake and potential merger

Another concern highlighted is the 15 percent stake held by the Government of India, which has historically led to delays in strategic decisions, such as the tower sale to Indus Towers. Procedural objections due to this stake are seen as creating a persistent overhang, limiting the company’s operational freedom and strategic agility.

There is also speculation about a potential merger with Bharti Airtel, which could result in an unfavourable merger ratio for BHL shareholders. Analysts point out that since BHL contributes a small portion to Bharti’s EBITDA, any merger may disproportionately benefit Bharti shareholders, making it a valuation risk for existing investors in BHL.

Market position and competition

Despite these risks, Bharti Hexacom operates in low-competition telecom circles, giving it better pricing power. However, market share gains remain limited due to the dominance of two major players in these regions. This restricts BHL’s ability to expand aggressively, even though the competitive intensity is low.

Growth outlook remains positive

Bharti Hexacom’s premiumisation strategy has yielded results, with 76.7 percent of subscribers now using data services, narrowing the gap with Bharti’s broader Indian wireless operations. This strategic move supports revenue growth and better ARPU trajectory.

The company is expected to benefit from a tariff hike anticipated in December 2025, which may drive ARPU higher by FY27. Motilal Oswal estimates an ARPU CAGR of 11 percent up to FY28, with free cash flow generation projected to hit Rs 3000 crore, and net debt-free status achieved by FY27.

Dividend payouts are also projected to rise, reaching Rs 30 per share by FY27, supported by strong cash flows and capital discipline.

Long-term outlook and growth moderation

Post FY28, tariff increases are expected to be gradual, with a projected ARPU CAGR of 5.5 percent from FY28 to FY35. As a result, EBITDA and revenue growth are expected to moderate to 7 percent CAGR in that period, leading to a possible reassessment of valuation multiples.

While BHL offers exposure to India’s expanding wireless and broadband market, and has slightly better penetration potential compared to Bharti Airtel, the valuation re-rating already priced in these positives may limit near-term upside.

IPO performance and current shareholding

Bharti Hexacom went public in April 2024, raising Rs 4275 crore by offering shares at Rs 570 apiece, with a lot size of 26 shares. Since listing, the stock has surged over 230 percent, giving it a market capitalisation near Rs 90000 crore.

Despite this strong listing performance, the recent pullback in share price and cautious view from analysts indicates that the stock may have run ahead of fundamentals, at least in the short term.

Investor takeaway

While Bharti Hexacom remains fundamentally sound, with a strong balance sheet, improving ARPU, and clear strategic focus, investors should weigh the high valuation premium, the government’s stake-related limitations, and the uncertainties surrounding a potential merger with Bharti Airtel.

The downgrade by Motilal Oswal is a reminder that valuation discipline matters, even for companies showing strong operational performance. Investors are advised to adopt a cautious stance, tracking future developments such as tariff hikes, regulatory moves, and strategic decisions.

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