The September quarter results underscore Bharti Hexacom's ability to extract pricing power and operational leverage from its regional monopoly position. Net sales reached a record ₹2,317.30 crores, up 2.40% sequentially from ₹2,263.00 crores in Q1 FY26 and 10.47% higher than the year-ago quarter. The company's profit after tax of ₹421.20 crores represented a sequential increase of 7.55% from ₹391.60 crores in the previous quarter, whilst year-on-year growth accelerated to 66.42% from ₹253.10 crores in Q2 FY25.
Following the results announcement, the stock traded at ₹1,871.60 on November 3, 2025, reflecting a modest gain of 0.67% from the previous close. The stock has delivered impressive returns of 31.22% over the past year, significantly outperforming the Sensex's 5.34% gain by a healthy alpha of 25.88 percentage points. Year-to-date, Bharti Hexacom has surged 28.46%, demonstrating strong investor confidence despite valuation concerns.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 2,317.30 | 2,263.00 | 2,289.00 | 2,250.70 | 2,097.60 | 1,910.60 |
| QoQ Growth | +2.40% | -1.14% | +1.70% | +7.30% | +9.79% | +2.28% |
| YoY Growth | +10.47% | +18.44% | +22.54% | — | — | — |
| Net Profit (₹ Cr) | 421.20 | 391.60 | 468.40 | 260.90 | 253.10 | 511.20 |
| QoQ Growth | +7.55% | -16.40% | +79.53% | +3.08% | -50.49% | — |
| YoY Growth | +66.42% | -23.40% | +110.44% | — | — | — |
| Operating Margin % | 52.13% | 51.29% | 51.02% | 51.17% | 47.76% | 45.84% |
| PAT Margin % | 18.18% | 17.30% | 20.46% | 11.59% | 12.07% | 26.76% |
Financial Performance: Margin Expansion Takes Centre Stage
Bharti Hexacom's Q2 FY26 performance was characterised by impressive margin expansion across key profitability metrics. Operating profit before depreciation, interest, and tax (excluding other income) reached ₹1,208.10 crores, representing a sequential increase of 4.09% from ₹1,160.70 crores in Q1 FY26 and a substantial 20.58% year-on-year jump from ₹1,001.90 crores. The corresponding operating margin expanded to 52.13%, up from 51.29% in the previous quarter and a significant 437 basis points higher than the 47.76% recorded in Q2 FY25.
The margin improvement reflects the company's ability to leverage its infrastructure investments whilst extracting better realisations from its subscriber base. On a half-yearly basis (H1 FY26), the company reported net sales of ₹4,580.30 crores, a robust 14.38% increase from ₹4,008.20 crores in H1 FY25. Net profit for H1 FY26 stood at ₹812.80 crores, marking an impressive 68.56% surge from ₹482.20 crores in the corresponding period last year. This acceleration in profitability growth significantly outpaced revenue growth, demonstrating strong operational leverage.
The company's profit after tax margin for Q2 FY26 stood at 18.18%, up from 17.30% in Q1 FY26 and 12.07% in Q2 FY25. Whilst this represents solid improvement, it remains below the exceptional 26.76% PAT margin achieved in Q2 FY24, which benefited from an unusually low tax rate of 11.37%. In Q2 FY26, the effective tax rate normalised to 25.33%, in line with the 25.66% rate in Q1 FY26 and 25.45% in Q2 FY25, indicating stable tax efficiency.
Cost management remained disciplined during the quarter. Interest costs declined sequentially to ₹150.90 crores from ₹154.10 crores in Q1 FY26, whilst depreciation increased marginally to ₹554.30 crores from ₹527.30 crores, reflecting ongoing network expansion and technology upgrades. Employee costs stood at ₹32.00 crores in Q2 FY26, compared to ₹21.00 crores in the previous quarter, though this remains modest relative to the company's overall cost structure.
Operational Excellence: Capital Efficiency Reaches New Heights
Bharti Hexacom's operational metrics underscore the quality of its business model and competitive positioning in its operating circles. The company's return on equity (ROE) for the latest period stood at an impressive 24.39%, significantly above the average ROE of 19.53% over recent years. This elevated ROE reflects superior capital efficiency and the company's ability to generate strong returns for shareholders. Higher ROE is particularly noteworthy in the capital-intensive telecom sector, where infrastructure investments typically weigh on return metrics.
The company's return on capital employed (ROCE) reached 15.96% in the latest period, up from the historical average of 12.26%. This improvement in ROCE indicates that Bharti Hexacom is deploying capital more effectively and extracting better returns from its asset base. The operating profit to interest coverage ratio reached an impressive 8.01 times in Q2 FY26, the highest level in recent quarters, providing substantial cushion against debt servicing obligations and reflecting improving financial flexibility.
Balance sheet quality has shown improvement, though leverage remains moderate. Long-term debt stood at ₹2,962.60 crores as of March 2025, down significantly from ₹5,002.50 crores a year earlier, representing a debt reduction of ₹2,039.90 crores. The company's average net debt to equity ratio of 1.22 indicates moderate leverage, whilst the average debt to EBITDA ratio of 2.67 suggests manageable debt levels relative to cash generation capacity. Shareholder funds increased to ₹5,932.10 crores as of March 2025 from ₹4,638.70 crores in March 2024, bolstered by retained earnings.
Key Operational Strength: Interest Coverage at Multi-Quarter High
Bharti Hexacom's operating profit to interest coverage ratio reached 8.01 times in Q2 FY26, the strongest level in recent quarters. This robust coverage provides significant financial flexibility and reflects the company's ability to service debt obligations comfortably even as it continues network expansion. The improving coverage ratio, combined with declining absolute interest costs (down to ₹150.90 crores from ₹154.10 crores sequentially), signals prudent financial management and reduced refinancing risk.
The company's cash flow generation remained healthy, with cash flow from operations reaching ₹4,582.00 crores in FY25, up from ₹3,546.00 crores in FY24. This strong operational cash generation funded capital expenditure of ₹2,340.00 crores during FY25, whilst also enabling debt reduction. The company maintained a closing cash balance of ₹17.00 crores as of March 2025, down from ₹39.00 crores, reflecting efficient capital deployment rather than cash hoarding.
Market Context: Regional Monopoly Advantages Drive Pricing Power
Bharti Hexacom operates in a relatively favourable competitive environment within its Rajasthan and North East circles. As a subsidiary of Bharti Airtel Ltd., which holds a 70.00% stake, the company benefits from the parent's technological expertise, brand strength, and operational best practices. This strategic positioning has enabled Bharti Hexacom to maintain dominant market share in its operating regions, translating into pricing power and subscriber stickiness.
The telecom sector in India has witnessed consolidation and rationalisation over recent years, with the industry moving from a hyper-competitive phase to a more disciplined pricing environment. This structural shift has particularly benefited regional operators like Bharti Hexacom, which can leverage their local market knowledge and infrastructure density. The company's ability to consistently expand operating margins from 45.84% in Q2 FY24 to 52.13% in Q2 FY26 reflects this improved competitive dynamic.
Looking at the broader industry context, the telecom sector has seen sustained revenue growth driven by increasing data consumption, rising average revenue per user (ARPU), and ongoing 4G/5G network rollouts. Bharti Hexacom's 5-year sales growth rate of 16.50% and exceptional 5-year EBIT growth of 77.97% demonstrate the company's ability to capitalise on these favourable industry trends whilst maintaining operational discipline.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Bharti Hexacom | 64.68 | 15.78 | 19.53% | 1.22 | 0.53% |
| Bharti Airtel | 40.95 | 10.40 | 11.39% | 1.72 | 0.77% |
| Vodafone Idea | NA (Loss Making) | -1.47 | 0.00% | -3.17 | — |
| Tata Communications | 52.03 | 1.91 | 181.53% | 2.36 | 1.31% |
| Railtel Corporation | 36.82 | 5.94 | 12.76% | -0.26 | 0.76% |
Peer Comparison: Premium Valuation Despite Strong Fundamentals
When compared to peers in the telecom services sector, Bharti Hexacom trades at a significant valuation premium that warrants careful consideration. The company's trailing price-to-earnings ratio of 64.68x substantially exceeds parent Bharti Airtel's 40.95x, Railtel Corporation's 36.82x, and Tata Communications' 52.03x. This premium valuation of approximately 58% above Bharti Airtel suggests the market is pricing in superior growth prospects or regional monopoly advantages.
The price-to-book value multiple of 15.78x also reflects stretched valuations, particularly when compared to Bharti Airtel's 10.40x and Railtel's 5.94x. Whilst Bharti Hexacom's ROE of 19.53% justifies some premium to peers, the magnitude of the valuation gap appears excessive. Tata Communications, despite posting an exceptionally high ROE of 181.53%, trades at just 1.91x book value, highlighting the disconnect between Bharti Hexacom's fundamentals and market pricing.
On the positive side, Bharti Hexacom's debt-to-equity ratio of 1.22 compares favourably to Bharti Airtel's 1.72 and Tata Communications' 2.36, indicating more conservative leverage. However, the dividend yield of 0.53% lags behind Bharti Airtel (0.77%), Railtel (0.76%), and Tata Communications (1.31%), providing limited income support for investors at current valuations. The company paid a dividend of ₹10 per share in July 2025, representing a payout ratio of 33.48%.
"Bharti Hexacom's 52% operating margin and 8x interest coverage demonstrate operational excellence, but the 65x earnings multiple demands near-perfect execution to justify current valuations."
Valuation Analysis: Expensive Entry Point Despite Strong Fundamentals
Bharti Hexacom's current valuation metrics flash warning signals for value-conscious investors, despite the company's strong operational performance. Trading at ₹1,871.60 with a market capitalisation of ₹92,575 crores, the stock commands a trailing P/E ratio of 65x, well above the telecom services industry average of 42x. This represents a premium of approximately 55% to the sector, suggesting the market has already priced in substantial growth expectations.
The enterprise value multiples further underscore the rich valuation. EV/EBITDA stands at 22.49x, EV/EBIT at 42.79x, and EV/Sales at 11.33x—all significantly elevated compared to historical norms for telecom operators. The EV/Capital Employed ratio of 7.65x indicates that investors are paying a steep premium for the company's asset base, reflecting confidence in future returns rather than current asset values.
Historical valuation trends show the stock has consistently traded in "Very Expensive" or "Expensive" territory since August 2024, with frequent oscillations between these categories. The current valuation grade of "Very Expensive" has been in place since late August 2024, with only brief interludes of "Expensive" classification. This persistent premium valuation suggests limited margin of safety for new investors, particularly given the cyclical nature of telecom sector profitability.
From a technical perspective, the stock currently trades 8.75% below its 52-week high of ₹2,051.00 but remains 52.78% above its 52-week low of ₹1,225.00. The stock is positioned above all key moving averages—5-day (₹1,870.00), 20-day (₹1,783.15), 50-day (₹1,757.23), 100-day (₹1,782.67), and 200-day (₹1,636.81)—indicating technical strength. However, this technical support must be weighed against fundamental valuation concerns.
Shareholding Pattern: Stable Promoter Base, Marginal Institutional Shifts
Bharti Hexacom's shareholding structure has remained remarkably stable over recent quarters, with promoter holding consistently maintained at 70.00% across the last five quarters from September 2024 through September 2025. This unwavering promoter commitment, with Bharti Airtel Ltd. as the sole promoter entity, provides governance stability and strategic continuity. The absence of any promoter pledging (0.0% pledged shares) further underscores financial strength and alignment with minority shareholders.
| Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 70.00% | 70.00% | 70.00% | 70.00% | 0.00% |
| FII | 3.94% | 4.33% | 4.33% | 5.01% | -0.39% |
| Mutual Funds | 8.27% | 8.14% | 8.37% | 8.22% | +0.13% |
| Insurance | 1.93% | 1.58% | 1.53% | 1.03% | +0.35% |
| Other DII | 0.04% | 0.09% | 0.07% | 0.03% | -0.05% |
| Non-Institutional | 15.82% | 15.86% | 15.70% | 15.71% | -0.04% |
Institutional shareholding patterns reveal nuanced shifts in investor sentiment. Foreign institutional investors (FIIs) reduced their stake to 3.94% in September 2025 from 4.33% in June 2025, marking a sequential decline of 39 basis points. This reduction continues a gradual downward trend from 5.01% in December 2024, suggesting some profit-booking by foreign investors following the stock's strong rally. The presence of 145 FII holders indicates broad international interest, though the aggregate stake remains modest.
Conversely, domestic institutional investors have shown increasing interest. Mutual fund holdings edged up to 8.27% in September 2025 from 8.14% in June 2025, with 34 mutual fund schemes holding positions. More notably, insurance company holdings jumped to 1.93% from 1.58% sequentially, representing a significant 35 basis point increase and continuing an upward trajectory from just 0.99% in September 2024. This growing insurance sector interest suggests long-term institutional confidence in the company's fundamentals.
The non-institutional shareholding, comprising retail and high-net-worth individuals, remained stable at 15.82% in September 2025, marginally down from 15.86% in the previous quarter. This stable retail participation base provides liquidity support, though the relatively small free float (30% after accounting for promoter holding) can contribute to volatility during periods of institutional repositioning.
Stock Performance: Strong Outperformance Driven by Fundamentals
Bharti Hexacom's stock has delivered exceptional returns across multiple timeframes, significantly outperforming both the benchmark Sensex and the broader telecom services sector. Over the past year, the stock generated returns of 31.22%, crushing the Sensex's 5.34% gain with a remarkable alpha of 25.88 percentage points. This outperformance reflects investor recognition of the company's improving fundamentals, margin expansion, and strong cash generation.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | 0.67% | 0.05% | +0.62% |
| 1 Week | 0.05% | -0.94% | +0.99% |
| 1 Month | 14.34% | 3.41% | +10.93% |
| 3 Months | 1.52% | 4.19% | -2.67% |
| 6 Months | 10.01% | 4.32% | +5.69% |
| Year-to-Date | 28.46% | 7.47% | +20.99% |
| 1 Year | 31.22% | 5.34% | +25.88% |
The one-month performance stands out particularly, with the stock surging 14.34% compared to the Sensex's 3.41% gain, generating alpha of 10.93 percentage points. This recent acceleration followed the company's strong Q2 results and improving margin trajectory. Year-to-date returns of 28.46% have handsomely beaten the Sensex's 7.47% gain, rewarding investors who maintained conviction through earlier volatility.
However, the three-month performance reveals a period of consolidation, with the stock gaining just 1.52% whilst the Sensex advanced 4.19%, resulting in negative alpha of 2.67 percentage points. This relative underperformance during the July-October period likely reflected profit-booking after the stock's strong run and concerns about stretched valuations. The subsequent October rally has restored momentum, with the stock reclaiming its position above all major moving averages.
From a risk-adjusted perspective, the stock's one-year absolute return of 31.22% came with elevated volatility of 36.81%, significantly higher than the Sensex's 12.50% volatility. The risk-adjusted return of 0.85 compares favourably to the Sensex's 0.43, indicating that the additional volatility was compensated by superior returns. However, the high beta of 1.20 (adjusted) suggests the stock amplifies market movements, making it more suitable for investors with higher risk tolerance.
Investment Thesis: Quality Business Trading at Premium Valuations
Bharti Hexacom presents a compelling case study of a high-quality regional telecom operator delivering strong operational performance but trading at valuations that limit upside potential for new investors. The company's overall Mojo Score of 64/100 places it in "HOLD" territory, reflecting the tension between robust fundamentals and expensive valuations. The current advisory rating of "HOLD" suggests the stock is not recommended for fresh purchases, though existing holders can maintain positions.
The investment thesis rests on several pillars. First, the company's quality grade of "Good" reflects healthy long-term growth metrics, with sales growing at 16.50% annually and EBIT surging at 77.97% over five years. The absence of promoter pledging and stable 70% promoter holding provide governance comfort. Second, the financial trend remains "Positive," with the latest half-year PAT growing 68.56% year-on-year and operating margins hitting multi-quarter highs of 52.13%. Third, technical indicators flash "Mildly Bullish," with the stock trading above all major moving averages.
However, the critical weakness lies in valuation, graded as "Very Expensive." The 65x trailing P/E ratio, 15.78x price-to-book multiple, and 22.49x EV/EBITDA leave minimal room for disappointment. Any slowdown in subscriber growth, competitive intensity, or margin compression could trigger sharp downside, given the lofty valuations. The modest dividend yield of 0.53% provides limited income cushion during market volatility.
✓ KEY STRENGTHS
- Exceptional Margin Expansion: Operating margin reached 52.13%, up 437 bps YoY, demonstrating pricing power and operational leverage
- Strong ROE of 24.39%: Significantly above sector average, indicating superior capital efficiency and shareholder value creation
- Robust Interest Coverage: Operating profit to interest ratio at 8.01x provides substantial financial flexibility and low refinancing risk
- Accelerating Profit Growth: H1 FY26 PAT surged 68.56% YoY, outpacing revenue growth and reflecting strong operational leverage
- Debt Reduction: Long-term debt declined by ₹2,040 crores to ₹2,963 crores, strengthening balance sheet
- Stable Promoter Holding: Consistent 70% stake by Bharti Airtel with zero pledging demonstrates long-term commitment
- Regional Monopoly Advantages: Dominant position in Rajasthan and North East circles provides pricing power and subscriber stickiness
⚠ KEY CONCERNS
- Stretched Valuation: P/E of 65x represents 55% premium to industry average of 42x, leaving minimal margin of safety
- Expensive Price-to-Book: Trading at 15.78x book value vs parent Bharti Airtel's 10.40x, suggesting valuation disconnect
- Low Dividend Yield: 0.53% yield lags peers and provides limited income support at current valuations
- High Volatility: 36.81% volatility with beta of 1.20 makes stock unsuitable for conservative investors
- FII Stake Reduction: Foreign investors trimmed holdings from 5.01% to 3.94%, signalling profit-booking after rally
- Limited Free Float: Only 30% public shareholding can amplify volatility during institutional repositioning
- Execution Risk: Premium valuation demands near-perfect execution; any operational misstep could trigger sharp correction
Outlook: What to Watch in Coming Quarters
The investment outlook for Bharti Hexacom hinges on the company's ability to sustain margin expansion whilst navigating competitive pressures and justifying premium valuations through continued operational excellence. Several factors will be critical to monitor over the next 12-18 months as the investment case evolves.
POSITIVE CATALYSTS
- Sustained Margin Expansion: Ability to maintain operating margins above 50% through pricing discipline and cost efficiency
- 5G Rollout Benefits: Network upgrades could drive ARPU improvement and data consumption growth
- Market Share Gains: Further consolidation in regional markets could strengthen competitive positioning
- Debt Reduction Continuation: Ongoing deleveraging would improve financial flexibility and reduce interest burden
- Dividend Increase: Higher payout ratio could improve yield and attract income-focused investors
RED FLAGS TO MONITOR
- Margin Compression: Any decline in operating margins below 50% would signal competitive pressure or cost inflation
- Revenue Growth Slowdown: Deceleration below 10% YoY would raise concerns about market saturation
- Subscriber Churn: Increased customer attrition could indicate service quality issues or competitive threats
- Valuation Multiple Contraction: Sector-wide re-rating could trigger sharp correction given elevated multiples
- Regulatory Headwinds: Adverse policy changes on spectrum pricing or tariff regulations could impact profitability
For the remainder of FY26, investors should closely track quarterly revenue growth trends, particularly whether the company can sustain double-digit YoY growth rates. The ability to maintain operating margins above 50% will be crucial in justifying current valuations. Any signs of competitive intensity in the Rajasthan or North East circles, whether through aggressive pricing by rivals or market share losses, would warrant reassessment of the investment thesis.
The company's capital allocation strategy will also merit attention. With debt levels declining and cash generation strengthening, management's choices regarding dividend policy, network investments, and potential acquisitions will shape long-term value creation. An increase in the dividend payout ratio from the current 33.48% could make the stock more attractive to income investors and provide valuation support.
The Verdict: Quality Operator, But Wait for Better Entry
Score: 64/100
For Fresh Investors: Avoid initiating positions at current valuations. The 65x P/E ratio and 15.78x P/BV multiple leave minimal margin of safety despite strong operational performance. Wait for a meaningful correction of 15-20% or evidence of sustained margin expansion above 55% before considering entry. The stock's high beta and volatility make it unsuitable for conservative portfolios.
For Existing Holders: Continue holding with a trailing stop-loss at ₹1,750 (approximately 6.5% below current levels). The company's operational excellence, improving ROE, and strong cash generation justify maintaining exposure. Consider booking partial profits if the stock approaches ₹2,000 levels, as valuation risk intensifies above that threshold. Monitor quarterly results closely for any signs of margin pressure or growth deceleration.
Fair Value Estimate: ₹1,450-1,550 (22-17% downside from current levels) based on 50x P/E ratio (closer to sector average) applied to FY26 estimated earnings. Current price of ₹1,872 discounts significant growth that may already be reflected in recent margin expansion.
Rationale: Bharti Hexacom demonstrates exceptional operational metrics with 52% operating margins, 24% ROE, and 8x interest coverage, positioning it as a quality regional telecom operator. However, the 65x earnings multiple and persistent "Very Expensive" valuation grade create asymmetric risk-reward, with limited upside and significant downside vulnerability to any operational disappointments or sector re-rating. The HOLD rating reflects this tension between strong fundamentals and stretched valuations.
Note— ROCE = (EBIT - Other Income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results, and all investments carry inherent risks including potential loss of principal.
