Bharti Hexacom Q3 FY26: Margin Expansion Drives Profit Surge Despite Revenue Moderation

With a market capitalisation of ₹79,918 crores and a current price of ₹1,643.75 as of February 5, 2026, Bharti Hexacom—a subsidiary of Bharti Airtel Ltd. with 70% promoter holding—has delivered a one-year return of 21.84%, marginally outperforming the Sensex's 6.44% gain. However, the stock faces near-term headwinds, down 9.08% over the past month and 12.28% over three months, whilst technical indicators signal a mildly bearish trend.

The December 2025 quarter results reveal a company navigating the delicate balance between revenue growth and profitability optimisation. Whilst net sales growth moderated to 1.83% QoQ from 2.40% in the previous quarter, the year-on-year comparison remains healthy at 4.85%. More importantly, the company's focus on operational efficiency has yielded impressive results, with operating profit (PBDIT excluding other income) reaching ₹1,254.40 crores, marking the highest level in recent quarters.

Financial Performance: Margin Mastery Amidst Revenue Deceleration

The third quarter of FY2026 showcased Bharti Hexacom's ability to extract profitability from its existing subscriber base, even as topline momentum softened. Net sales of ₹2,359.80 crores represented a sequential gain of 1.83%, down from 2.40% in Q2 FY26, suggesting some plateauing in subscriber additions or average revenue per user (ARPU) growth. However, the year-on-year comparison remains encouraging at 4.85%, indicating sustained market share gains in the company's operating circles.

The standout achievement lies in margin expansion. Operating margin (excluding other income) climbed to 53.16% in Q3 FY26, up 103 basis points from 52.13% in the previous quarter and a remarkable 740 basis points from 45.84% in June 2024. This progressive improvement reflects disciplined cost management, operational leverage from network investments, and favourable pricing dynamics in the regional markets. The company's ability to maintain margins above 50% for four consecutive quarters demonstrates structural improvements in the business model.

Net profit of ₹473.70 crores in Q3 FY26 marked a 12.46% QoQ increase and an impressive 81.56% YoY surge, significantly outpacing revenue growth. This profit acceleration stems from multiple factors: the aforementioned margin expansion, declining interest costs (down to ₹147.00 crores from ₹154.10 crores in Q2 FY26), and a favourable tax rate of 16.75% compared to 25.33% in the previous quarter. The PAT margin improved to 20.07% from 18.18%, highlighting the quality of earnings generation.

The quarterly tax rate volatility deserves scrutiny. After recording elevated tax rates of 25.66% and 25.33% in Q1 and Q2 FY26 respectively, the Q3 rate dropped sharply to 16.75%. This compares favourably to the 31.22% rate in Q3 FY25, suggesting potential tax optimisation strategies or one-time adjustments. Investors should monitor whether this lower rate sustains in subsequent quarters or represents a temporary benefit.

Operational Excellence: Capital Efficiency Reaches New Heights

Beyond headline profit numbers, Bharti Hexacom's operational metrics paint an impressive picture of capital efficiency. The company's Return on Capital Employed (ROCE) for H1 FY26 reached 21.36%, the highest level in recent periods and a substantial improvement from the five-year average of 14.04%. This metric—calculated as (EBIT - Other income)/(Capital Employed - Cash - Current Investments)—demonstrates management's ability to generate superior returns from the capital deployed in the business.

The improvement in ROCE stems from multiple factors. Operating profit to interest coverage expanded to 8.53 times in Q3 FY26, the strongest ratio in recent quarters, indicating reduced financial leverage risk and improved debt servicing capability. Interest expenses have been trending downward, falling from ₹180.20 crores in Q3 FY24 to ₹147.00 crores in Q3 FY26, a decline of 18.41% despite ongoing network expansion requirements.

The balance sheet reveals a company in transition from high leverage to moderate debt levels. Long-term debt stood at ₹2,962.60 crores as of March 2025, down substantially from ₹5,002.50 crores a year earlier—a reduction of ₹2,039.90 crores or 40.78%. The debt-to-equity ratio improved to 1.06 times in H1 FY26, the lowest level in recent years, compared to the five-year average of 1.00 times. This deleveraging trajectory provides financial flexibility for future investments and potential shareholder returns.

However, Return on Equity (ROE) presents a more nuanced picture. The latest ROE of 25.86% appears robust, but the five-year average of 12.71% suggests historical volatility in profitability. The gap between ROCE and ROE indicates the impact of financial leverage, though the recent deleveraging trend should narrow this differential over time. Investors should note that whilst current ROE looks attractive, sustainability depends on maintaining profit momentum as debt levels normalise.

Asset Quality and Working Capital: Operational Smoothness

The company's working capital management deserves recognition. The debtors turnover ratio for H1 FY26 reached 95.20 times, the highest level recorded, indicating exceptional efficiency in collecting receivables. In the telecom sector, where subscriber billing and collection can pose challenges, this metric reflects strong operational processes and healthy customer payment behaviour.

Fixed assets expanded to ₹11,668.60 crores as of March 2025 from ₹10,755.40 crores a year earlier, representing network infrastructure investments of approximately ₹913.20 crores. This 8.49% growth in fixed assets, combined with declining debt levels, suggests the company is funding expansion increasingly through internal accruals—a positive sign of financial maturity. Depreciation charges of ₹566.80 crores in Q3 FY26 remain stable, indicating the asset base is being utilised efficiently without excessive capital consumption.

Industry Context: Regional Telecom Consolidation Benefits

Bharti Hexacom operates in a unique position within India's telecom landscape, serving the Rajasthan and North East circles through licences granted in December 1995. As a subsidiary of Bharti Airtel Ltd., the company benefits from network synergies, technology platforms, and brand strength, whilst maintaining operational autonomy suited to regional market dynamics.

The Indian telecom sector has undergone significant consolidation over the past five years, with the market essentially becoming a three-player oligopoly at the national level. This rationalisation has enabled pricing discipline and reduced destructive competition, allowing operators to invest in network quality and 5G infrastructure. Bharti Hexacom's margin expansion from 45.84% in June 2024 to 53.16% in December 2025 reflects these favourable industry dynamics.

Regional operators like Bharti Hexacom possess certain advantages in their operating territories. Lower competitive intensity in tier-2 and tier-3 cities, coupled with rising smartphone penetration and data consumption, creates a growth runway. The company's 16.79% five-year sales CAGR and 147.86% five-year EBIT CAGR demonstrate successful capitalisation on these trends. However, the lack of pan-India scale compared to parent Airtel or competitor Reliance Jio limits bargaining power with equipment vendors and spectrum acquisition flexibility.

Peer Comparison: Premium Valuation Versus Operational Performance

Bharti Hexacom's valuation metrics reveal a company trading at significant premium to both parent Bharti Airtel and the broader telecom sector. The stock commands a P/E ratio of 50.90 times trailing twelve-month earnings, substantially higher than Bharti Airtel's 36.09 times and the sector average of approximately 35 times. This premium valuation reflects market recognition of the company's superior margin profile and growth trajectory.

However, the valuation premium appears stretched when examined against fundamental metrics. Bharti Hexacom's ROE of 12.71% (five-year average) lags behind Bharti Airtel's 15.49% and significantly trails Tata Communications' exceptional 188.12%. The price-to-book ratio of 13.16 times exceeds Bharti Airtel's 9.64 times and Railtel Corporation's 5.03 times, suggesting the market is pricing in substantial future growth that may prove challenging to deliver.

The dividend yield comparison further highlights valuation concerns. Bharti Hexacom offers 0.61% dividend yield, below Bharti Airtel's 0.80%, Tata Communications' 1.61%, and Railtel's 0.85%. Whilst the company maintains a reasonable dividend payout ratio of 33.48%, the low absolute yield reflects the elevated stock price rather than stingy dividend policy. The latest dividend of ₹10 per share went ex-dividend in July 2025, providing modest income support.

From a capital structure perspective, Bharti Hexacom's debt-to-equity ratio of 1.00 times positions favourably against Bharti Airtel's 1.56 times and Tata Communications' 4.52 times. This lower leverage provides financial flexibility and reduces risk, though it also limits the potential for equity returns amplification through financial leverage. The company's conservative balance sheet approach aligns with its regional operator profile and the capital-intensive nature of telecom infrastructure.

Valuation Analysis: Premium Justified or Overextension?

Bharti Hexacom's current market price of ₹1,643.75 represents a 19.86% decline from its 52-week high of ₹2,051.00, yet the stock remains 34.18% above its 52-week low of ₹1,225.00. This positioning suggests the market is reassessing the premium valuation assigned during the stock's peak, whilst maintaining conviction in the long-term investment case. The stock's classification as "Very Expensive" by valuation metrics reflects this tension between operational performance and market pricing.

The P/E ratio of 50.90 times implies the market expects sustained earnings growth well above industry averages. To justify this multiple, Bharti Hexacom would need to maintain double-digit profit growth for several years—a challenging proposition given the already high margin base of 53.16%. The PEG ratio of 0.67 (below 1.0) suggests the valuation may be reasonable relative to growth expectations, though this metric relies on continued execution excellence.

Enterprise value multiples provide additional perspective. The EV/EBITDA ratio of 18.87 times and EV/Sales of 9.70 times both indicate premium pricing. For context, mature telecom operators in developed markets typically trade at 6-8 times EV/EBITDA, whilst high-growth emerging market operators might command 10-12 times. Bharti Hexacom's 18.87 times multiple prices in exceptional growth and margin sustainability that may prove difficult to deliver as the company scales.

Book value per share of ₹118.64 compared to the market price of ₹1,643.75 results in a price-to-book ratio of 13.16 times. This substantial premium to book value reflects intangible assets—brand strength, spectrum licences, customer relationships—that don't appear on the balance sheet. However, such elevated P/BV ratios leave little margin for error; any operational misstep or margin compression could trigger significant valuation de-rating.

Shareholding Pattern: Stable Promoter Base, Institutional Caution

The shareholding structure of Bharti Hexacom reveals a company firmly controlled by parent Bharti Airtel Ltd., which maintains a steady 70.00% promoter stake across all recent quarters. This unwavering promoter commitment provides governance stability and strategic alignment with India's leading telecom operator. Importantly, zero promoter pledging eliminates concerns about financial distress or misaligned incentives.

Institutional investor activity, however, tells a more cautious story. Foreign Institutional Investors (FIIs) reduced their stake from 5.01% in December 2024 to 3.98% by December 2025, a decline of 103 basis points over four quarters. This gradual reduction suggests global investors are taking profits or reallocating capital to more attractively valued opportunities. The sequential movements show volatility, with FII holding dropping from 4.33% in March 2025 to 3.94% in September 2025, before a marginal uptick to 3.98% in December 2025.

Mutual fund holdings have remained relatively stable, oscillating between 8.14% and 8.37% over the past five quarters, settling at 8.25% in December 2025. This consistency suggests domestic fund managers view Bharti Hexacom as a core holding worthy of maintaining, despite valuation concerns. The presence of 34 mutual funds in the shareholder base indicates diversified domestic institutional support.

Insurance companies have been gradually increasing their stake, rising from 1.03% in December 2024 to 2.02% by December 2025—a near-doubling of their position. This accumulation by insurance investors, known for long-term investment horizons, provides a positive signal about fundamental quality. The sequential increases of 0.50%, 0.05%, 0.35%, and 0.09% across quarters demonstrate methodical accumulation rather than opportunistic trading.

Stock Performance: Underperformance Amidst Technical Weakness

Bharti Hexacom's stock price trajectory over recent months reflects the market's reassessment of valuation premiums amidst broader sectoral headwinds. The stock has declined 9.08% over the past month and 12.28% over three months, significantly underperforming the Sensex, which fell just 2.49% and 0.17% over the same periods respectively. This underperformance has generated negative alpha of -6.59% (one month) and -12.11% (three months), indicating stock-specific concerns beyond general market weakness.

The six-month return of -11.05% versus the Sensex's +3.23% gain translates to -14.28% alpha, suggesting sustained selling pressure. However, the one-year perspective remains positive, with the stock delivering 21.84% returns against the Sensex's 6.44%, generating +15.40% alpha. This divergence between short-term weakness and longer-term strength creates a complex picture for investors evaluating entry points.

Technical indicators paint a cautious picture. The stock currently trades in a "Mildly Bearish" trend that commenced on February 2, 2026, at ₹1,580.15, transitioning from the previous "Bearish" classification. The stock price of ₹1,643.75 remains below all major moving averages: 5-day MA (₹1,596.19), 20-day MA (₹1,631.96), 50-day MA (₹1,710.70), 100-day MA (₹1,736.78), and 200-day MA (₹1,754.30). This alignment of moving averages in descending order typically signals sustained downward pressure.

The technical indicator summary reveals mixed signals across timeframes. Weekly MACD shows bearish momentum, whilst weekly RSI provides no clear signal. Bollinger Bands indicate "Mildly Bearish" on the weekly timeframe but "Bullish" on monthly, suggesting potential consolidation. The Dow Theory classification of "Mildly Bearish" on weekly and "No Trend" on monthly reinforces the transitional nature of current price action. On-Balance Volume (OBV) showing "Mildly Bearish" across both weekly and monthly timeframes suggests distribution, though not at panic levels.

From a risk perspective, Bharti Hexacom exhibits high volatility of 34.90% compared to the Sensex's 11.52%, resulting in a beta of 1.20. This "High Beta" classification means the stock tends to amplify market movements—rising faster in bull markets but falling harder in corrections. The risk-adjusted return of 0.63 versus the Sensex's 0.56 over one year suggests the additional volatility has been rewarded, though the "HIGH RISK HIGH RETURN" categorisation warrants caution for conservative investors.

Investment Thesis: Quality Business at Stretched Valuation

Bharti Hexacom presents a compelling fundamental story marred by valuation concerns. The company's quality grade of "Good" reflects solid long-term financial performance, with 16.79% sales CAGR and 147.86% EBIT CAGR over five years. The absence of promoter pledging, consistent dividend payments, and improving capital efficiency metrics (ROCE of 21.36% in H1 FY26) support the quality assessment. However, the "Very Expensive" valuation grade creates a significant hurdle for fresh investments.

The financial trend classification of "Positive" for Q3 FY26 highlights multiple strengths: highest operating profit-to-interest coverage at 8.53 times, record ROCE of 21.36%, lowest debt-to-equity ratio at 1.06 times, and peak quarterly metrics across net sales (₹2,359.80 crores), operating profit (₹1,254.40 crores), and PAT (₹473.70 crores). These achievements demonstrate operational momentum and management execution capability.

Yet technical weakness cannot be ignored. The "Mildly Bearish" trend classification, combined with the stock trading below all moving averages and negative alpha across short-to-medium timeframes, suggests timing risk for new entrants. The overall Mojo score of 54/100 and "HOLD" rating reflect this tension between fundamental quality and valuation/technical concerns. The recommendation explicitly states "Not recommended for fresh buy" whilst advising existing holders to "continue to hold."

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters