Bharti Hexacom Limited — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Bharti Hexacom delivered a strong Q3 FY25, reporting a 7.3% sequential revenue growth to ₹2251 Crores and a 5.7% ARPU increase to ₹241. The company achieved a 53% EBITDA margin, improving by nearly 300 basis points, and generated ₹758 Crores in operating free cash flow. Net debt to EBITDAaL improved to 1.03, and management discussed the strategic transfer of 3400 towers to Indus Towers, anticipating marginal EBITDA dilution but no material net income impact.

Highlights

  • Revenue of ₹2251 Crores, growing sequentially by 7.3%.

  • ARPU grew by 5.7% to reach ₹241.

  • EBITDA at ₹1194 Crores with a margin of 53%, improving by almost 300 bps.

  • Net debt to EBITDAaL improved significantly to 1.03.

  • Operating free cash flow (EBITDAaL minus capex) was robust at ₹758 Crores.

Concerns

  • Planned transfer of 3400 towers to Indus Towers will cause 'some dilution in the EBITDA', though expected to be marginal.

  • A one-time exceptional charge of ₹1.4 billion was recorded, though it was non-cash and non-recurring.

Key financials

  1. Revenue ₹2,251 Cr +7.3%QoQ
  2. ARPU ₹241 +5.7%QoQ
  3. EBITDA ₹1,194 Cr
  4. EBITDA Margin 53%
  5. EBITDAaL ₹1,042 Cr
  6. EBITDAaL Margin 46.3%
  7. Net Income ₹261 Cr
  8. Operating Free Cash Flow ₹758 Cr
  9. Smartphone Customer Additions 4,50,000 units
  10. Net Customer Additions 4,94,000 units
  11. Churn Rate 1.9%
  12. Home Passes 20,00,000 units

What they filed

Q1 FY27: revenue up 10.9%, net profit up 23.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue2,098 2,251 2,289 2,263 2,317 +10%2,360 +5%2,414 +5%2,510 +11%
EBITDA1,002 1,152 1,168 1,161 1,208 +21%1,254 +9%1,267 +8%1,322 +14%
Net profit253 261 468 392 421 +66%474 +82%447 −4%482 +23%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex Capex disclosed
    • FWA rollout, as FWA CPE is significantly more expensive than broadband CPE
    • Fiber rollout
    There is angle of dividend payout. We must also remember that this FWA rollout will create a need for capex in Hexacom, because this FWA CPE is significantly more expensive than the broadband CPE, so, there will be some need of additional investments, but yes, the net debt to EBITDA looks very promising at just above one and as you rightly said that if we get this money, it will further come down. Dividend payout is something which will be certainly looked at with a positive angle.
  • Debt 1.0× EBITDA
    Net debt to EBITDAaL improved to 1.03.
  • M&A Indus Towers Divestment · Announced

    Lead to better operational and financial efficiency, free up management bandwidth, create long-term value.

    Transfer of approximately 3400 telecom towers. Expected to cause some marginal dilution in EBITDA due to incremental IP fees, but not material to overall P&L at net income level. Cash inflow will help in investing or paring down debt.

    We are planning to transfer about 16,100 telecom towers, approximately 12,700 from Bharti Airtel and about 3400 from Bharti Hexacom to Indus Towers. Our belief is that this business is best managed by Indus since they know how to do this better than us. It will not only free up management's bandwidth within Airtel but it will also create greater efficiency scale and ultimately long-term value at Indus.
  • Liquidity Liquidity disclosed Robust operating free cash flow of ₹758 Crores. Cash inflow from tower transfer will further reduce debt or support investments.
    Operating free cash flow with an EBITDAaL minus capex of about 758 Crores.

Guidance & targets

Capex

  • Capex for FWA rollout Capex · upcoming quarters · Medium confidence marginal increase
    So, directionally same could be marginal increase, it all depends on FWA rollout. As you know, that in terms of a footprint of the radio capex we had done and hence, there could be some increase because of the FWA capex but directionally, not very different.

    — Soumen Ray

What to watch in Q4 FY25

Financial impact of tower transfer

next quarter
Current Expected 'marginal dilution in EBITDA' and 'not material' impact on net income
Target Quantified impact on EBITDA and P&L post-transfer

Why it matters

To verify the actual financial implications of the significant asset transfer to Indus Towers on Bharti Hexacom's profitability metrics.

from EBITDA point of view there will be some dilution in the EBITDA. Consequent to the incremental IP fee, you see the energy will remain the same there is no difference; the O&M will remain the same. There will be some IP fees because there will be some return which will be taken by Indus on the investment; to that extent EBITDA will get very marginally diluted, but that will be very small and what I am trying to say is whatever is there has an impact will get unwound, because this money will help us in either investing or paring down our debt on spectrum or otherwise, so at a net income level we would not be materially different from what we are seeing.

Risks & concerns

  • EBITDA dilution from tower transfer

    low

    Transfer of 3400 towers to Indus Towers will cause 'some dilution in the EBITDA' due to incremental IP fees, but it is expected to be 'very marginal' and 'small'.

    Management acknowledged

  • One-time exceptional charge

    low

    A ₹1.4 billion exceptional charge was recorded due to a periodic review of assets/liabilities and court judgment reversals; it is a non-cash, one-time decision and not a recurring trend.

    Management acknowledged

Q&A highlights

5 direct
Financial impact of tower transfer to Indus Towers Partial
at net income level, there would not be much of a difference, because of course we will be receiving some consideration, which has an opportunity cost... should not be very material to the overall P&L. ... from EBITDA point of view there will be some dilution in the EBITDA. Consequent to the incremental IP fee... EBITDA will get very marginally diluted, but that will be very small.

Clarifies the expected financial implications (marginal EBITDA dilution, no material net income impact) of a significant asset transfer for Bharti Hexacom.

Asked by Mr. Vivekanand Subbaraman

Use of cash from tower transfer and capital allocation Direct
There is angle of dividend payout. We must also remember that this FWA rollout will create a need for capex in Hexacom, because this FWA CPE is significantly more expensive than the broadband CPE, so, there will be some need of additional investments... Dividend payout is something which will be certainly looked at with a positive angle.

Indicates potential future shareholder returns (dividend payout) and investment priorities (FWA capex) for the cash generated from the tower transfer.

Asked by Mr. Vivekanand Subbaraman

Capex guidance for FWA scale-up Direct
So, directionally same could be marginal increase, it all depends on FWA rollout. As you know, that in terms of a footprint of the radio capex we had done and hence, there could be some increase because of the FWA capex but directionally, not very different.

Provides clarity on the capex outlook for the growing Fixed Wireless Access (FWA) segment, indicating a potentially marginal increase but no significant shift.

Asked by Mr. Vivekanand Subbaraman

Nature of the ₹1.4 billion exceptional charge Direct
it was felt that there is a provision which has to be taken. There were also some reversals on account of the recent court judgement on passive infrastructure, it is a combination of this. There is no cash payout or anything of that sort. ... it is a onetime decision.

Explains the non-recurring and non-cash nature of a significant exceptional item, reassuring investors about its impact on ongoing operations.

Asked by Mr. Vivekanand Subbaraman

Addressable market and home pass coverage for Hexacom Direct
In terms of addressable market, I would say this would be about 3 to 4 million. We are present in close to about 200 cities in Hexacom. ... About 2 million home passes we have, currently at Bharti Hexacom

Quantifies the market opportunity and current reach for Hexacom's home broadband and FWA services, providing context for future growth.

Asked by Mr. Piyush Choudhary

B2B EBITDA decline (Bharti Airtel context) Partial
reduction that you tell is because we have moved to selling converged solutions: where there is connectivity, there is services and there is also hardware bundled into it. ... So, that is why you see some dilution in EBITDA margin over these last nine months.

Offers insight into the B2B segment's margin dynamics, attributing decline to a shift towards lower-margin converged solutions with resell components, which could be relevant for Hexacom's B2B strategy.

Asked by Mr. Vivekanand Subbaraman

5G monetization strategy and ARPU growth (Bharti Airtel context) Direct
Data monetization when we talk about, there are two parts to it: one is higher end plans which offer 5G as part of unlimited data, and the second is lower end plans where the data allowance runs out and contextually, you are able to sell an additional pack... this is one of the primary drivers... for upgradation onto the 2GB plus data packs.

Details the dual strategy for 5G monetization, explaining how it drives ARPU improvement through both premium plans and data pack sales for lower-end users.

Asked by Mr. Sanjesh Jain

2 min read 5 chapters

Detailed narrative

Strong Q3 FY25 Financial Performance

Bharti Hexacom delivered robust financial results in Q3 FY25, with revenue reaching ₹2251 Crores, marking a sequential growth of 7.3%. The company's ARPU saw a healthy increase of 5.7% to ₹241, reflecting strong monetization efforts. EBITDA stood at ₹1194 Crores, achieving a margin of 53% and improving by nearly 300 basis points, while EBITDAaL was ₹1042 Crores with a 46.3% margin. Net income for the quarter was ₹261 Crores.

Improved Debt Profile and Cash Generation

The company demonstrated strong financial prudence, with its net debt to EBITDAaL ratio improving significantly to 1.03. Operating free cash flow, calculated as EBITDAaL minus capex, was robust at ₹758 Crores. This strong cash generation and deleveraging trajectory position the company well for future investments and potential shareholder returns, with management indicating that dividend payout will be 'certainly looked at with a positive angle'.

Strategic Tower Transfer to Indus Towers

Bharti Hexacom plans to transfer approximately 3400 telecom towers to Indus Towers, a move expected to enhance operational and financial efficiency and free up management bandwidth. While this transaction is anticipated to cause 'some dilution in the EBITDA' due to incremental IP fees, management stated the impact would be 'very marginal' and 'small', with no material effect on net income. The cash inflow from this transfer is expected to support further investments or debt reduction.

Growth in Home Broadband and FWA Segment

The company reported strong customer additions, with 4.5 lakh smartphone customer additions and 4.94 lakh net customer additions, and churn improving to 1.9% from 3.2% last quarter. In the home broadband segment, Bharti Hexacom currently has 2 million home passes and is present in about 200 cities, targeting an addressable market of 3-4 million. The FWA rollout is expected to drive further growth in this segment, with capex for FWA potentially seeing a 'marginal increase' due to more expensive CPEs.

One-Time Exceptional Charge Recorded

Bharti Hexacom recorded a one-time exceptional charge of ₹1.4 billion in Q3 FY25. Management clarified that this charge resulted from a periodic review of the carrying value of various assets and liabilities, combined with reversals related to a recent court judgment on passive infrastructure. It was emphasized that this was a non-cash payout and a 'onetime decision', thus not indicative of a recurring trend or ongoing operational issue.

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