Company overview
Incorporated in 1992 and headquartered in Mumbai, Hexaware Technologies Ltd. is a global digital and technology services firm with artificial intelligence (AI) at its core. The company delivers its services through AI-enabled digital platforms – “RapidX” for digital transformation, “Tensai” for AI-powered automation and “Amaze” for cloud adoption. The company serves customers across the Americas, Europe and Asia-Pacific (including India and Middle East) catering to industries such as Financial Services (28.3%), Healthcare and Insurance (21.2%), Manufacturing and Consumer (17%), Hi-Tech and Professional Services (16.9%), Banking (8.5%), and Travel and Transportation (8.1%). Currently it is caters to 31 of the Fortune 500 organizations. As of September 30, 2024, the company’s global delivery model included 32,536 employees across 39 delivery centers and 16 offices in 28 countries.
Objects of the offer
- Achieve the benefits of listing the Equity Shares on the Stock Exchanges.
- Carry out offer for sale of Equity Shares of face value Rs.1 each aggregating up to Rs.87,500 million by the Selling Shareholders.
Investment Rationale
- Advanced domain expertise – The company offers a wide range of services across 6 industries, with a focus on several sub-verticals within each segment. Between FY21-23, the company achieved steady revenue growth across all six operational segments. Its offerings cater to diverse client needs, such as launching new products, driving core transformations using digital technologies, securing, running, and optimizing IT operations, leveraging AI and machine learning to turn data into actionable insights and predictions, optimizing business processes and cloud strategies, as well as cloud modernization, migration, and managed services. The company has been recognized as one of the top 25 IT services brands globally by Brand Finance. It also won the 2024 OnCon Icon Top 50 Technology 317 Team Award and the 2024 Partner Excellence Award from Guidewire.
- AI-led digital capabilities – The company is delivering its services through 3 AI-enabled digital platforms – RapidX, Tensai and Amaze. RapidX is a Gen AI-based platform for modern software engineering that features a set of AI subject matter experts and agents, each of which focuses on a specific aspect of the software development lifecycle to improve efficiency and quality. Tensai is an automation platform designed to transform enterprise IT processes and enable secure, rapid and automated release of code, efficient and AI-driven operations. Amaze is a cloud migration, cloud transformation, data and application modernization platform that can enable portfolio transformation to business-aligned IT.
- Innovation as a key pillar – The company has 20 patents granted and 119 trademarks registered in many countries, two copyrights registered in India, and 49 domain names registered worldwide. The 119 trademarks comprise of 9 product marks and 98 service marks, with certain trademarks being registered as product marks as well as service marks. Further, it has filed applications for 45 patents and 23 trademarks, comprising 6 product marks and 14 service marks, with some trademarks being applied for as product marks as well as service marks, in many countries. The company’s innovation capabilities are further supported by its labs located in Chennai, Amsterdam, and Berlin.
- Financial performance – The company reported revenue of Rs.10,380 crore in FY23 as against Rs.9,200 crore in FY22, an increase of 13% YoY. The revenue grew at a CAGR of 20% between FY21-23. The EBITDA of the company in FY23 is at Rs.1,590 crore and EBITDA margin is at 15%. The PAT of the company in FY23 is Rs.998 crore and PAT margin is at 10%. The CAGR between FY21-23 of EBITDA and PAT is 15% each.
Key risks
- OFS risk – The IPO consists of only an Offer for Sale of Equity Shares worth up to Rs.87,500 million by the Selling Shareholders, including the company Promoter. The entire proceeds from the Offer for Sale will be paid to the Selling Shareholders, and the Company will not receive any such proceeds. The offer comprises the sale of stake worth Rs.87,500 million by promoter CA Magnum Holdings.
- Attrition risk – Any inability of the company to effectively attract, retain, train and utilize highly skilled professionals might adversely affect the business, results of operations and profitability.
- Forex risk – The company is exposed to foreign exchange risks, as it conducts significant portion of operations from international markets in foreign currencies. Fluctuations in exchange rates could affect its financial performance.
Outlook
The company has established long-term relationships with numerous customers, with an average tenure of 15 years for its top 5 and 10 clients, and 12 years for its top 20. Currently, it is concentrating on building relationships with new customers across the Americas, Europe, and APAC. This strategy is anticipated to provide stable billing, enhanced revenue visibility, and growth opportunities. According to RHP, Persistent Systems Limited, Coforge Limited, LTIMindtree Limited and Mphasis Limited are the only listed competitors for Hexaware Technologies. The peers are trading at an average P/E of 55x with the highest P/E of 84x and the lowest being 34x. At the higher price band, the listing market cap of Hexaware Technologies Ltd. will be around ~Rs.42,982 crore and the company is demanding a P/E multiple of 43.09x based on post issue diluted FY23 EPS of Rs.16.43. When compared with its peers, the issue seems to be fully priced in (fairly valued). Based on the above views, we provide a ‘Subscribe’ rating for this IPO for a medium to long-term Holding.
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Research disclaimer: Investment in the securities market is subject to market risks. Read all the related documents carefully before investing. Registration granted by SEBI, and certification from NISM in no way guarantee the performance of the intermediary or provide any assurance of returns to investors.
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