Hexaware Technologies' Rs 99 Billion IPO: A Strategic Opportunity in India's IT Sector

The Indian stock market has witnessed an incredible surge since the pandemic, driven by immense liquidity and investor enthusiasm. This bullish trend has opened the floodgates for companies to go public, with several initial public offerings (IPOs) being highly oversubscribed and delivering significant listing gains. Among the latest to join the IPO frenzy is Hexaware Technologies, one of India’s leading IT service providers, which has recently filed for a massive Rs 99.5 billion IPO.

In this article, we explore the details of Hexaware Technologies, its financial performance, peer comparison, and the broader market trends shaping the Indian IT industry.

1. Hexaware Technologies: A Brief Overview

Hexaware Technologies is a global leader in IT services and business process outsourcing, headquartered in Mumbai. With a presence in over 19 countries and a network of 61 offices, Hexaware employs a workforce of more than 31,000 professionals and serves a broad client base of 370+ companies.

Hexaware’s offerings span across automation, artificial intelligence (AI), and analytics, with a focus on delivering operational efficiency and innovative solutions to industries such as banking, financial services, insurance, healthcare, manufacturing, retail, and travel. The company’s core strength lies in leveraging advanced technologies to help clients streamline operations and improve productivity.

Currently, Hexaware is majorly owned by US private equity firm Carlyle, which holds a 95.03% stake in the company. The upcoming IPO will be an offer for sale (OFS), with Carlyle’s affiliate, CA Magnum Holdings, selling shares to the public. Interestingly, Hexaware was delisted from Indian stock exchanges in 2020, and its re-entry into the public market has garnered significant interest.

2. Hexaware’s Financial Performance

Hexaware has demonstrated steady financial growth in recent years, despite challenges posed by the global economy. The company’s revenue for the June 2024 quarter reached Rs 56,843 million, representing a year-on-year (YoY) increase of 11.1% compared to Rs 51,126 million in the corresponding quarter last year. Additionally, net profit for the quarter climbed by 8.7% to Rs 5,536 million.

From FY2021 to FY2023, Hexaware saw significant growth, with revenue rising from Rs 71,777 million in FY21 to Rs 103,803 million in FY23. This represents a compound annual growth rate (CAGR) of 20.3%, showcasing the company’s ability to expand its operations in a competitive IT services market.

The company’s net profit also increased consistently over the same period, growing from Rs 7,488 million in FY21 to Rs 9,976 million in FY23, reflecting a CAGR of 15.4%. This upward trajectory underscores Hexaware’s strong cost management and operational efficiency, even as revenue growth slowed slightly in 2023.

Hexaware Technologies’ Financial Snapshot (2021-23):

• Revenue (FY21): Rs 71,777 million, (FY23): Rs 103,803 million

• Net Profit (FY21): Rs 7,488 million, (FY23): Rs 9,976 million

• Net Worth (FY21): Rs 35,037 million, (FY23): Rs 42,309 million

3. Hexaware vs. Competitors: A Peer Comparison

Hexaware competes with several major players in the Indian IT services market, including Persistent Systems, Coforge, LTIMindtree, and Mphasis. Based on Hexaware’s red herring prospectus, here is a comparison of revenue and return on net worth (RoNW) among these industry peers:

Peer Comparison:

• Hexaware Technologies: Revenue – Rs 103,803 million, RoNW – 23.6%

• Persistent Systems: Revenue – Rs 98,216 million, RoNW – 22.1%

• Coforge: Revenue – Rs 91,790 million, RoNW – 23%

• LTIMindtree: Revenue – Rs 355,170 million, RoNW – 22.9%

• Mphasis: Revenue – Rs 132,785 million, RoNW – 17.7%

Hexaware’s revenue places it ahead of Persistent Systems, Coforge, and Mphasis but behind LTIMindtree, which leads with Rs 355,170 million. In terms of return on net worth, Hexaware’s 23.6% is competitive, slightly ahead of Coforge and LTIMindtree. Mphasis lags behind, with an RoNW of 17.7%.

4. Challenges and Risks for Hexaware Technologies

While Hexaware has shown promising growth and financial stability, it is not immune to the risks that commonly affect the IT services industry. Here are some challenges the company faces:

Client Concentration: A significant portion of Hexaware’s revenue comes from a limited number of key clients. Failure to maintain or expand its customer base could negatively impact the company’s financial performance.

Currency Fluctuations: As a global company, Hexaware is exposed to foreign exchange risks, which can affect profitability, especially given its large overseas client base.

Regulatory Changes: Hexaware is subject to evolving laws and regulations related to data privacy, protection, and cybersecurity. Changes in these laws could lead to increased costs or legal challenges, potentially affecting customer engagement and growth.

5. The Role of AI and Market Opportunities

One of the most notable developments in the IT industry is the growing focus on generative AI (gen AI). This cutting-edge technology is poised to revolutionize industries by driving innovation, boosting productivity, and delivering cost efficiencies. Hexaware Technologies is well-positioned to capitalize on the rise of gen AI, with the company actively investing in AI and automation to enhance its service offerings.

The indian IT sector is also witnessing strong growth, with spending expected to reach US$ 138.9 billion in 2024, up 13.2% from US$ 122.6 billion in the previous year. This growth encompasses key segments such as software, IT services, and data center systems. Furthermore, the Indian technology industry is projected to double its revenue to US$ 500 billion by 2030.

Hexaware stands to benefit from these favorable market trends. Its expertise in AI, automation, and data-driven solutions aligns with the industry’s evolving demands. Additionally, the Indian government’s focus on the IT and telecom sectors, with Rs 975.8 billion allocated in the Union Budget 2023-24, creates a supportive environment for growth.

Conclusion: A Strategic Investment Opportunity

Hexaware Technologies’ upcoming IPO has sparked considerable interest among investors, and for good reason. The company’s consistent financial growth, focus on cutting-edge technologies, and competitive positioning in the IT services market make it a compelling player in the industry.

However, potential investors should be mindful of the risks associated with client concentration, currency fluctuations, and regulatory changes. As with any investment, it’s essential to conduct thorough research and ensure the opportunity aligns with your financial objectives and risk tolerance.

Hexaware’s growth prospects, supported by its strong performance, AI-driven innovation, and favorable market conditions, position it as a key player in India’s IT services landscape. As the company prepares to go public, it offers an intriguing opportunity for those looking to invest in the future of India’s tech industry.

Disclaimer: This article is for informational purposes only. It is not intended as a stock recommendation and should not be treated as such.