India's Major IT Service Company Files for Rs 99 Billion IPO

Since the pandemic, the Indian stock market has been on a roll, fuelled by abundant liquidity. This surge has led to a flood of companies entering the public market through IPOs.

IPOs have been turbo-charged with the kind of frenzy we see almost everywhere on the bourses. Investors can't seem to get enough.

Most of these IPOs have been lapped up with massive oversubscriptions-thanks to big listing gains in many of the IPOs that came before them. And many of those who landed IPO shares in the allotment roulette have flipped them big time for big gains.

Amid this backdrop, Hexaware Technologies, a major player in the IT services and enterprise tech space, has filed for Rs 99.5 bn IPO.

#1 About Hexaware Technologies

Hexaware Technologies is a global technology and business process services company based out of Mumbai with a presence in 61 offices worldwide in 19 plus countries, a workforce of 31,000 and a client base of more than 370.

US private equity giant Carlyle holds a 95.03% stake in Hexaware Technologies.

The company is known for its focus on automation, artificial intelligence, and analytics to drive efficiency and innovation for its clients.

Hexaware serves a range of industries including banking and financial services, insurance, healthcare, manufacturing, retail, and travel.

Hexaware was delisted from the Indian bourses in 2020.

The IPO will entirely be an offer for sale from CA Magnum Holdings, an affiliate of private equity firm Carlyle Group.

#2 A Look at its Financials

For the June 2024 quarter, company reported a 11.1% YoY rise in revenue to Rs 56,843 million (m), up from Rs 51,126 m a year back. Meanwhile the net profit for the quarter rose 8.7% to Rs 5,536 m in the June 2024 quarter.

Hexaware Technologies has shown consistent financial growth from 2021 to 2023. The company's revenue grew steadily over the three-year period, from Rs 71,777 m in FY21 to Rs 103,803 m in FY23. Over this period, the compound annual growth rate (CAGR) for revenue was approximately 20.3%.

Hexaware's net profit followed a similar upward trajectory, rising from Rs 7,488 m in FY21 to Rs 9,976 m in FY23. The company managed to increase profits despite a slowdown in revenue growth, signalling effective cost management and operational efficiency.

This resulted in a CAGR growth of approximately 15.4% for net profit over the years.

Hexaware Technologies' Financial Snapshot (2021-23)

Particulars	31-Dec-21	31-Dec-22	31-Dec-23
Revenues (Rs in m)	71,777	91,996	103,803
Revenue Growth (%)	-	28.2	12.8
Net Profit (Rs in m)	7,488	8,842	9,976
Net Worth (Rs in m)	35,037	37,781	42,309

Data Source: Company's Draft Red Herring Prospectus (DRHP)

#3 Peer Comparison

As per the company's red herring prospectus, these are the industry peers of Hexaware Technologies.

Peer Comparison

Company	Revenue from operations (Rs in million)	Return on Net Worth (%)
Hexaware Technologies	103,803	23.6
Persistent Systems	98,216	22.1
Coforge	91,790	23
LTIMindtree	355,170	22.9
Mphasis	132,785	17.7

Data Source: Company's Red Herring Prospectus (RHP)

When comparing Hexaware Technologies to its peers in the IT services sector, it becomes clear that the company holds a solid position in terms of revenue.

Hexaware's revenue of Rs 103,803 million puts it ahead of competitors like Persistent Systems, Coforge, and Mphasis, but it falls behind LTIMindtree, which leads the pack with Rs 355,170 m.

Furthermore, Hexaware's RoNW of 23.6% is competitive but slightly under Coforge's 23.0% and LTIMindtree's 22.9%, while still performing better than Mphasis, which reported 17.7%.

#4 Arguments in Favour of Business

• Hexaware Technologies offers a robust portfolio of services and solutions across six key industries: Financial Services, Healthcare and Insurance, Manufacturing and Consumer, Hi-Tech and Professional Services, Banking, and Travel and Transportation. This comprehensive approach allows the company to cater to diverse client needs within these sectors.
• The company's domain expertise has led to the development of three AI-enabled digital platforms designed to add substantial value to their service offerings. These platforms include RapidX^TM, which facilitates digital transformation, Tensai^® for AI-powered automation, and Amaze^® for cloud adoption. These innovations underscore Hexaware's commitment to leveraging cutting-edge technology to enhance client outcomes.
• Hexaware's client base features 31 Fortune 500 companies, highlighting its significant market presence. For the Financial Year 2023, approximately 62% of its revenue came from clients with revenues exceeding US$ 5,000 m, and nearly 83% from clients with revenues over US$ 1,000 m.
• This substantial contribution from large enterprises reflects Hexaware's strong position in the industry.
• The company is actively expanding its reach across the Americas, Europe, and APAC through a strategic go-to-market approach. This strategy involves a coordinated effort among its new customer acquisition, account management, hybrid sales, and overlay sales teams, aimed at fostering new client relationships and driving growth in various global markets.

#5 Risk Factors

• Hexaware Technologies derives a substantial portion of its revenue from specific geographic regions. For the six months ended 30 June 2024, and the Financial Year 2023, around 73% of its revenue came from the Americas, with around 20.5% of revenue attributed to Europe, respectively.
  
  Adverse economic changes in these regions could negatively impact the company's financial health.
• The company's success hinges on its ability to attract, retain, and effectively utilise highly skilled professionals. Failure to do so could impede growth and negatively affect operational results and profitability.
• A significant portion of Hexaware's revenue is dependent on a few major customers. The inability to maintain or expand its customer base could adversely impact the company's business, financial condition, and operational results.
• Foreign exchange fluctuations pose a risk to Hexaware's business, potentially affecting its financial performance.
• Additionally, Hexaware is subject to evolving laws and regulations related to privacy, data protection, and other matters. Changes in these laws could lead to legal claims, modifications to business practices, monetary penalties, increased operational costs, or declines in customer growth and engagement, which could negatively impact the company.

Conclusion

The overarching trend in recent quarters across various industries has been a strong focus on generative AI (gen AI).

This technology is widely anticipated to drive significant innovation, enhance productivity, and offer cost efficiencies. Hexaware Technologies is actively exploring and implementing gen AI solutions to deliver greater value to their clients.

Further, the Indian IT sector spending is projected to surge to US$ 138.9 bn in 2024, up from US$ 122.6 bn last year, reflecting a robust growth rate of 13.2%.

This growth spans major segments including software, devices, IT services, and data centre systems.

The Indian technology industry is on track to double its revenue to US$ 500 bn by 2030. Moreover, the Union Budget 2023-24 allocated Rs 975.8 bn to the IT and telecom sectors, underscoring the government's commitment to supporting this critical area.

For Hexaware Technologies, this environment presents a strategic opportunity. As an IT service company, Hexaware is well-positioned to leverage the burgeoning interest in generative AI.

The company's ongoing investments in AI and automation technologies align with the broader industry trend, enhancing its ability to offer cutting-edge solutions.

With many exciting players emerging, it's a fantastic time to explore your options in this space.

Be sure to conduct thorough research before making any investment decisions. Ensure the investment aligns with your financial objectives and matches your risk tolerance.

For more information on IPOs, check out the list of upcoming IPOs.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...