IPO dates: February 12-14, 2025
IPO Price: Rs674-708
IPO Size: Upto Rs8,750 crore
Implied Market Cap: Upto Rs43,025 crore
Face Value: Re1
Lot Size: 21 shares
Retail Portion: 35%

Hexaware Technologies, a mid-tier IT services exporter, plans to raise Rs 8,750 crore through an offer for sale by the promoter Carlyle group. The promoter’s stake will fall to 75% after the IPO from 95%. The company caters to the marquee global clients in the major verticals of banking and finance, capital markets, healthcare and insurance. It has reported double-digit growth in revenue and profit over the past two years. The IPO is priced lower compared with some of the mid-tier peers. Given these factors, long term investors may consider the IPO.

Business

Hexaware was delisted from stock exchanges in November 2020. In 2021, Carlyle acquired it from ETQ (earlier Baring Private Equity Asia) for around $ 3 billion through an investment holding company CA Magnum Holdings. Hexaware focuses on capital markets, healthcare, and insurance verticals, which together contribute nearly half to the revenue while one-third of it is from manufacturing, consumer, hi-tech and professional services segments. It earns over 72% revenue from Americas, 22% from Europe and remaining from Asia Pacific. Offshore services contribute over 43% to revenue while the rest is from onshore activities. Top 10 clients contributed over 35% to revenue compared with around 30% and 40% for Coforge and Persistence Systems. It had 32,536 employees at the end of September 2024. The employee attrition rate was 11.3%, lowest among peers. The company has designed proprietary AI platforms across digital transformation, automation and cloud adoption.

Financials

The company follows the calendar year as its fiscal year. Revenue increased by 20.3% annually to Rs10,380.3 crore and net profit rose by 15.4% to Rs997.6 crore between FY21 and FY23. The operating margin before depreciation and amortisation (EBITDA margin) remained at 15-16% over the period, similar to peers. In the nine months to September 2024, Hexaware’s revenue grew by 13.6% year-on-year to Rs 8,820 crore while net profit grew by 6% Rs853.3 crore. The company is debt free. It has paid over 50% of net profit as dividends over the past few years.

Valuation

Considering the annualised net profit for the nine months to September 2024, Hexaware demands a forward price-earnings (P/E) multiple of around 38. Coforge and Persistent trade at P/Es of around 66 and 69 respectively.