Hexaware Technologies Limited (May Apply)

Highlights

Hexaware Technologies Limited (HTL) incorporated on 1992, is a global digital and technology services company with artificial intelligence (AI) at its core. They leverage technology to deliver innovative solutions that help their customers in their digital transformation journey and subsequent operations.

HTL manages business through six operating segments based on the industries they serve (i) Financial Services, (ii) Healthcare and Insurance, (iii) Manufacturing and Consumer, (iv) Hi-Tech and Professional Services, (v) Banking and (vi) Travel and Transportation with offerings encompass five broad services: Design & Build, Secure & Run, Data & AI, Optimize, and Cloud Services.

HTL deliver services through AI-enabled digital platforms such as RapidX for digital transformation, Tensai for AI-powered automation and Amaze for cloud adoption. The company has embeded AI into every aspect of solutions and have created a suite of platforms and tools that allow their customers to adapt, innovate and optimize in this AI-first era. They serve customers across the Americas, Europe and Asia-Pacific (including India and Middle East).

Out of the total proceeds of Rs. 87,500 mn, ~Rs. 87,500 mn would go towards existing promoter selling shareholders of the company as the company expects that the proposed listing of its equity shares will enhance their visibility and brand image as well as provide a public market for the equity shares in India.

Key Highlights

• The IT services and Business Process Services (BPS) market is projected to reach approximately Rs. 343 trillion in CY2029, with IT services growing at a CAGR of approximately 7.2 pct and BPS growing at a CAGR of approximately 2.5 pct for the period CY2024-29E.
• HTL’s expertise complemented by a mix of strategic and industry-focused partners, such as ServiceNow, which offers AI-powered solutions for various business functions such as human resources, IT, customer service, security and finance, and Backbase, a banking financial technology company in the Netherlands. HTL believe that these partnerships provide them with opportunities to refine value proposition to customers across the industries and geographies they serve.
• As of now the company has 20 patents 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.
• HTL prioritize acquiring large enterprises with substantial IT budgets and long-term growth potential as customers. Their Pre-Sales, Practice, Global Bid Management and Marketing teams provide further support to their sales efforts. Their customer-focused marketing strategy, which centers on their Land, Ramp and Expand model, helps them to win business with new customers and generate additional business with existing customers.
• HTL has a global delivery presence, which allows them to provide innovative solutions to their customers in a flexible and cost-effective manner, by leveraging platforms through talent pool and an efficient onshore-offshore service delivery mix. Proximity to customers, in particular, enables them to address changing customer needs in a timely manner.
• HTL key growth strategies includes (i) Continuously improve offerings and platforms (ii) Deepen and expand relationships with existing customers (iii) Acquire new customers with focus on large customers to tap high value opportunities (iv) Strategically expand into untapped geographies and industries (v) Create and develop advanced talent and optimize cost of delivery (vi) Focus on operational improvement (vi) Strategic M&A aimed at new capabilities and expanded geographic footprint.
• The company’s sales (USD)/Sales (Rs.)/EBITDA/profit has grown by 14.14 pct/20.26 pct/15.11 pct/15.42 pct CAGR Over FY21-23. During FY23, company reported sales of Rs. 103,803 mn which grew by 44.62 pct YoY while EBITDA rose by 13.49 pct YoY to Rs. 15,899 mn as EBITDA margin expanded by 10 bps in FY23. As of FY23 the company reported profit of Rs. 9,976 mn against profit of Rs. 8,842 mn in FY22. As of 9MFY24 company registered sales/EBITDA/Profit of Rs. 88,200 mn/Rs. 13,911 mn/ Rs. 8,533 mn which grew 13.60 pct YoY/11.39 pct YoY/6.02 pct YoY.

Key Risk

• A reduction in the outsourcing budgets by the existing and prospective customers could affect HTL pricing and volume of work.
• HTL business depends on ability to attract and retain highly skilled professionals. If HTL fail to attract, retain, train and optimally utilize these professionals, their business may be unable to grow and results of operations and profitability could decline.

Financial Performance

Valuation

Hexaware business has evolved over the last decade, with a growing set of offerings, larger and diversified customer base, wider global delivery footprint and increased focus on innovation and technology. At the upper end of the price band of Rs. 708 the issue is priced at a PE of ~37.8 its FY24E annualised earnings. The issue looks fully priced. One can Avoid this issue. Only Long-term investors may apply for this issue.

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