After four years off the public markets, IT services firm Hexaware Technologies is making a comeback with its initial public offering as the Carlyle Group looks to pare its stake.
This follows the group's acquisition of a controlling 95.5% stake from Baring Private Equity Asia in November 2021 at an average price of Rs 385 per share, marking a 62% premium over the previous transaction. When Baring PE took the company private in 2020, Hexaware's delisting price of Rs 237.5 per share marked a turning point in its public market journey.
This deal valued Hexaware at Rs 23,200 crore, an increase from the Rs 14,210-crore market cap when Baring PE acquired a 70.8% stake in the IT services firm in 2013.
Following the relisting, Carlyle will see its stake reduced to approximately 74.7%, offering a fresh opportunity for public investors to participate in the company's growth.
Here's why brokerage firms Dolat Capital and Anand Rathi Wealth have issued a 'subscribe' rating to the IPO marking the relisting of the IT major:
Hexaware has delivered a 13.7% compound annual growth rate in revenue over 2021–23, outpacing the 7.3% industry growth, according to an Everest Group report. The company reported a revenue growth of 12.1% for the first nine months of 2024, which in USD terms is higher than LTIMindtree (4.5%) and Mphasis (4.4%) but trails Persistent (18%) and Coforge (12.7%), as per Dolat Capital's report.
On the valuation front, Dolat Capital highlighted that Hexaware is priced at 28.9 times its earnings per share value for fiscal 2027, making it cheaper than Coforge, valued at 36 times, and Persistent Systems, valued at 48 times, but slightly above Mphasis, at 27.5 times. The Tier-2 IT space is expected to see 10–15% growth over the next three fiscals, making Hexaware's pricing reasonable as per the firm.
One of Hexaware's strengths is its well-balanced revenue mix, spread across six verticals, with no single vertical contributing over 30%. Its top customers include 31 Fortune 500 firms and 62% of revenue in 2023 came from clients with over $5 billion in revenue, the brokerages highlighted.
Both Dolat Capital and Anand Rathi note that Hexaware's financial services exposure is limited to secondary mortgage providers and capital markets, keeping it relatively insulated from the ongoing mortgage market slowdown.
With solid growth, reasonable valuation and strong client relationships, Hexaware is well-positioned in the Tier-2 IT services space, they said. While competition remains stiff from Persistent, Coforge, and Mphasis, both Dolat Capital and Anand Rathi believe Hexaware's diversified business model and AI investments make it a strong bet.
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