Hexaware IPO: Price Band, Investment Rationale, Financials, Peer Comparison And More — Dolat Capital

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Dolat Capital Report

Hexaware Technologies Ltd. will launch its initial public offering on February 12 and the offer closes for subscription of Feb. 14. An IT services and consulting firm has set the price band of Rs ⁠674-708 per share.

The Rs 8,750 crore IPO comprises entirely of an offer for sale with no fresh issue. The market value at upper end of price band is Rs 43,025 crore.

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Hexaware has demonstrated healthy revenue/Profit CAGR of 13%/11% over CY’18-CY’23 along with 12.1%/6% YoY growth in 9M CY24. The increasing market share and revenue of tier-2 companies can be attributed to their agility, ability to focus on niche verticals, and capacity to serve smaller clients that Tier-1 firms often overlook.

Q3 result commentary on the deal pipeline is turning increasingly favorable, with a large no. of smaller deals, newer opportunities and addressable space for Tier-2 names.

We believe Hexaware is a worthwhile prospect to participate in Tier-2 IT services space at reasonable valuations. The valuations for Tier2 companies like Coforge and Persistent Systems have become relatively expensive with multiples of 36x/48x on FY’27 earnings.

This universe is forecasted to average double-digit, mid-teens growth over FY24-FY27E. Assuming early double-digit growth and similar margins, Hexaware is available at 28.9x of FY27 EPS.

While the company’s valuation is pricier compared to Mphasis (27.5 times on FY27E EPS), its revenue diversification (6 verticals), past growth trajectory and management aspiration to maintain above industry growth support our positive outlook and suggest resilience in maintaining margins. We recommend a ‘Subscribe’ on the issue.

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