Hexaware Technologies Ltd - IPO Note
IT - Software Services
Hexaware Technologies Ltd - IPO Note
IT - Software Services
Stock Info
Shareholding (Pre IPO)
Shareholding (Post IPO)
Company Description
Company Profile
Hexaware Technologies Ltd. (HTL) is a global digital and technology services company
with artificial intelligence (“AI”) at its core. It leverages technology
to deliver innovative solutions that help customers in their digital transformation
journey and subsequent operations. It embeds AI into every aspect of solutions and
has created a suite of platforms and tools that allow customers to adapt innovate
and optimize in this AI-first era. It manages business through six operating segments
based on the industries it serves: Financial Services, Healthcare and Insurance,
Manufacturing and Consumer, Hi-Tech and Professional Services, Banking, and Travel
and Transportation. Its offerings encompass five broad services: Design & Build,
Secure & Run, Data & AI, Optimize, and Cloud Services, which form the foundation
for offerings.
It delivers services through its AI-enabled digital platforms such as RapidX™ for digital transformation, Tensai® for AI-powered automation, and Amaze for cloud adoption. The company serves customers across the Americas, Europe, and Asia-Pacific (including India and the Middle East) (“APAC”). Its capabilities are strengthened by a wide ecosystem of partnerships with enterprises which broaden its customer offerings and marketing reach.
It serves a diverse range of customers, including 31 of the Fortune 500 organizations. It also serves prominent enterprises across the industries in which they operate. According to the Everest Report, these include:
- 11 of the top 50 global asset management firms by assets under management (“AUM”);
- 3 of the top 10 global life sciences firms by market capitalization;
- 5 of the top 20 global insurers by market capitalization;
- 3 of the top 5 global manufacturing organizations by market capitalization;
- 4 of the top 50 global retail and CPG organizations by revenue;
- 6 of the top 20 global hi-tech companies by market capitalization;
- 3 out of the top 6 global audit and advisory firms;
- 2 out of the top 5 global legal firms;
- 11 of the top 60 banks in the United States ranked by assets; and
- 3 of the top 5 airlines in North America by revenue.
It serves a diverse range of customers, including 31 of the Fortune 500 organizations. The company serves prominent enterprises across the industries in which it operates. Its customer-centric approach has enabled it to build strong relationships with customers and continually expand its customer base. It has a global delivery presence comprising 39 delivery centers supported by 16 offices spread across the Americas, Europe, and APAC as of September 30, 2024. Its commitment to customers and delivery excellence has propelled it to become one of the fastest-growing technology services companies headquartered in India.
HTL’s business has evolved over the last decade, with a growing set of offerings, a larger and diversified customer base, a wider global delivery footprint, and an increased focus on innovation and technology. This evolution has been guided by its business strategy, which has adapted to service customers’ needs, from ‘shrink IT, grow digital’ strategy prior to 2018, to the ‘automate, cloudify and transform customer experience’ strategy between 2018 and 2021, to ‘AI-first cloud-powered’ approach between 2022 and 2023. Its expertise is further 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.
Competitive Strengths
Deep domain expertise delivered through comprehensive solutions across industries
Hexaware Technologies Limited provides comprehensive services and solutions to customers
across six industries, each of which constitutes an operating segment: Financial
Services, Healthcare and Insurance, Manufacturing and Consumer, Hi-Tech and Professional
Services, Banking, and Travel and Transportation. The company leverages its deep
expertise across a comprehensive portfolio of services, in-depth domain knowledge,
and understanding of customer requirements to contextualize the use of various technologies,
helping customers develop and deploy their digital transformation strategies.
Hexaware's domain expertise extends to multiple sub-verticals within each operating segment. The company has developed capabilities to address the specific nuances of these sub-verticals, recognizing that customers in each may have distinct characteristics and needs.
Financial Services: In the Financial Services operating segment, their sub-verticals include mortgage and lending, asset management and servicing, trade finance, exchanges, private equity firms, and global benchmarks and data providers.
Healthcare and Insurance: In the Healthcare and Insurance operating segment, the sub-verticals include property and casualty insurance, life insurance, brokerage, reinsurance and diversified life sciences, health insurance, or payer and provider.
Manufacturing and Consumer: In the Manufacturing and Consumer operating segment, their sub-verticals include manufacturing, retail and consumer, education, energy, telecom, and utilities.
Hi-Tech and Professional Services: In the Hi-Tech and Professional Services operating segment, the subverticals include independent software vendors, platforms and products, hyperscalers, tax, audit and accounting, legal risk and compliance, and advertising and marketing.
Banking: In the Banking operating segment, their sub-verticals include digital banking, payments, cards, and consumer banking.
Travel and Transportation: In the Travel and Transportation operating segment, the sub-verticals include airlines and airports, travel technology, logistics and transportation, hotels, and the entertainment industry.
The company partners with customers across the industries, in which it operates, helping them build, transform, run, and optimize their technology and business processes through its offerings:
- Design & Build
- Secure & Run
- Data & AI
- Optimize
- Cloud Services
Hexaware Technologies Limited's expertise is further complemented by a mix of strategic and industry-focused partners, such as ServiceNow, which offers AI-powered solutions for various business functions like human resources, IT, customer service, security, and finance, and Backbase, banking financial technology company based in the Netherlands. The company believes these partnerships provide valuable opportunities to refine its value proposition for customers across the industries and geographies it serves.
AI-led digital capabilities and platforms built in-house with innovation as a
strategic pillar
Hexaware Technologies Limited has leveraged its domain expertise to develop three
AI-enabled digital platforms that create value for customers across its service
offerings: (1) RapidX™ for digital transformation, (2) Tensai® for AI-powered
automation, and (3) Amaze® for cloud adoption.
Innovation is a key pillar of Hexaware's business strategy, and the company has prioritized it by building its intellectual property portfolio, enhancing technological expertise, and investing in next-generation technologies. As of the date of the Red Herring Prospectus, Hexaware holds 20 granted patents, 119 registered trademarks in multiple countries, two copyrights registered in India, and 49 domain names registered globally. The 119 trademarks include 9 product marks and 98 service marks, with some trademarks registered as both product and service marks. Additionally, the company has filed applications for 45 patents and 23 trademarks, comprising 6 product marks and 14 service marks, in various countries. This innovation is supported by training, skill development, and talent recruitment. Hexaware also operates innovation labs in Chennai, Tamil Nadu; Amsterdam, Netherlands; and Berlin, Germany, which focus on efficiency improvement, modernization, and upscaling services for internal and customer projects.
Driven by its AI-enabled approach, Hexaware has incorporated AI and Gen AI across its solutions, services, internal decision-making, and human capital management processes while ensuring data security and adherence to ethical and regulatory standards. Gen AI refers to generative artificial intelligence technologies and platforms that can create, interpret, summarize, and customize content across text, code, images, audio, and video. Hexaware's Gen AI consulting and implementation framework consists of two major components: DecodeAI and EncodeAI. DecodeAI is used to assess business use cases, evaluate technical feasibility, and prioritize them based on return on investment. EncodeAI is utilized during the implementation process to enhance data pipelines, execute Gen AI implementation, provide training and maintenance, and support continuous improvements. Hexaware places a strong emphasis on Gen AI training and certification for its employees, with 78.0% of its active IT workforce (employees who joined before June 30, 2024) having received such training.
Long-term and embedded relationships with a diversified blue-chip customer base
Hexaware Technologies Limited serves a diverse range of customers, including 31
of the Fortune 500 organizations. According to the Everest Report, in the Financial
Year 2023, the company derived approximately 62% of its revenue from operations
from customers with over US$5,000 million in revenues and nearly 83% from customers
with over US$1,000 million in revenues. Hexaware has a diversified presence across
geographies, including the Americas, Europe, APAC (which also includes the Middle
East, Africa, and Latin America), and across operating segments such as Financial
Services, Healthcare and Insurance, Manufacturing and Consumer, Hi-Tech and Professional
Services, Banking, and Travel and Transportation.
The go-to-market strategy focused on customer acquisition and expansion
Hexaware Technologies Limited is focused on developing relationships with new customers
across the Americas, Europe, and APAC through collaborative engagement. This is
achieved through a go-to-market strategy that combines efforts from the company's
New Customer Acquisition, Account Management, Hybrid Sales, and Overlay Sales teams.
The company prioritizes acquiring large enterprises with substantial IT budgets and long-term growth potential as customers. According to the Everest Report, in the Financial Year 2023, Hexaware derived approximately 62% of its revenue from operations from customers with over US$5,000 million in revenues and nearly 83% from customers with over US$1,000 million in revenues. The company’s Pre-Sales, Practice, Global Bid Management, and Marketing teams provide additional support to sales efforts. With this model, Hexaware acquires customers across industries and services and establishes strong relationships by embedding itself in its digital transformation journey.
Peer Comparison
| Name of the company (FY24) | Revenue (Rs. in cr) | P/E (x) | Top 5 customers Contribution | EBITDA Margin (%) | Attrition rate |
|---|---|---|---|---|---|
| Hexaware Technologies Ltd | 10380.00 | 43 | 25.00% | 15.30% | 14.70% |
| Persistent Systems | 9822.00 | 84.00 | 27.70% | 17.10% | 11.50% |
| Coforge Ltd | 9179.00 | 64.00 | 23.50% | 18.00% | 14.40% |
| LTI Mindtree | 35517.00 | 38.00 | 27.30% | 16.00% | 11.50% |
| Mphasis | 13278.00 | 34.00 | 44.00% | 18.20% | - |
Key Risks & Concerns
Geographical concentration: HTL derived 73.4% and 71.5% of revenue from operations from the Americas and 20.5% and 22.1% of revenue from operations from Europe for the nine months ended September 30, 2024, and the Financial Year 2023, respectively. Any adverse changes in economic conditions that negatively affect the economic health of the geographies and markets in which it has a presence could affect their business, financial condition, and results of operations.
Foreign exchange related risk: The reporting currency is in Indian rupees, and they transact a significant portion of business in foreign currencies, primarily the U.S. Dollar, the British Pound, the Euro, and the Mexican Peso. Accordingly, changes in exchange rates may have a material adverse effect on their profitability and margins.
Operates in a competitive environment: HTL operates in a highly competitive environment and may not be able to compete successfully which could result in price reductions, reduced operating margins and loss of market share.
Outlook and Valuation
Hexaware Technologies is a well-established IT services company with a strong track record, providing advanced automation and cloud solutions through its platforms. Hexaware Technologies offers comprehensive services across six industries: Financial Services, Healthcare and Insurance, Manufacturing and Consumer, Hi-Tech and Professional Services, Banking, and Travel and Transportation. The company’s deep expertise and in-depth domain knowledge enable it to help customers develop and implement their digital transformation strategies, addressing the unique needs of various subverticals within each segment.
The company leveraged its domain expertise to develop three AI-enabled digital platforms that create value for the customers across the service offerings: (1) RapidX , for digital transformation, (2) Tensai®, for AI-powered automation and (3) Amaze®, for cloud adoption. The company plans to continue to enhance its existing offerings and platforms to further expand it capabilities and addressable market. The company intends to continue investing in differentiated platforms and build add-on service capabilities in areas such as product engineering, security, data and analytics, and emerging technologies. The company has a global delivery presence across India, UAE, USA, Mexico, Europe, and South East Asia that enables the company to offer innovative and cost-effective solutions to its customers. By leveraging a talent pool and a mix of onshore and offshore services, the company can quickly respond to changing customer needs. The company is dedicated to delivery excellence and prioritizes training the workforce in AI and Generative AI.
With its comprehensive services and solutions and an expected increase in the adoption of digital transformation programs leveraging Gen AI, the company sees an opportunity to add new customers across it operating segments. The company focuses on acquiring large customers, typically with annual revenues of over US$2,000 million. It serves a diversified blue-chip customer base, including 31 of the Fortune 500 organizations. On the valuation front, the issue is priced/valued at 43x based on FY24 earnings at the upper end of the price band. It appears fully valued in our view considering the growth potential. If the outlook for global growth or technology spending deteriorates as a result of the global trade war or any policies implemented by the new US administration, it is possible that stocks within the sector may fall. Consequently, this could present a more favorable opportunity to acquire shares from the secondary market following their initial listing. Hence, we assign an Avoid rating to the issue and we will evaluate the stock after its listing, taking into account the subsequent earnings release.
Key Information
Use of Proceeds:
The total issue size is Rs.8750 cr. The issue is a book built issue with complete
offer for sale (OFS) and no fresh issue component; the company will not receive
any proceeds from the Offer. The objects of the Offer are to (i) to carry out the
Offer for Sale of up to 12,35,87,570 cr Equity Shares of face value of Rs.1 each
by the Selling Shareholders; and (ii) achieve the benefits of listing the Equity
Shares on the Stock Exchanges. Company will not receive any proceeds from the Offer
and all such proceeds will go to the Selling Shareholders.
Book running lead managers:
Kotak Mahindra Capital Company Limited, Citigroup Global Markets India Private Limited,
J.P. Morgan India Private Limited, HSBC Securities and Capital Markets (India) Private
Limited, IIFL Capital Services Limited (formerly known as IIFL Securities Limited).
Management:
Joseph McLaren Quinlan (Non-Executive Independent Director and Chairman), Srikrishna
Ramakarthikeyan (Whole-time Director and Chief Executive Officer), Neeraj Bharadwaj
(Non-Executive Non-Independent Director), Sandra Joy Horbach (Non-Executive Non-Independent
Director), Julius Michael Genachowski (Non-Executive Non-Independent Director),
Lucia De Fatima Soares (Non-Executive Non-Independent Director), Kapil Modi (Non-Executive
Non-Independent Director), Shawn Albert Devilla (Non-Executive Non-Independent Director),
Milind Shripad Sarwate (Non-Executive Independent Director), Vivek Sharma (Non-Executive
Independent Director), Sukanya Kripalu (Non-Executive Independent Director) and
Vikash Kumar Jain (Chief Financial Officer)
Financial Statement
Profit & Loss Statement:- (Consolidated)
| Particulars (Rs. in cr) | H2FY25 | H2FY24 | FY24 | FY23 | FY22 |
|---|---|---|---|---|---|
| Revenue from operations | 8820.00 | 7764.00 | 10380.00 | 9200.00 | 7178.00 |
| Employee benefit expenses | 5145.00 | 4556.00 | 6128.00 | 5558.00 | 4277.00 |
| Other expenses | 2335.00 | 1959.00 | 2671.00 | 2420.00 | 1768.00 |
| EBITDA | 1340.00 | 1249.00 | 1581.00 | 1222.00 | 1133.00 |
| EBITDA Margin (%) | 15.19% | 16.09% | 15.23% | 13.28% | 15.78% |
| Depreciation expenses | 203.00 | 190.00 | 284.00 | 244.00 | 224.00 |
| EBIT | 1137.00 | 1059.00 | 1297.00 | 978.00 | 909.00 |
| Other Income | 51.00 | -1.00 | 9.00 | 179.00 | 67.00 |
| Finance costs | 45.00 | 31.00 | 38.00 | 34.00 | 34.00 |
| PBT | 1143.00 | 1028.00 | 1268.00 | 1123.00 | 941.00 |
| Tax expenses | 290.00 | 224.00 | 271.00 | 239.00 | 192.00 |
| PAT | 853.00 | 805.00 | 997.00 | 884.00 | 749.00 |
| EPS (Rs.) | 14.06 | 13.24 | 16.41 | 14.65 | 12.32 |