Courtesy: https://www.chittorgarh.com/
Review By Dilip Davda on February 7, 2025
- The company is one of the leading players in AI-enabled digital solutions provider from India.
• It marked steady growth in its top and bottom lines for the reported periods.
• It has evolved growing set of offerings in the last decade and is thus enjoying prime place in innovative solutions globally.
• Based on recent financial performance, the issue appears fully priced.
• Well-informed investors may park funds for medium long term, in this dividend paying company.
ABOUT COMPANY:
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. The company embed 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 Middle East) (“APAC”). Its capabilities are strengthened by 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. 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 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. As of September 30, 2024, it had a team of 32536 employees in 28 countries. Its presence is spread across major countries, nationalities, languages, time zones and regulatory zones.
Its commitment to customers and delivery excellence has propelled it to become one of the fastest-growing technology services companies headquartered in India. Its revenue from operations grew at a CAGR of 13.7% (in USD terms) from the Financial Year 2021 to the Financial Year 2023, while according to the Everest Report, the global outsourced IT-BP services industry grew at a CAGR of 7.3% during the same period.
HTL’s 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. 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 ‘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.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route secondary IPO of 123587570 equity shares issue worth Rs. 8750.00 cr. (at the upper cap). The company has announced a price band of Rs. 674 – Rs. 708 per equity shares of Re. 1 each. The issue opens for subscription on February 12, 2025, and will close on February 14, 2025. The minimum application to be made is for 21 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 20.34% of the post-IPO paid-up equity capital. Since this is a pure Offer for Sale (OFS), no funds are going to the company.
The company has reserved shares worth Rs. 90 cr. (approx. 1271186 shares at the upper cap) for its eligible employees and offering them a discount of Rs. 67 per share. From the rest, it has allocated not more than 50% for QIBs, not less than 15% for Retail investors.
The joint Book Running Lead Managers (BRLMs) to this issue are Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd., J. P. Morgan India Pvt. Ltd., HSBC Securities and Capital Markets (India) Pvt. Ltd., and IIFL Capital Services Ltd., while KFin Technologies Ltd., is the registrar to the issue. Kotak Securities Ltd. is the syndicate member.
Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 0.45 – Rs. 184.00 (based on Re. 1 FV) between March 1999, and January 2025. It has also issued bonus shares in the ratio of 1 for 1 in July 1998, 1 for 1 in June 2000, 1 for 1 in March 2011. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 385.35 per share.
Post-IPO, its current paid-up equity capital of Rs. 60.77 cr. will remain same as this is a secondary issue. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 43024.78 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 7244.60 cr. / Rs. 748.80 cr. (CY21), Rs. 9378.80 cr. / Rs. 884.20 cr. (CY22), Rs. 10389.10 cr. / Rs. 997.60 cr. (CY23). For 9M of CY24 ended on September 30, 2024, it earned a net profit of Rs. 853.30 cr. on a total income of Rs. 8871.30 cr.
For the last three fiscals, the company has posted an average EPS of Rs. 15.18 (basic) and an average RoNW of 23.2%. The issue is priced at a P/BV of 8.82 based on its NAV of Rs. 80.32 as of September 30, 2024, as well as on post-IPO basis.
If we attribute CY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 37.82. Based on FY24 earnings, the P/E stands at 43.12. Thus the issue appears relatively fully priced. However, according to the management, it is having dominance in the first three mega players in the segment and enjoys most preferred partner. It has outperformed most of its peers and confident of maintaining the trends going forward.
The company reported PAT margins of 10.04% (CY21), 9.60% (CY22), 9.60% (CY23), 9.70% (9M-CY24), but RoCE margins data is missing.
DIVIDEND POLICY:
The company has paid a dividend of 400% (CY21), 1100% (CY22), 875% (CY23), 425% ((9M-CY24), and 450% since October 01, 2024, till date. It has already adopted a dividend policy in September 2024, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Persistent Systems, Coforge, LTIMindtree, and Mphasis, as their listed peers. They are trading at a P/E of 73.9, 75.1, 38.5, and 33.0 (as of February 07, 2025. However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
The five BRLM associated with the offer has handled 77 pubic issues in the past three fiscals, out of which 17 closed below the offer price on the listing date.
Conclusion / Investment Strategy
HTL is one of the leading players in AI-enabled digital solutions provider from India. It marked steady growth in its top and bottom lines for the reported periods. It has evolved growing set of offerings in the last decade and is thus enjoying prime place in innovative solutions globally. Based on recent financial performance, the issue appears fully priced. Well-informed investors may park funds for medium to long term, in this dividend paying company.
Review By Dilip Davda on February 7, 2025
Review Author
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detailed fundamental and financial analysis of companies coming up with IPOs helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
Courtesy: https://www.chittorgarh.com/
