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Hexaware Technologies

• Hexaware Technologies is coming out with a 100% book building; initial public offering (IPO) of 12,99,69,347 shares of Rs 1 each in a price band Rs 674-708 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors. 
• The issue will open for subscription on February 12, 2025 and will close on February 14, 2025.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 1 and is priced 674 times of its face value on the lower side and 708 times on the higher side.
• Book running lead managers to the issue are Kotak Mahindra Capital Company, Citigroup Global Markets India, J.P. Morgan India, HSBC Securities and Capital Markets (India) and IIFL Capital Services.
• Compliance Officer for the issue is Gunjan Methi.

Profile of the company

Hexaware Technologies is a global digital and technology services company with artificial intelligence (AI) at its core. It leverages technology to deliver innovative solutions that help its customers in their digital transformation journey and subsequent operations. It embeds AI into every aspect of its solutions and have created a suite of platforms and tools that allow its customers to adapt, innovate and optimize in this AI-first era. It manages its 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 its offerings. It delivers its services through its AI-enabled digital platforms such as RapidX for digital transformation, Tensai for AI-powered automation and Amaze for cloud adoption. It serves customers across the Americas, Europe and Asia-Pacific (including India and Middle East) (APAC).

The company’s capabilities are strengthened by its 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 serves prominent enterprises across the industries in which it operates. Its customer-centric approach has enabled it to build strong relationships with its 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. As of September 30, 2024, it had a team of 32,536 employees in 28 countries. Its presence is spread across major countries, nationalities, languages, time zones and regulatory zones. 

Proceed is being used for:

• Achieving the benefits of listing the Equity Shares on the Stock Exchanges
• Carrying out the Offer for Sale of equity shares by the Selling Shareholders

Industry Overview

The global enterprise technology spends (which includes IT services, business process services, software and hardware) is expected to grow at a CAGR of approximately 7.3% during the period CY2024-29E to account for a total market size of around Rs 630.7 trillion ($7,552.7 billion), as per Everest Group estimates. With the anticipated interest rate cuts, enterprises are expected to increase spending, focusing on achieving heightened efficiency with leaner resources while maintaining a growth outlook. Enterprises are increasingly investing in technology to enhance their digital infrastructure, streamline operations, and improve customer experiences. The accelerated push towards cloud computing, artificial intelligence (AI), data, automation, and connected products is not only transforming traditional business processes but also driving the need for IT services. Digital transformation continues to be a pivotal agenda for businesses aiming to stay competitive in a digital-first economy. Organizations are leveraging advanced technologies to modernize legacy systems and innovate their products and services.

Meanwhile, Gen AI, a sophisticated branch of AI, focuses on the creation of new content by learning patterns from existing data. Its rapid ascent in the industry can be attributed to breakthroughs in deep learning algorithms, increased computational capabilities, and the proliferation of large datasets. It is also central to digital transformation initiatives for many enterprises. IT service providers are leveraging gen AI across three key categories: products and platforms, service offerings, and internal functions. By developing AI-led platforms, service providers are delivering powerful tools tailored to specific client needs. AI-infused service offerings are enabling advanced solutions that drive efficiency and scalability. Internally, AI is enhancing operations in areas such as HR, legal, and compliance, optimizing processes and automating deal solutioning with AI-generated RFP responses. The following exhibit explores the various use cases in each of these categories.

Within core AI-led services, traditional AI algorithms mainly perform repetitive tasks such as pattern recognition, while gen AI can generate entirely new content. This has given rise to applications such as creative writing, conversational search, summarization, asset generation (synthetic data/image/video/3D), and simulated environment creation, among others. With the rapid rise of consumer gen AI applications, coupled with advancements in enterprise AI solutions and automation technologies, the outsourced gen AI services market is projected to reach Rs 7.8-8.0 trillion ($ 93.4-95.8 billion) by 2029. This growth is expected to be driven by technological advancements and increasing adoption across various industries, leading to a CAGR of 60-62% over the period of CY2024-29E.

Pros and strengths

Deep domain expertise delivered through comprehensive solutions across industries: It provides comprehensive services and solutions to customers across six industries (each of which is an operating segment): Financial Services, Healthcare and Insurance, Manufacturing and Consumer, Hi-Tech and Professional Services, Banking, and Travel and Transportation. It leverages its deep expertise across its comprehensive portfolio of services, in-depth domain knowledge, and understanding of customer requirements to contextualize the use of different technologies and to help its customers develop and deploy their digital transformation strategies. Its deep domain expertise extends to multiple sub-verticals within each operating segment. It has developed capabilities to address the nuances of these sub-verticals, as customers in each of these sub-verticals may have different characteristics and needs.

AI-led digital capabilities and platforms built in-house with innovation as a strategic pillar: The company leveraged its domain expertise to develop three AI-enabled digital platforms that create value for its customers across its service offerings: (1) RapidX, for digital transformation, (2) Tensai, for AI-powered automation and (3) Amaze, for cloud adoption. Innovation is considered a key pillar in its business strategy, and it has prioritized innovation by building its intellectual property portfolio, enhancing its technological expertise and investing in next-generation technologies. Driven by its AI-enabled approach, it has incorporated AI and Gen AI across its solutions and services as well as its internal decision-making and human capital management processes, while maintaining data security and adhering 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.

Long-term and embedded relationships with diversified blue-chip customer base: The company serves a diverse range of customers, including 31 of the Fortune 500 organizations. According to the Everest Report, in the Financial Year 2023, it derived around 62% and nearly 83% of its revenue from operations from customers with over $5,000 million revenues and over $1,000 million revenues, respectively. It has a diversified presence across geographies: The Americas, Europe and APAC regions which also include the Middle East, Africa and Latin America, and across operating segments: Financial Services, Healthcare and Insurance, Manufacturing and Consumer, Hi-Tech and Professional Services, Banking and Travel and Transportation.

Go-to-market strategy focused on customer acquisition and expansion: The company is focused on developing relationships with new customers across the Americas, Europe and APAC through collaborative engagement. It achieves this through its go-to-market strategy, which combines the efforts of its New Customer Acquisition, Account Management, Hybrid Sales and Overlay Sales teams. It 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, it derived around 62% and nearly 83% of its revenue from operations from customers with over $5,000 million revenues and over $1,000 million revenues, respectively. Its Pre-Sales, Practice, Global Bid Management and Marketing teams provide further support to its sales efforts.

Risks and concerns

Significant revenue comes from limited customers: A significant portion of its revenue from operations is attributable to certain top customers, and often it is not their exclusive IT services provider. The company has garnered 48.70%, 48.4% and 51.3% of its total revenue from top 20 customers in FY23, FY22 and FY21 respectively. Any downsizing of the scale of such customers’ business or any deterioration of their financial conditions or prospects or any renegotiation of its contractual agreements may result in a reduction in their expenditure on the solutions it provide. Any failure to retain its top customers, expand the size of its business with them, or expand to new customers could have an adverse effect on its business, profits and results of operations.

Maximum revenue comes from only two sectors: The company derived 28.3% and 21.2% of its revenue from operations for the nine months ended September 30, 2024 and 27.2% and 21.7% of its revenue from operations for the Financial Year 2023 from its customers in the ‘Financial Services’ and ‘Healthcare and Insurance’ operating segments, respectively. Some of its customers may rely on funding from venture capital and other sources to drive their business. To the extent that this funding is reduced, such companies may be forced to reduce their outsourced expenditures, which could have an adverse effect on its business and results of operations. Although it has not had material instances of a decrease in its customer base in the Financial Services and Healthcare and Insurance operating segments in the last three Financial Years and the nine months ended September 30, 2024, all of these events could adversely affect its business, financial condition, cash flows, or results of operations.

Geographical constrain: The company has derived 73.4% and 71.5% of its revenue from operations from the Americas and 20.5% and 22.1% of its revenue from operations from Europe for the nine months ended September 30, 2024 and the Financial Year 2023, respectively. The concentration of its customers in the Americas and Europe exposes it to adverse economic or political circumstances in such regions, including on account of any on-going economic slowdown and inflationary trends in such economies. Any change in regulatory framework, political unrest, disruption, disturbance, or sustained downturn in such economies could adversely affect its customers, who could, in turn, terminate their engagements or fail to award new engagements to it.

Foreign exchange-related risk: The company’s reporting currency is in Indian rupees, and it transacts a significant portion of its 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 its profitability and margins. If it expands into new markets, portions of its revenue from operations may be denominated in other currencies whose value may fluctuate in relation to the Indian rupee. Since the contracts that it enters into with its customers tend to run across multiple years and many of these contracts are at fixed rates, any appreciation in the Indian rupee vis-a-vis foreign currencies in which it generates revenue from operations will affect its margins, and hence its business, financial condition and results of operations.

Outlook

Hexaware Technologies is engaged in the business of global digital and technology services with artificial intelligence. The company uses technology to offer innovative solutions, integrating AI to help customers adapt, innovate, and improve in the AI-driven world. The company has go-to-market strategy focused on customer acquisition and expansion. It also has global, scalable, flexible delivery model with a certified and skilled talent pool. On the concern side, the company derived 73.4% and 71.5% of its revenue from operations from the Americas and 20.5% and 22.1% of its 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 its business, financial condition and results of operations. Moreover, a significant portion of its revenue from operations is attributable to certain top customers, and often it is not their exclusive IT services provider. If it cannot maintain and expand its existing customer base, its business, financial condition and results of operations may be adversely affected.

The company is coming out with a maiden IPO of 12,99,69,347 equity shares of Rs 1 each. The issue has been offered in a price band of Rs 674-708 per equity share. The aggregate size of the offer is around Rs 8759.93 crore to Rs 9201.83 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 13.60% from Rs 77,643 million for the nine months ended September 30, 2023 to Rs 88,200 million for the nine months ended September 30, 2024. The increase in revenue from operations was primarily due to an increase in the number of customers and an increase in the volume of revenue from operations from existing customers. The company’s profit increased by 6.03% from Rs 8,048 million for the nine months ended September 30, 2023 to Rs 8,533 million for the nine months ended September 30, 2024.

The company plans to continue to enhance its existing offerings and platforms to further expand its capabilities and its addressable market. It leverages its three AI-enabled digital platforms, RapidX for digital transformation, Tensai for AI-powered automation and Amaze for data and cloud adoption, across its services and solutions. It 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 adjacent to the business it operates in. It offers AI-led solutions across its operating segments, tailored to the specific needs of the industries it serves. For example, the company’s background research services cater to customers in the insurance industry, using defined document scheme to extract and filter data from various sources and generating reports with AI web scraping and chat prompts driven by large language models.