Hexaware Technologies is set to debut on Indian stock exchanges today, February 19. The issue was subscribed 2.79% and the brokerage firm JM Financial has initiated coverage on the company with a ‘Buy’ rating and a target price of Rs 820, implying a 16% upside from the upper end of the IPO price band of Rs 708.
According to JM Financial, Hexaware’s transformation began over a decade ago when Keech and Barings PE took over. The brokerage said, “Their strategy of going after scalable clients with a wider bouquet of services has helped them hunt as well as farm well.”
Furthermore, the brokerage in its report highlighted that Hexaware has evolved into a mature framework that should yield consistent results in the coming years. It projects an earnings per share (EPS) compound annual growth rate (CAGR) of approximately 20% over CY23-26E.
JM Financial on Hexaware Tech: Comparisons with Coforge
According to the brokerage firm, Hexaware’s transformation blueprint is similar to Coforge’s. Both companies have expanded their service offerings and prioritized verticals and clients with larger tech outsourcing budgets.
“HEXW, like Coforge, expanded service offerings and prioritized verticals/clients with larger tech outsourcing spend while diversifying from sub-scale ones such as travel,” said the brokerage in its report.
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The brokerage firm projects 12% USD revenue CAGR over CY24-26E, with EBITDA margins expanding by 158 basis points due to reduced non-recurring expenses.
“We build in 12% USD revenue over CY24-26E. 158 bps EBITDA margin expansion, led by tailing off of non-recurring expenses, should drive 20% EPS CAGR over the same period,” added the brokerage in its report.
JM Financial on Hexaware Technologies: Financial trends and performance
Hexaware has consistently outperformed most peers, registering a 10-year USD revenue CAGR of 12.5%.
The brokerage firm projects a CY23-27E revenue CAGR of 12.9%, maintaining its long-term growth trajectory. The company has also noted a cash conversion, with an average operating cash flow to EBITDA ratio of 83% and a free cash flow to profit after tax ratio of 99% (excluding acquisitions) over CY13-23.
JM Financial on Hexaware Technologies: Valuation and risks
JM Financial values Hexaware at 30x its 24-month forward EPS,
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