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Hexaware Technologies Ltd. is making a return to the public markets with an initial public offering (IPO) valued at ₹8,750 crore (approximately $1.06 billion USD). This represents a slightly reduced valuation from the ₹9,950 crore initially announced in September. The IPO, scheduled for February 12th-14th, with a listing expected on February 19th, consists entirely of an offer-for-sale (OFS), meaning all proceeds will go directly to Carlyle Group's subsidiary, CA Magnum Holdings. Carlyle currently holds a commanding 95.03% stake in Hexaware, and this IPO will see them divest approximately 20% of their shares. The price band for the IPO is set between ₹674 and ₹708 per share. This transaction represents a significant return for Carlyle, who acquired their stake for approximately $3 billion in 2021. At the upper end of the price band, they stand to realize a profit of 1.8 times their original investment, based on an average acquisition price of ₹385.35 per share. The substantial profit margin highlights the success of Carlyle’s investment strategy and Hexaware’s growth trajectory.
The strategic decision by Hexaware to focus on expanding its presence in the Asia-Pacific region is a key element of the company's growth strategy. While the US and Europe currently account for the bulk of Hexaware’s revenue (71% and 20% respectively), the company has witnessed a slowdown in these markets in 2023. To mitigate this, Hexaware has made targeted investments and leadership changes to bolster its operations in the Asia-Pacific region, including the Middle East. Despite the challenges in its primary markets, Hexaware demonstrated impressive growth in its overall financial performance. Its total income increased to ₹10,389.1 crore in the fiscal year ending December 2023, compared to ₹9,378.8 crore the previous year, demonstrating resilience and a capacity for growth outside of its traditional strongholds. Profits also saw a significant increase, rising from ₹884.2 crore to ₹997.6 crore over the same period. While Hexaware has yet to file its full financial statements for 2024, the existing data clearly signals continued success.
The impact of emerging technologies, particularly generative artificial intelligence (GenAI), on Hexaware's business model has also been addressed by CEO Srikrishna Ramakarthikeyan. He acknowledges the potential for increased productivity in IT services through GenAI but also highlights the potential negative impact on business process outsourcing (BPO) work. This is particularly relevant as some clients have reduced their outsourcing budgets, potentially leading to a decline in work volume and pricing pressure. Ramakarthikeyan estimates that BPO work accounts for around 13% of Hexaware's revenue and expresses concern about the impact of GenAI on tasks such as email and content creation. However, he remains optimistic about the opportunities presented by Global Capability Centers (GCCs), the offshore technology teams of multinational companies located in India. He emphasizes that Hexaware will be selective in its pursuit of GCC work, focusing on high-value, non-commodity projects to avoid low billing rates and low-profit margins. This strategic focus on higher-margin activities ensures the long-term health and profitability of the company.
Hexaware's history reveals a remarkable journey. Founded in 1992 by Atul K. Nishar as Aptech Information Systems Ltd., the company first listed on the stock exchanges five years later. It subsequently rebranded as Hexaware Technologies in 2002. Its delisting in 2020 marked a temporary departure from the public markets, followed by Carlyle’s acquisition of a majority stake. This IPO marks a significant milestone in Hexaware's history, representing a strategic repositioning within the evolving IT services landscape. The company competes with other significant players in the industry, including Corforge Ltd, LTIMindtree Ltd, Mphasis Ltd, and Persistent Systems Ltd., requiring a continuous focus on innovation and strategic market positioning to maintain its competitive edge. The company's strategic decisions, as highlighted in its plans for expansion into Asia-Pacific markets and its cautious approach to GCC work, reflect its commitment to sustainable and profitable growth in a dynamic and highly competitive environment.
The involvement of several leading investment banks, including Kotak Mahindra Capital Co. Ltd, Citigroup Global Markets India Pvt. Ltd, JP Morgan India Pvt. Ltd, HSBC Securities and Capital Markets India Pvt. Ltd, and IIFL Securities Ltd., underscores the confidence in Hexaware's prospects and the significant interest in the IPO. Their participation not only ensures a smooth execution of the IPO but also enhances the credibility and visibility of the offering. The successful completion of the IPO will not only generate substantial returns for Carlyle but also provide Hexaware with the financial resources and public market profile needed to drive future growth and expansion initiatives. The renewed focus on growth in Asia-Pacific markets, coupled with a selective approach to GCC opportunities, positions Hexaware for continued success in the long term. The company's performance in navigating the challenges of a fluctuating global economy and harnessing emerging technologies will be key determinants of its future trajectory.
Source: Hexaware’s IPO comeback: A big payday for Carlyle even with smaller listing