Kotak initiates coverage Hexaware Technogies with 'buy' tag; check rating & target prices

Kotak Institutional Equities has initiated coverage on Hexaware Technologies Ltd with a 'Buy' rating and a 12-month fair value of Rs 940. This valuation is based on 30 times the expected earnings per share (EPS) for March 2027. Their positive outlook stems from Hexaware's consistent performance in revenue growth, profit margins, and free cash flow (FCF) generation, which positions it to outperform peers over the forthcoming years.

Kotak estimates an impressive 12.6% organic US dollar revenue compound annual growth rate (CAGR) from 2024 to 2027 and a 21.9% Indian rupee EPS CAGR. Despite not being the fastest-growing firm in the mid-tier IT sector, Hexaware is expected to exhibit the most consistency, delivering above-average growth in revenues, margins, and FCF. Over the past decade, Hexaware's US dollar revenue and INR net profit have grown at CAGRs of 13% and 13.6% respectively, with an FCF growth of 14.1% post-acquisitions.

The business model of Hexaware has strengthened across multiple dimensions, including quality of accounts and depth of client relationships. This allows it to emerge as a credible challenger within the industry. The company optimises growth through both account hunting and mining, showing a well-rounded development in service delivery. Kotak notes Hexaware's high customer satisfaction, highlighted by an above-median Net Promoter Score (NPS) and low Days Sales Outstanding (DSO) levels.

Shares of Hexaware Technologies dropped about 4.25 per cent to Rs 739 on Monday, with its market capitalization slipping below Rs 45,000 crore mark. The stock had settled at Rs 771.75 on Friday. The IT stock has surged more than 30 per cent from its 52-week low at Rs 592.95, hit about one and a half month ago.

Hexaware has been proactive in embracing automation and artificial intelligence, marked by its initiatives such as 'Shrink IT, Grow Digital' and 'automate everything'. With its in-house platforms like RapidX, launched in 2023, Hexaware effectively supports service delivery and drives AI use cases, enabling it to stay competitive in an AI-driven market. Its strategic partnerships with cloud hyperscalers and data platform vendors further bolster its capabilities.

Hexaware Technologies made its stock market debut in February 2025, when the company raised a total of Rs 8,750 crore by selling its shares for Rs 708 apeice, with a lot size of 21. The stock is trading marginally above its IPO price. The stock is down 10 per cent from its 52-week high at Rs 850 apiece.

Despite its robust model, Hexaware faces several risks, including key-man risk, revenue concentration, and standard sector challenges like AI disruption and currency fluctuations. The company derives a significant portion of its revenue, 94%, from developed markets, and 58% from sectors like BFS, healthcare, and insurance. Additionally, 36% of its revenue comes from its top 10 clients, indicating potential vulnerabilities.

Hexaware has demonstrated consistent growth with US dollar revenue and INR net profit CAGRs of 13% and 13.6% respectively, over the past ten years. The company also boasts a comprehensive growth profile and robust customer satisfaction ratings, with low DSOs despite not using factoring. However, any disruption in top leadership, particularly the CEO, could pose execution challenges.

In conclusion, Hexaware is well-positioned in terms of growth opportunities and emerging technologies, but must navigate risks associated with leadership, revenue concentration, and sector-specific challenges to sustain its favourable trajectory. Kotak’s coverage underlines both the potential and challenges that Hexaware faces in the evolving IT landscape.