Hexaware’s IPO comeback: A big payday for Carlyle even with smaller listing

Bengaluru: Hexaware Technologies Ltd’s majority owner Carlyle Group will see its subsidiary CA Magnum Holdings pocketing at least 1.5 times its investment as the Indian information technology services company returns to the public markets next week.

CA Magnum will offload nearly a 20% stake in Hexaware, which on Thursday filed revised papers to launch a ₹8,750 crore initial public offering of its shares, lower than the  ₹9,950 crore IPO announced in September.

The IPO will only have an offer-for-sale component, which means Hexaware will not issue fresh capital and all the proceeds from the share listing will directly go to Carlyle’s subsidiary. The US-based investment firm holds a 95.03% stake, or 577,604,202 shares, in Hexaware, as per the red herring prospectus.

Hexaware has fixed a price band of ₹674 to ₹708 for the IPO. Carlyle has an average acquisition price of ₹385.35, with each share having a face value of ₹1. At the upper end of the price band, the private equity firm will make gains of 1.8 times. 

Hexaware’s IPO date of subscription is scheduled for 12 February and will close on 14 February. The company is likely to be listed on BSE and NSE on 19 February.

This is the second time that Hexaware will be going public. The company delisted from the stock markets in 2020. Nearly a year later, Carlyle’s holding firm bought a 95.51% stake in Hexaware for about $3 billion from Baring Private Equity Asia, which had acquired a majority stake in the company in 2013.

Hexaware has appointed 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 to help with the share issue.

Also read | Hexaware IPO listing: A second coming

Tapping new markets

Hexaware’s chief executive officer Srikrishna Ramakarthikeyan said the company had taken steps to improve business from the Asia-Pacific region after revenue contribution from its main markets, the US and Europe, slowed in 2023.

Hexaware earns about 71% of its revenue from the US, followed by about 20% from Europe and the remaining from Asia-Pacific. Despite the slowdown in its main markets, the company’s total income increased to ₹10,389.1 crore ($1.25 billion) in the financial year ended December 2023 from ₹9,378.8 crore in the year prior. Profit rose to ₹997.6 crore from ₹884.2 crore. 

Hexaware hasn’t yet filed its full-year financial statements for 2024.

“2023 was a pretty tough year but we increased our focus in APAC," Ramakarthikeyan told Mint. “We believe that markets like the Middle East have a lot of potential for us to grow than we have in the past. We have done some investments, made changes in the leadership to address these markets better."

Founded in 1992 by Atul K. Nishar, Hexaware was incorporated as Aptech Information Systems Ltd. Five years later, it listed on the stock exchanges and eventually rebranded itself as Hexaware Technologies in 2002. It competes with Corforge Ltd, LTIMindtree Ltd, Mphasis Ltd, and Persistent Systems Ltd.

The GenAI and GCC opportunities

Ramakarthikeyan, a former HCL Technologies Ltd executive, said that while new technologies such as generative artificial intelligence, or GenAI, could help improve the productivity of IT services companies, their business process outsourcing work could take a hit. 

His observation comes on the back of some reduction in outsourcing budgets by clients across the spectrum, which could result in a decline in the volume of work that companies like Hexaware get and eventually result in pricing pressures.

“If the BPO work has a lot to do with sending out content and emails, it’s going to (have) severely high impact," Ramakarthikeyan said.

BPO work accounts for about 13% of Hexaware’s revenue. 

However, he remains optimistic about business opportunities from global capability centres, or the offshore technology teams of multinational companies operating in India.

Also read | What lies ahead for GCCs in India after a pivotal year

“When I spoke about India and the Middle East as potential, incremental growth opportunities for us, within India, I think GCC is an important growth option for us," Ramakarthikeyan said. However, he mentioned that Hexaware would not take up any and all work for global capability centres.

"In general, historically, we have stayed away from commodity work at GCCs and we probably will. Certainly, that can’t be the main or only thing we do with a client, because there, I think we get into a zone of low billing rates and potentially low profit."