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As Hexaware considers delisting, investors eye better exit price

Shares of Hexaware Technologies Ltd extended gains on Monday, rising 7% in early trade. Photo: MintPremium
Shares of Hexaware Technologies Ltd extended gains on Monday, rising 7% in early trade. Photo: Mint

  • Buyouts in the IT services sector in the past have happened around 12-15 times trailing 12 months Ebitda, analysts at Kotak said
  • Assuming a 12 times multiple to Hexaware’s trailing 12 months Ebitda would imply a delisting price of 360, calculation by analysts show

MUMBAI: Shares of Hexaware Technologies Ltd extended gains on Monday, rising 7% to 336 in early trade. The stock jumped 20% Friday after the company said its promoter plans to acquire all equity shares and delist the company from the stock exchanges.

As of March, promoter HT Global IT Solutions Holdings Ltd held 62.4% stake in Hexaware. Rest of the shares were owned by public shareholders. The exit offer price for the public shareholders is yet to be finalised.

The board of Hexaware will meet on 12 June to consider the proposal for delisting of equity shares of the company. The delisting price will be arrived at through reverse book-building process, in accordance with the regulations.

However, in a communication to the company, the promoter said 285 per equity share would be a fair price at which they will be willing to buy shares in the de-listing process.

But the stock is way past the promoter’s ‘fair price’ now, implying higher exit offer price expectations from investors.

“We see a strong likelihood of a hike in the offer price on account of much higher valuation multiples accorded to recent buyouts by strategic and financial investors, relative valuation discount for Hexaware at the offer price compared to peers and past precedents wherein offer prices have seen significant upward revisions," Emkay Global Financial Services Ltd said in a note.

Buyouts in the IT services sector in the past have happened around 12-15 times trailing 12 months Ebitda, point out analysts at Kotak Institutional Equities. Assuming a 12 times multiple to Hexaware’s trailing 12 months Ebitda would imply a delisting price of 360, calculation by analysts at Kotak show. Ebitda is earnings before interest tax depreciation and amortization.

No wonder investors expect higher exit offer price. “Hexaware now becomes an interesting play for 'special situation' investors," adds analysts at Emkay.

But as analysts point out, onerous regulations make delisting a time consuming process in India.

Further, post the gains in the last two trading sessions, the stock is now trading at 15 times one-year forward earnings multiple, broadly similar to Kotak’s IT sector average valuation estimates. With covid-19 posing growth headwinds and near term performance expected to be weak, investors would do well to exercise caution.

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