Hexaware Technologies Soars as Nuvama Initiates 'Buy' Rating, Eyeing 23% Upside!

Hexaware Technologies, a prominent player in the IT services sector, witnessed an impressive surge in its share price, climbing over 4 percent on Wednesday, June 12, 2024. This significant upward movement came hot on the heels of Nuvama Institutional Equities initiating a resounding 'Buy' rating on the stock.

The brokerage firm has set an ambitious target price of Rs 620, signalling a potential upside of a robust 23 percent from its previous closing price. This bullish endorsement arrived as the market eagerly digested the news of Hexaware's upcoming inclusion in the prestigious Nifty Next 50 index, effective June 28, 2024, further amplifying investor confidence.

The company, which recently navigated a failed delisting attempt by Baring Private Equity Asia due to a floor price mismatch, has clearly turned a new leaf.

Nuvama's optimism stems from Hexaware's exceptional performance over the past 12 to 18 months. Analysts highlight the firm's consistent robust deal wins and a marked increase in large deal acquisitions as primary growth accelerators. This strong momentum underscores the company's strategic prowess and its ability to secure significant new business in a competitive landscape.

Looking ahead, Nuvama projects a significant acceleration in Hexaware's revenue growth, particularly in FY25-26, buoyed by the strong foundation laid by recent client acquisitions.

A critical differentiating factor for Hexaware, according to the brokerage, is its deep-rooted focus on next-generation technologies like Generative AI and automation. These cutting-edge capabilities already contribute a substantial 30-35 percent to the company's total revenue, positioning Hexaware at the forefront of the digital transformation wave and offering a sustainable competitive advantage.

Financially, Hexaware continues to impress.

In the first quarter of calendar year 2024 (Q1CY24), the company reported a stellar 12.3 percent year-on-year revenue growth in constant currency, demonstrating its consistent operational strength. The EBITDA margin stood at a healthy 19.3 percent, reflecting efficient management and strong profitability.

The management's confident guidance of 8-10 percent revenue growth for the full calendar year 2024 further reinforces the positive outlook for the company's financial trajectory.

Despite its compelling growth story and robust fundamentals, Hexaware's valuation remains surprisingly attractive. The stock is currently trading at 26 times its estimated FY26 earnings per share (EPS).

This represents a compelling discount of approximately 30 percent compared to its Tier-1 IT peers and a 20 percent discount when pitted against its mid-cap counterparts. Nuvama emphasizes that this attractive valuation, coupled with strong growth prospects and a solid business model, makes Hexaware Technologies an appealing long-term investment opportunity for discerning investors.