Motilal Oswal has initiated coverage on Hexaware Technologies with a firm 'BUY' call, citing strong earnings potential, a diversified portfolio, and consistent execution. With a projected earnings CAGR of 20.8% between CY24 and CY26 and expanding EBIT margins, the firm estimates a 19% upside potential, valuing the company at 32x Mar’27E EPS. The target price has been set at Rs 950, against a current CMP of Rs 795, marking HEXT as a standout in India’s evolving tech services landscape.

Strong Fundamentals and Strategic Revival

Hexaware’s revival in the Indian stock market is underpinned by a 14% CAGR in USD revenue over CY20–24. This resurgence comes on the back of a strategic transformation led by CEO R. Srikrishna, robust ecosystem partnerships, and a focused go-to-market (GTM) strategy. Motilal Oswal emphasizes the effectiveness of the company’s “Land, Ramp, and Expand” client engagement model, which has helped scale over 130 accounts above USD1 million, with a handful exceeding USD75 million in revenue.

Well-Diversified Service and Vertical Portfolio

HEXT’s services are split across four segments: Design & Build (~33%), Secure & Run (~33%), Data & AI (~18%), and BPO. The Data & AI vertical is the fastest-growing segment, boosted by acquisitions like Softcrylic. The vertical revenue distribution provides resilience, with Financial Services (30.5%), Healthcare and Insurance (20.8%), Hi-Tech & Professional Services (17.3%), and Banking (7.8%) forming a balanced mix.

Financial Metrics and Growth Expectations

Motilal Oswal projects a healthy USD revenue CAGR of 12.2% between CY24–26, outpacing Tier-I averages (4.1%) and matching Tier-II peers (12.6%). EBIT margins are expected to improve from 14.6% in CY25E to 15.3% by CY27E. These forecasts are underpinned by HEXT’s offshore optimization, improved utilization, and employee-contractor cost balance.

Here is a financial snapshot:

Positioning Against Peers

Hexaware ranks as the second-largest mid-tier IT player, trailing only Mphasis in terms of revenue. It boasts superior cash flow metrics with a 94% OCF/EBITDA conversion and has lower client concentration risks compared to many peers. Unlike Coforge and Persistent Systems, which have grown through aggressive acquisitions, HEXT has achieved growth organically, underscoring its operational discipline.

Key Valuation and Target

Motilal Oswal’s valuation rests on 32x Mar’27E EPS, representing a 15% discount to Coforge’s P/E, reflecting both caution on margin expansion and optimism on growth. The brokerage pegs the fair value at Rs 950 per share, implying a 19% upside from current levels.

Core Differentiators: Ecosystem and Platforms

The firm leverages AI-driven proprietary platforms such as:

RapidX™ – For AI-enhanced software development.

Tensai® – Enterprise IT process automation.

Amaze® – Cloud transformation and modernization.

These platforms, along with partnerships with hyperscalers like AWS, Azure, and GCP, provide HEXT with a technological edge in the digital services space.

Risks to Monitor

Motilal Oswal flags several potential headwinds:

Client dependency on Fannie Mae, a top contributor facing US federal budget tightening.

High onshore delivery mix, which restricts near-term margin expansion.

Macro uncertainties delaying discretionary IT spend.

Intensifying competition from both service providers and internal IT teams.

Strategic Levers for Margin Expansion

HEXT plans to address its margin gaps via:

Increasing the offshore mix to reduce delivery costs.

Enhancing bench utilization and velocity.

Reducing reliance on expensive contractors by expanding Tier-2 city hiring.

Investment Conclusion

With robust execution, a well-diversified vertical base, strong ecosystem partnerships, and proprietary AI platforms, Hexaware is strategically poised to outperform its peers. While near-term headwinds persist, particularly around US client budgets and onshore margins, Motilal Oswal remains optimistic about the company’s medium-term outlook.

Investment Level: CMP Rs 795
Target Price: Rs 950
Recommendation: BUY
Upside Potential: 19%