A $3-billion revenue target, India and the Middle East expansion: What Hexaware Technologies stock market comeback holds

R Srikrishna, CEO, Hexaware Technologies

Hexaware Technologies’ Rs 8,750-crore initial public offering (IPO) is set to be the biggest IT services company listing on Indian bourses on February 19. The mid-tier IT company, which had made its debut on the bourses in 2002, had been taken private in November 2020 after it was acquired by US private equity giant Carlyle.

The funds raised will be entirely going to the existing shareholder looking to partially offload their shares. Carlyle's subsidiary CA Magnum Holdings, which holds a 95.03 percent stake, will be offloading about 20.4 percent.

Hexaware last reported $1.3 billion in full-year revenue for 2023 (Hexaware follows a January-December financial year), a compound annual growth rate of 13.7 percent between 2021 and 2023.

In an interview with Moneycontrol, CEO Srikrishna Ramakarthikeyan shared the company’s post-IPO plans, revenue growth targets, hiring strategy, generative AI opportunities, its focus on India and the Middle East as they decouple from global macro uncertainties, and more.

Edited excerpts:

Hexaware Technologies went from being listed to delisted twice and now it is listing again. How has the transition been through all of this? What changes now?

We've changed a lot as a company, but none of that is as a consequence of ownership changes. We have been and will continue to be a management-run organisation. The good thing is that the high-performing part of our management has not changed.

I've been there for over 10 years. Our banking head has been there from before me, our financial services head has been there from before me, our Europe head has been there before me—a lot of people who I think help with being able to execute in a management-led organisation. Having said that, we've changed for the good of the business.

We've continuously improved capabilities. While I said stable leadership, that doesn't mean we don't bring in new talent in areas that we need to. For example, there is a person called Sanjay Salunkhe, whom we hired to lead our software business.

He's done this for a living for 30 years. He started with Patni, which got acquired by IGATE, and eventually got acquired by Capgemini. At each of these companies, he was the head of the software engineering digital business, and we finally hired him after 30 years there. We also hired somebody from a scale-up for data and AI business.

So we bring in new talent where needed, and we platform-ised our services quite a bit. Amaze is the cloud and data transformation platform that is patented. Tensai is a second-generation platform, a cloud AI native platform built four years ago. But in the last year and a half we've added lots of Gen AI modules into Tensai, and the newest platform, RapidX, is built on Gen AI. So I think the capability starts at leadership, lots of additional capability at the next levels, and the most important part of it finally is the platforms.

Your peers like Persistent Systems have set out revenue growth targets of $2 billion by 2026-27 and $5 billion by FY31. And mid-tier IT firms have overall continued to outperform larger peers. Any growth targets that you will be setting out?

I think our next ambition is to get to $3 billion (in revenue). I'm not currently going to put a timeline to it for you, because we are in a period where we can't talk about the future. I think once we go public, we'll have plenty of opportunities to talk more about the future.

The US and Europe are your core markets. What’s the outlook on discretionary spending there?

Europe and the US are going a little bit in opposite directions right now. I think the US is on an improving path, even more so post-elections. But even before that, it was on an improving path.

In Europe, it depends on the sector. For instance, in Germany, manufacturing and automotive are all under long-term stress. Then there are other areas that are recovering.

What’s your deal pipeline looking like?

Our business in general is more weighted to discretionary work. We have a mix. We have an all-weather services line. We have an outsourcing, tech outsourcing business.

We have a BPO business, which is modest in size. But all the rest is more discretionary. So I think the pipeline shape for us will change from multi-year outsourcing deals to shorter-period transformation deals. And the ticket sizes would probably go down.

How are deals shifting with respect to generative AI, AI coming into play? Have these started impacting margins/ revenue growth as productivity gains are being expected to pass on?

In some businesses, yes. In other businesses, no. In tech outsourcing and in BPO, I think the productivity gains will go to customers. They will come in the form of baking it into the customers' contracts. If you were giving 4 or 5 percent productivity gains before per annum, now they'll ask for more. And I think it'll be 7-8 percent, not going to be like 20 percent more. I think it's going to be a few percent more.

And that's going to be lost revenue but not lost profit. I think we as an industry have demonstrated an ability to get that profit back. Platform capabilities will make that happen.

Are the kind of Gen AI opportunities a mid-cap IT company gets different from those a large-cap IT company?

I'm not sure what a Gen AI opportunity is. There is some work that is pure Gen AI, but that's small stuff. The important stuff is embedding Gen AI into software development, embedding AI into tech outsourcing. That is an everyday thing.

Because for us, that's in every platform. Tensai has 15 Gen AI models. So virtually every deal is influenced by our Gen AI capability.

I don't think there's any difference between the type of work people see. It's the same core type of work—software development, outsourcing tech. That's the work. Now you're using AI to do it better.

On the talent side, you have been setting up smaller-capacity campuses in smaller cities unlike your larger peers. How has that strategy played out? How are you meeting enterprise client expectations in case they need the team on ground or closer to them?

We started full earnest execution of this strategy from late 2023. In the last 12 months, we opened a campus each in Dehradun, Coimbatore and Ahmedabad. We have added GIFT City also. In Sri Lanka, we opened in Colombo.

We are seeing three things here. One, there’s a very motivated talent at these locations. Like in Dehradun, we are already among the largest IT employers. People who work for us are telling their friends to come and join Hexaware. We have around 150 people in the Dehradun office.

The second thing we are seeing is that the cost is lower. The third thing is that the attrition is materially lower in these locations. So we are very bullish about expanding here.

I think customers, for the most part in the post-COVID world, don't care where people are. Some customers do want people to come back to the office. But still, their office can be in Dehradun or in Pune or in Chennai. It doesn't matter.

What are your talent hiring plans like? Have AI and automation started to disrupt the headcount needed?

The answer to the second part is no. In general, AI is not changing the volumes (hired). But it's changing how we think about skills. So, our fresher hiring programme is more skewed to senior freshers. We have three different fresher programmes—maverick, digital maverick and exponential mavericks.

As a percentage, we hire a lot more premium mavericks than some of our competition. If we are hiring 100, I think we hire 50 or more in the premium mavericks category.

If they're more specialised, we pay them 1.5X more in the digital mavericks category. To the exponential mavericks, we pay some five times more. Those are freshers from NITs, IITs.

The premium mavericks and regular mavericks, they go through the same tests. If you score above a certain level, you get considered for an interview for a higher maverick position.

Once listed, what are going to be the key business focus areas over the next two to three years?

It's not a functional listing. I don't think anything will change in terms of our focus or business priorities because we are listed.

At the highest level, it is finding opportunities to grow more. Legacy modernisation is going to be big with AI. That is a definite focus area for us now. We are also focusing on going more into product engineering and expanding into the India and Middle East markets.