The Indian IT (Information Technology) services industry has made a significant mark on the global stage, with two of its major companies ranking among the top five IT firms worldwide.
India’s large pool of high skilled, cost-effective IT professionals have ensured that the Indian IT industry is among the top industries globally.
While the top IT players, such as Infosys and TCS, dominate the market, several midcap IT companies are also well-established but still have significant room for expansion. Such companies offer a compelling balance of growth potential and relative stability.
Among the top midcap IT stocks, we have shortlisted three companies to do a detailed comparison: Hexaware Technologies, Coforge, and LTI Mindtree.
Take a look…
Business Overview
Hexaware Technologies
Hexaware Technologies is a global provider of digital and technological services, specialising in areas such as artificial intelligence (AI) and automation.
Founded in 1992, the company offers a range of services that help its clients to innovate and adapt to digital technologies.
It actively leverages AI for functions like human resources, IT support, customer service, and finance to improve efficiency.
The company has a strong domestic presence, along with a diversified clientele in the US and UK.
Some of the sectors it operates in are finance, healthcare, and retail.
Hexaware Technologies recently raising funds via an Initial Public Offering (IPO). The promoter, CA Magnum Holdings, is selling shares through an offer-for-sale (OFS) and hence the proceeds will go to the promoter.
Coforge
Coforge, one among the top 20 Indian software exporters, is an IT services company providing end-to-end software solutions.
Its business model revolves around offering consulting, implementation, and support services in areas such as cloud computing, cybersecurity, analytics, and enterprise applications.
Some of its products and services include product engineering, digital solutions, AI, digital process automation, and Low Code/No Code platforms.
It caters to finance, insurance, travel, logistics, and manufacturing sectors and has reputed names as its clients, including British Airways, the ING group, SEI Investments, and Sabre.
The company has operations in around 21 countries including India, US, Singapore, Australia, UK, Germany, and Thailand.
Over the years, Coforge has grown through a series of acquisitions of various small IT companies to grow its presence across different industry verticals.
LTI Mindtree
LTI Mindtree is a company that is formed from the merger of Larsen & Toubro Infotech and Mindtree in 2022.
The merged company is now known as LTI Mindtree and offers extensive range of IT services like application development maintenance (ADM), enterprise solutions, infrastructure management services, testing, analytics & artificial intelligence.
It has a presence in India and in over 30 countries across five continents. The company earns majority of its revenue from the US, followed by Europe, and rest of the world.
Some of the sectors it caters to are banking, financial services and insurance, manufacturing, media and entertainment, retail, and healthcare.
Over the years, the company acquired several small IT companies such as Augment IQ, Syncordis, Ruletronics, Lymbic, and Powerup to increase its business and gain strategic advantage.
Between the three companies, LTI Mindtree is the largest company in terms of market capitalisation.
Hexaware Technologies, on the other hand, is set to list on the bourses today, February 19th 2025 and it is raising funds worth Rs 8,750 crores.
LTI Mindtree is also leading in terms of the client base. It has over 700 clients across various sectors and countries. After LTI Mindtree, Hexaware Technologies has the next highest client base of 283, followed by Coforge at 238 clients.
In terms of stock market performance, Coforge is leading with an 18% return, followed by LTI Mindtree with a 1% return.
Coforge has clearly given a higher return than the market benchmark index, Nifty 50 (6% return).
Revenue
The primary source of revenue for IT companies is through their biggest asset, their employees. A high revenue per employee indicates that the company has a skilled workforce.
For Hexaware Technologies, the primary source of revenue is from its clients in the US region (73%), followed by Europe (20.5%) and Asia Pacific (6.2%). Within the US geo, it earns the majority of its revenue from the banking and financial services business, followed by the healthcare industry.
In the last five years, the company’s revenue has grown at a compound annual growth rate (CAGR) of 13.2% on account of strong growth in US geo.
Coforge earns the majority of its revenue from the US, Europe, and Middle East. In terms of verticals, banking, insurance, and manufacturing contribute to more than 80% of the revenue.
In the last five years, its revenue has grown at a CAGR of 17%, primarily due to its presence in niche and critical service offerings, which contributed to the consistent revenue growth despite macroeconomic headwinds.
LTI Mindtree also earns the majority of its revenue from the US, followed by Europe. It has a strong presence in banking, financial services, insurance, media and entertainment, and manufacturing verticals, which contribute to almost 80% of the revenue.
In the last five years, the company’s revenue has grown at a CAGR of 26.7% primarily due to its established position in the market, and larger deals pipeline.
Clearly, LTI Mindtree is leading in terms of absolute revenue and revenue growth among the three companies.
Profitability
The profitability of a company can be assessed through earnings before interest tax depreciation and amortisation (EBITDA) and net profit growth and margins.
The EBITDA of Hexaware Technologies, Coforge, and LTI Mindtree have grown at a CAGR of 12.5%, 13.5%, and 24.6% respectively. Their EBITDA margin averaged at 15.4%, 17.4%, and 21.8% respectively in the last five years.
The net profit, on the other hand, for Hexaware Technologies, Coforge, and LTI Mindtree have grown at a CAGR of 9.3%, 12.3% and 24.7% respectively. Their net profit margin averaged 10.2%, 10.1%, and 14.2% respectively in the last five years.
For Hexaware Technologies, strong growth in revenues and continuous cost optimisation measures have aided the profit growth.
In case of Coforge, the company’s cost optimisation measures and high margin projects have helped with the growth in profits.
LTI Mindtree’s profits primarily grew on account of strong growth in revenue and low dependence on debt.
Between the three companies, LTI Mindtree is again leading in terms of profit growth and profit margins.
Debt Management
Monitoring debt is very important as it helps understand weather the company is overleveraged or underleveraged and what are the company’s fixed financial obligations.
LTI Mindtree is a debt-free company, whereas Coforge and Hexaware Technologies have very low debt on their books.
Since all the companies have strong revenue growth along with strong growth in cashflows, the companies are able to maintain their debt-free status.
LTI Mindtree has no acquisition plans in the near-term, and even if it does, it has enough cashflows to fund the acquisition.
Coforge, has a debt to equity of 0.1 and it recently it raised funds through qualified institutional placement to fund its future goals.
Hexaware Technologies, on the other hand, has a debt-to-equity ratio of 0.02. It has enough cashflows to fund its growth plans and it doesn’t foresee any near term acquisition.
Between the three companies, LTI Mindtree is leading in terms of debt management.
Financial Efficiency
We can measure the financial efficiency of a business by checking its return on equity (RoE) and return on capital employed (RoCE) numbers.
These return ratios indicate a company’s ability to generate returns from the equity and capital invested. A high and consistently growing ratio is considered better.
The five-year average RoE for Hexaware Technologies, Coforge, and LTI Mindtree is 22.6%, 22.8%, and 26.8%, respectively, whereas the five-year average RoCE is 27.8%, 28.5%, and 36.6%, respectively.
The RoE and RoCE of Hexaware Technologies and Coforge have consistently grown over the last three years on account of rising profits.
For LTI Mindtree, the merger has slightly affected the return ratios, but it is expected to improve in the medium term.
Despite falling return ratios, LTI Mindtree is leading in terms of financial efficiency, but Coforge and Hexaware Technologies are right behind with a slight difference in the ratios.
Dividend
Companies share their profits with the shareholders in the form of dividends.
A high and consistent dividend is a good sign for a business as it indicates steady profitability.
In the last five years, Coforge and LTI Mindtree increased their dividend per share by a CAGR of 19.4% and 31.6%, respectively.
The average dividend payout over the last five years for Coforge and LTI Mindtree are 42.3% and 35% respectively, whereas the dividend yield averaged at 2.2% and 2.9% respectively.
For Hexaware Technologies, the dividend payout averaged 53.5% in the last three years.
All three companies are dividend paymasters, but clearly, LTI Mindtree is leading in terms of dividends as it has the highest yield.
Valuation
Valuation ratios help us estimate the intrinsic value of a company and help us analyse whether a company’s shares are overvalued or undervalued compared to its peers.
The two popular valuation ratios are price to earnings (PE) and price to book value (PB). A high ratio indicates the shares are overvalued, a low ratio indicates the shares are undervalued.
The PE ratios of Coforge and LTI Mindtree are 61.4, and 36.3 respectively. In terms of PE, Coforge’s shares are highly overvalued compared to LTI Mindtree.
The PB ratios of Coforge and LTI Mindtree are 8.4 and 7.5, respectively. Even in terms of PB, Coforge’s shares are highly overvalued when compared to its peers.
Hexaware Technologies PE and PB are 43.4 and 3.1 respectively. Although the shares of the company are not listed yet, they are undervalued when compared to its peers.
However, when compared to the industry average, all three companies are overvalued in terms of PE.
Which Stock is Better: Hexaware Technologies, Coforge or LTI Mindtree?
In terms of revenue growth, profit growth, profit margins, financial efficiency, debt management, and dividends, LTI Mindtree is ahead of its peers.
Being well established in the IT services industry, the company has a diversified client base and strong network of employees across the globe to support its growth.
The company has grown through mergers and acquisitions in the past which proved to be quite successful. It has recently opened a new office in South Korea to expand its reach and services.
LTI Mindtree’s AI strategy which is ‘AI in everything, Everything for AI, and AI for everyone’ is driving innovation and deal wins.
It also focuses on cost optimisation to reduce costs and improve its margins in the medium term.
Coforge, on the other hand, has recently acquired Cigniti Technologies, to expand into new verticals namely retail, technology, and healthcare.
This helped the company acquire new clients and sign new deals with them. Moreover, with this acquisition, it aims to increase its North America revenue by 33%.
It is currently focussing on transforming the legacy Application Development and Maintenance (ADM) service line into a product engineering focus capability.
Hexaware Technologies has outlined several future plans to enhance its growth and market presence. It plans to expand its digital services business offerings, deepen its footprint in the US and UK, and diversify its service offerings.
The company also plans to enhance its investments in AI and machine learning to improve service delivery and client outcomes.
With the growing adoption of digital transformation, the shift towards cloud computing, and the increasing usage of AI and ML, the demand for IT services is expected to be high.
All three companies are well equipped to meet this demand.
However, it is important to do thorough research before making any financial decisions.
Investors should also consider corporate governance as one of the criteria for due diligence before considering an investment.
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
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