Hexaware Deal: Why is Citi reducing outsourcing to the company?

As follow up to my earlier post on "Why Hexaware sale may not happen" (at least not in a hurry) it seems we must add one more reason. Citi which is probably the biggest client of Hexaware is, rumored to be reducing outsourcing to Hexaware creating further nervousness in the minds of the investors/potential buyers.  As a result the stock has been underperforming the market in the last 3-4 days.

However, it would be interesting if the news is true, as it was earlier rumored that Hexaware (or atleast the PE investors) in Hexaware had awarded the sell mandate to Citi. However, later the contract was given to two other MNC investment banks (CS and MS).  Not sure if there is a link between the two, but this could potentially be the reason why there is sudden talk of Citi consolidating spending away from Hexaware.

Hexaware Sale. Why I think its not happening?

Why I think Hexaware may not get sold soon?

I think that any buy out deal on Hexaware is going to be difficult, and my reason is simple. Its peers, NIIT Technologies, Zensar, Infotech Enterprises each of which have comparable (if not higher revenues than Hexaware) are trading at less than half the valuation of Hexaware. Take NIIT Technologies for example. NIIT, like Hexaware, is focussed on niche verticals (BFSI, Travel), has been growing really well and had large deal wins announced during last year, stellar and stable margins over the past several quarters and rea venue runrate higher than Hexaware, is trading at market cap of less than 1500 Crore. While at today's market price, hexaware is close to 3500 Crore.

Any financial or strategic buyer looking to consolidate will look at this and simply baulk at the valuation gap, making the deal severly unlikely. Unless, the promoters and existing funds invested in Hexaware agree to sell at a discount to market price which is unthinkable and never done especially in India.