Hexaware Technologies - Good show continues - Edelweiss

Hexaware Technologies - Good show continues - Edelweiss

The Q2CY12 results of Hexaware Technologies (Hexaware) were in line with estimates as revenues stood at USD91.2mn, up 3.6% QoQ (4.2% volume growth) vs our and Street estimate of USD92mn. EBITDA margin expanded 50bps to 22.9%, ahead of our estimate of 22.5%. The company seems to be reaping benefits of investments made over the past two years as the decent guidance for Q3CY12 (1.4%-3.0%) in an uncertain environment bears testimony to the same. We believe its continuous investments in strengthening front-end sales team and focus on improvement in operational parameters would drive growth from hereon. Maintain 'BUY' with target price of INR140. Inline quarter on revenue, margin front Hexaware's Q2CY12 revenues at USD91.2mn were marginally lower than our and Street estimate of USD92mn. The sequential growth of 3.6% (4.4% in CC) was driven by a volume growth of 4.2%. The beat on PAT (INR890mn versus estimate of INR834mn) was due to lower forex losses. It has won a large deal of USD100mn spread over four years; revenues from this deal are expected to accrue from early CY13. Further, it is actively chasing four more large deals. Growth to be driven by investments, operational focus The company has reiterated that it will continue to make investments, particularly in new technology areas in order to drive growth. Further, Hexaware plans to continue to invest in S&M for gaining higher wallet share within clients, particularly beyond its top 20 clients (thus strengthened sales team by 11 in H1CY12). We believe this, coupled with its continued focus on improving operational parameters, will enable it to drive growth and maintain operating margin. Outlook and valuations: Momentum continues; maintain 'BUY' While the Q2CY12 results were in line with estimates but lacked any positive surprise, we believe the momentum remains intact for the company, led by a strong order book build up, besides its continuous investments in the front-end. We forecast 20% USD revenue growth with EBITDA margin of 21%. Higher tax rate of 22% (20% earlier) leads to 4% cut in our CY13 EPS to INR12.7. We maintain 'BUY /SO' with TP of INR140 (11x CY13E earnings).