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Hexaware, mid-tier Indian IT Services Company focuses on niche areas of ERP &
Testing services. It has built up strength in PeopleSoft implementation and support
services & also has been developing expertise in testing services, through organic &
inorganic initiatives. Acquisition of Focus Frame has strengthened its position in
Independent testing & Verification services. Hexaware leverages on its association
with People soft, for offering BPO services - Caliber Point - in areas of HR,
Healthcare, and Finance & Accounting. It has launched a range of service in
Enterprise Risk Management through its JV with RiskTech.
Last two quarters clearly reflects improvement in business momentum with clear reflection in the operating metrics in
the form of new client addition, growth across geographies, Horizontal & vertical improvements, employee addition of nearly
16% of its total employee base, in last two quarters. In this quarter too company maintained its stance of its deal momentum
being healthy, after bagging a deal worth USD 110mn in June ending quarter involving a deployment of nearly 500
employees.
Forex losses seems to be things of past for Hexaware, which bared substantial hit on its profitability after entering a
three year derivative contract in CY07 for USD 389 mn at an average rate of ` 40.5/USD. Company suffered Fx losses to
the tune of ` 996mn, in eight quarters in CY08&CY09. With all such contracts being expired and company shifting its Fx
policy on hedging only near term dollar revenue, we do not expect such Fx losses to recur.
Company guides for sequential mid single digit topline growth, after factoring double digit growth in past two sequential
quarters. Company cited lower working days in the quarter for a relatively lower seeming guidance. It’s noteworthy to
consider that the company has been outperforming its guidance by nearly 4-5% in the last two quarters.
Valuations At the CMP of ` 88, Hexaware trades at a P/E of 9.6x on CY11 consensus EPS estimates of ` 9.2 &
EV/ EBIDTA of 5.4x respectively .We recommend a “BUY” on the stock with a medium to long term view.
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