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TP : Rs80
Investment Rationale
§ Revenue growth momentum to uplift financial performance
Ø Hexaware used the downturn to address its inherent weaknesses by hiring senior talent, revamping the
entire management team as well adopting a vertical led sales approach.
Ø Company’s ability to survive vendor consolidation exercises at several clients has driven strong revenue
growth over the past 5 quarters (9% CQGR) (as clients reverted to normal spending levels)
Ø Margin uptrend (expansion of ~700 bps in last 5 quarters) to continue driven by strong revenue growth,
growth led SG&A leverage and offshore leverage
Ø Estimated to post 23%, 56% and 59% revenue, EBITDA and profit CAGR (24% US$ revenue CAGR) over
FY11-13E, driven by operating leverage
§ Strong revenue growth + margin expansion = a perfect recipe for re-rating
Hexaware has guided for a strong 4.3-5.6% QoQ growth in revenues for Sep’11 at US$ 78-79 mn and raised
annual revenue guidance from US$ 295 mn to US$ 302 mn (+30% YoY) which still builds in QoQ flat revenues in
Dec’11 qtr. We estimate 32%+ revenue growth for FY12 as we expect pickup in discretionary spending to fuel
Enterprise Services revenues.
Valuations
§ At CMP of Rs 80, the stock is trading at a P/E of 9.6x/9.7x on FY12E/FY13E earnings of Rs 7.5/Rs. 7.4
respectively
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