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RECO : ACCUMULATE TP:Rs100
Investment Rationale
§ Revenue growth momentum +addressing of inherent operational inefficiencies to drive strong operating
performance
§ Hexaware continues to surprise positively on revenue growth led largely by client mining within top clients.
Hexaware expected to round up CY11 with the best growth amongst mid tier peers at 32%+ YoY revenue
growth
§ Operating margin improvement continues ( note that Hexaware’s margins have expanded by ~1200 bps
over the past 4 quarters and are highest since Dec’09 levelss0. Company still continues to have several
margin levers in the form of (1) growth led SG&A leverage and (2) broadening of employee pyramid
§ Estimated to post 24%, 55% and 50% revenue, EBITDA and profit CAGR (22% US$ revenue CAGR) over
CY10-13E, driven by operating leverage
§ Strong revenue growth + margin expansion = strong stock performance
Despite a 100%+ upmove over the past 1 year, we see Hexaware outperforming mid tier peers driven largely by
earnings surprises going ahead rather than valuation multiple expansion
Valuations
§ At CMP of Rs 89, the stock is trading at a P/E of 10.3x/8.8x on CY12E/CY13E earnings of Rs 8.7/Rs. 10.1
respectively
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