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Hexaware Technologies (HEXW)
Technology
Solid CY2011 exit, robust guidance for CY2012; reiterate ADD. Hexaware reported
solid 6.7% qoq revenue growth and 430 bps qoq OPM expansion for the Dec 2011
quarter, beating our and Street estimates handsomely. More importantly, the
company’s ‘at least 20%’ US Dollar revenue growth guidance for CY2012 inspires
confidence against a challenging macro backdrop. We raise CY2012/13 EPS estimates
to Rs10.7/11.7 (increase partly currency-driven) and TP to Rs110 (Rs100 earlier). ADD.
4QCY11 results: solid on all parameters
Sustaining the operational momentum it has gained over the past few quarters, Hexaware
reported industry-leading sequential revenue growth of 6.7% qoq (in US Dollar terms; +7.8% qoq
in constant currency), beating its guidance of 4-4.7% and our 4.6% estimate. EBITDA margins
expanded 430 bps qoq to 23% versus our estimated 21.5%. EBITDA margin expansion was led
mainly by benefits from a sharp Rupee depreciation during the quarter. Net income of Rs882 mn
(+37% qoq, +123% yoy) came in substantially ahead of expectations due to EBITDA beat as well
as lower-than-expected effective tax rate for the quarter.
CY2012E revenue guidance and margin outlook inspire confidence
Hexaware’s guidance indicated revenue growth of ‘at least 20% yoy’ for CY2012 and indicated
confidence about delivering 17-18% EBIT margins on a constant currency basis (the company
reported 16.5% EBIT margin in CY2011 on average INR/USD realization of just a tad over 47). The
company’s ‘at least 20%’ revenue growth guidance for CY2012, which implies CQGR of 3.7%
qoq from 2Q-4QCY12E assuming the company just about meets its 1Q guidance of ‘at least 4%
qoq growth’, may appear a tad aggressive against the backdrop of a challenging macro
environment. However, we note that the fortunes of mid-sized Indian IT services companies
depend more on the momentum they have in their top relationships as opposed to the general
spending environment. To that extent, Hexaware’s success in signing large deals with some of the
top accounts over the past few quarters reflects more in the guidance as opposed to macro
worries. We would not be surprised if Hexaware meets or beats the 20% growth guidance;
nonetheless, we build in 18% growth for CY2012, to be a bit conservative.
Raise estimates; maintain ADD
We have raised our CY2012/13 EPS estimates by 21/22% to Rs10.7/11.7, respectively. EPS revision
is a combination of modest revision in revenue estimates and a sharp revision in margin
assumptions (partially currency-led). We raise our target price on the stock to Rs110 (from Rs100
earlier), maintaining our target PE multiple of roughly 11X CY2012E earnings. Reiterate our ADD
rating on the stock. Slowdown in revenue momentum remains the key risk to our call.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Hexaware Technologies (HEXW)
Technology
Solid CY2011 exit, robust guidance for CY2012; reiterate ADD. Hexaware reported
solid 6.7% qoq revenue growth and 430 bps qoq OPM expansion for the Dec 2011
quarter, beating our and Street estimates handsomely. More importantly, the
company’s ‘at least 20%’ US Dollar revenue growth guidance for CY2012 inspires
confidence against a challenging macro backdrop. We raise CY2012/13 EPS estimates
to Rs10.7/11.7 (increase partly currency-driven) and TP to Rs110 (Rs100 earlier). ADD.
4QCY11 results: solid on all parameters
Sustaining the operational momentum it has gained over the past few quarters, Hexaware
reported industry-leading sequential revenue growth of 6.7% qoq (in US Dollar terms; +7.8% qoq
in constant currency), beating its guidance of 4-4.7% and our 4.6% estimate. EBITDA margins
expanded 430 bps qoq to 23% versus our estimated 21.5%. EBITDA margin expansion was led
mainly by benefits from a sharp Rupee depreciation during the quarter. Net income of Rs882 mn
(+37% qoq, +123% yoy) came in substantially ahead of expectations due to EBITDA beat as well
as lower-than-expected effective tax rate for the quarter.
CY2012E revenue guidance and margin outlook inspire confidence
Hexaware’s guidance indicated revenue growth of ‘at least 20% yoy’ for CY2012 and indicated
confidence about delivering 17-18% EBIT margins on a constant currency basis (the company
reported 16.5% EBIT margin in CY2011 on average INR/USD realization of just a tad over 47). The
company’s ‘at least 20%’ revenue growth guidance for CY2012, which implies CQGR of 3.7%
qoq from 2Q-4QCY12E assuming the company just about meets its 1Q guidance of ‘at least 4%
qoq growth’, may appear a tad aggressive against the backdrop of a challenging macro
environment. However, we note that the fortunes of mid-sized Indian IT services companies
depend more on the momentum they have in their top relationships as opposed to the general
spending environment. To that extent, Hexaware’s success in signing large deals with some of the
top accounts over the past few quarters reflects more in the guidance as opposed to macro
worries. We would not be surprised if Hexaware meets or beats the 20% growth guidance;
nonetheless, we build in 18% growth for CY2012, to be a bit conservative.
Raise estimates; maintain ADD
We have raised our CY2012/13 EPS estimates by 21/22% to Rs10.7/11.7, respectively. EPS revision
is a combination of modest revision in revenue estimates and a sharp revision in margin
assumptions (partially currency-led). We raise our target price on the stock to Rs110 (from Rs100
earlier), maintaining our target PE multiple of roughly 11X CY2012E earnings. Reiterate our ADD
rating on the stock. Slowdown in revenue momentum remains the key risk to our call.
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