Hexaware Technologies (HEXW IN, INR 122, Buy)
Our recent interaction with the management of Hexaware clearly indicates that the company is on track to achieve its annual revenue guidance of 20% YoY growth for CY12. Revenue momentum continues and management seems confident of margin improvement on constant currency basis for CY12. We re-iterate our positive outlook on the company based on execution of the deals it had won last year and continuous improvement in various operational parameters. At P/E of 11.1x CY12E and 9.2x CY13E, we maintain ‘BUY’ on the stock.
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Revenue momentum intact
The company indicated that it is on course to achieve its annual revenue guidance of at least 20% YoY growth for CY12 and expects this growth to be broad based. Europe is likely to grow at a faster pace than America at over 20% for CY12. Also, banking and capital market is likely to register double digit growth in CY12. BI and IMS too are seeing continued traction with IMS expected to double in CY12.
Margin to improve further
Despite wage hikes of 10-11% offshore and 3% onsite, management is confident of margin improvement for CY12 using levers like pyramid rationalisation, offshore shift and SG&A leverage. Also, pricing increases is likely to offset the onsite wage hike. We have builtin margin expansion of 260bps to 20.8% for CY12, while management expects margin to be around 23% (in CC terms), offering possible upside to our numbers.
Outlook and valuations: On terra firma; maintain ‘BUY’
We see Hexaware poised to execute complex and larger projects due to its continuous investments in newer technology areas. As it improves margin profile further, the Street could upgrade its estimates on the company. Currently, the stock is trading at P/E of 11.1x and 9.2x our CY12E and CY13E earnings. We maintain ‘BUY /SO’.
Regards,
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