We recently interacted with the management of Hexaware Technologies
(HEXA) to get an update on the outlook and future plans of the company.
The management indicated that the momentum stays on and is on track
to achieve 20% growth in CY12 (industry leading growth) in an uncertain
environment. Ramp up of large deal wins and a healthy pipeline (chasing
four large deals) give us the confidence of 20% growth for CY13. We reiterate
our positive outlook on the company as it continues to deliver
profitable growth. We maintain ‘BUY’ with a TP of INR150.
Momentum intact; large deals, healthy pipeline to inspire growth
The company indicated that it is on course to achieve its annual revenue guidance of
atleast 20% YoY growth for CY12 which we believe is commendable in this uncertain
environment. This coupled with ramping of large deals won and a healthy pipeline
gives us the confidence of 20%+ growth in CY13 too. Despite wage hikes in Q2CY12,
margins improved 50bps to 22.9% and it is confident of maintaining these levels in
CY12, using levers like pyramid rationalisation, offshore shift and SG&A leverage.
Holistic client mining driving growth
Post the slowdown in FY09, the company adopted a three pronged approach to client
mining. For the top ten clients, it focused on getting large deals which enabled growth
to be better than the industry. Beyond top, it focused on maximizing growth in few
clients and minimizing decline in others. Thus, growth in this bucket was in line with
the industry. Third was scaling up of revenues from new clients. This strategy has
delivered robust returns as further execution of this will drive growth for the company.
Outlook and valuations: Poised for growth; maintain ‘BUY’
As Hexaware executes complex and larger projects due to its continuous investments
in newer technology areas, it will build a strong case for itself which will drive growth
from hereon. Further implementation of the client mining strategy will lead to
profitable growth. Currently, the stock is trading at P/E of 10.8x and 9.2x our CY12E
and CY13E earnings, respectively. We maintain ‘BUY /SO’.
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