Hexaware Technologies - Q2CY15 Result Update - Rich Valuations cap upside :: Centrum

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Hexaware Technologies: Hold :: Business Line

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Hexaware Technologies (3QCY14) : Traction in top clients aid growth. Maintain NEUTRAL :: HDFC Securities, PDF link

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Hexaware Technologies (3QCY14) : Traction in top clients aid growth. Maintain NEUTRAL :: HDFC Securities, PDF link

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Technical 7th Oct: Everest Industries, Tata Chemicals, Himachal Futuristic, Mercator Lines, Hexaware, GSK Consumer, TVS Motor:: Business Line

Technical: Everest Industries, Tata Chemicals, Himachal Futuristic, Mercator Lines, Hexaware, GSK Consumer, TVS Motor:: Business Line

Hexaware: Valuation remains compelling Growth and margin comfort improves; reiterate Buy:: Nomura

Valuation remains compelling
Growth and margin comfort
improves; reiterate Buy

Action: Guidance and margins better than expected; reaffirm Buy
HEXW’s strong guidance of: 1) 3.5-5.5% q-q revenue growth in 3QFY13F
(vs. our expectation of 3-4% q-q) and 2) similar growth in 4Q, increases
confidence in our revenue growth estimates. Our margin expectations
have increased by ~200bps across FY13/14F on the margins beat in 2Q,
a stable outlook and INR depreciation. This translates into an improved
EPS growth profile with a CAGR of 10% over FY12-14F (up from 4%
earlier). At ~8x FY14F EPS plus a dividend yield of 5%-plus we find the
stock attractive. Reaffirm Buy. HEXW/IGTE are our top picks in Tier-2 IT.
Catalysts: Large deal wins and growth in line with guidance
2QFY13: Revenues in line but margins significantly ahead
While 2Q revenue growth was largely in line with our expectation at 0.8%
q-q, margin improvement of 440bps q-q was a significant beat (of 120bps
ex of one-offs). Management’s guidance for margins to remain flattish in
3Q (despite headwinds of wage hikes and non-recurrence of provision
reversal benefits accrued in 2Q) and increase in quarterly dividend to
INR1.4 (from INR1.2) in line with the 50% dividend payout guidance were
positives. We expect USD revenue growth of 7%/13% in FY13/14F
(marginally higher than our earlier expectations).
Raise TP to INR130 based on 10x FY14F EPS of INR13.2
We raise our TP to INR130 (from INR110) on: 1) a 14%/12% increase in
EPS estimates for FY13/14F, driven by marginally higher revenue growth
and higher margin expectations; and 2) upgrade in our valuation multiple
to 10x one-year forward EPS (from 9x) on a better EPS growth trajectory

Technicals: Alok Ind, Hexaware, Cipla, NTPC, Jaiprakash Associates, Lakshmi Vilas Bank, Karur Vysya Bank :: Business Line

Hexaware :: TP: INR135 Buy ::Motilal oswal

 Hexaware's (HEXW IN) 3QCY12 results were below estimates. Revenues at USD92.8m grew 1.7% QoQ, lower
than estimate of 2.5% growth. EBITDA margin fell 130bp QoQ to 21.6% v/s estimate of 40bp decline, explained
by lower currency rate (INR54.68 v/s est of INR55.5), lower utilization (67.6% v/s est of 70%) and higher SGA
(17.9% v/s est of 17.4%). PAT at INR841m too was below estimate of INR919m, on lower revenues, margins and
forex loss of INR39m.
 For 4QCY12, company guided for revenues of USD94.7-96.5m, QoQ growth of 2-4%. This implies full year USD
revenue growth of 19-19.6%, down from 'at least 20%'.
 The very tenets of Hexaware's story appear to be under stress, at least over the near term: [1] it is chasing 4
large deals in the pipeline. But this time around, none is seeing an imminent closure. And a deal win, if any,
may not get finalized before 1QCY13, [2] acquisitions are back on the radar. Earlier, they were not the focus,
with management citing strong organic growth opportunity. In the event of an acquisition, the payout policy
too may be revisited.
 However, Hexaware expressed confidence in continuing to grow above the industry average next year, based
on early conversations with key accounts.
 We lower CY13E USD revenue estimate by 5.2% on slowing velocity of large deals and EPS estimate by 12.5%.
Our revised target price of INR135 is based on 11x CY13E EPS v/s a multiple of 12x earlier due to: [1] slowing
velocity of large deal wins and [2] likelihood of payout ratios coming down on the back of an acquisition, with
inorganic growth route back in contention.

Strong fundamentals with possible future consolidation in IT space -Hexaware Technologies :Centrum

Hexaware is a global provider of information technology (IT) and process outsourcing services. It focuses on three verticals: Banking, Financial Services and Insurance (BFSI); Travel, Transport, Hospitality and Logistics (TTHL), apart from other emerging verticals like life sciences and healthcare, manufacturing and professional services. The company’s technology solutions include enterprise solutions, business intelligence and analytics, quality assurance and testing services, human resource IT services, application development and management, technology consulting services and business process outsourcing services
Hexaware is now witnessing better traction in its operational performance since last 6-9 quarters with strong deal wins (close to US$600 million) and focus on top clients which gives visibility to deliver 20% revenue growth in CY2012. Hexaware reported 37.5% YoY growth in revenue to Rs.1451 crore and net profit of Rs.267 crore, a growth of 148.2% in CY2011. The growth momentum continued for Hexaware as is evident from its Q2CY2012 results, where it reported a growth of 49.7% YoY (14.1% QoQ) in revenue and 47.8% YoY (1% QoQ) in PAT.
Hexaware registered 7.2% CQGR in revenue and 22% in EBITDA over last 9 quarters. Offshore revenue share has increased from 40.8% in Q1CY2011 to 46.6% in Q2CY2012. Its attrition rate has come down significantly to 9.6% from 19.6%. The company added 51 clients in CY2011 and another 24 clients in 1HCY2012. Utilization rate at 70% including trainees offers further room to improve operating margin which has already seen improvement of ~860 bps to 22.9% over Q1CY2011 to Q2CY2012. It has a strong balance sheet with zero debt and cash & cash equivalents at Rs 429.6 crore (Rs.14.50 per share) as on June 30, 2012.
With the recent acquisition of Patni by iGate, we believe there can be further consolidation in the mid and small sized IT companies and the average PE multiple of companies like HTL. We believe that HTL could be one of the possible candidates for any further consolidation in the IT space as its promoters holding is 27.9% spread across 6 individuals.
Since the IT industry growth is tapering off and the big IT companies are posting poor growth, we believe that the major IT players will try and go in for consolidation and acquire mid-sized or small sized IT companies as a strategy for growth. In case any consolidation activity does not take place in HTL, on a purely fundamental basis, Strong client additions, visibility to achieve its revenue guidance of 20% for CY2012, one of the lowest debtor days of 66 days and high return ratio of 33% places the company ahead of mid tier IT companies and makes a strong case for re-rating at the current market price of Rs.121, It is trading at attractive valuations of 10.5x its CY2012E EPS of Rs.11.46 and at 9.3x of its CY2013E EPS of Rs.12.94. Moreover, high dividend yield of ~5% (expectation of Rs.6.0 per share in CY2012) appears attractive

HEXAWARE TECHNOLOGIES Heading towards the big league ::Edelweiss

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.

Hexaware Technologies: Buy : Business Line

Hexaware Technologies :Riding High! --nirmal bang,

Riding High!
Hexaware Technologies Limited (HTL) is a mid-sized IT company mainly catering to the capital markets (BFSI) and the airline (transportation) sector. It also focuses on enterprise software provided by PeopleSoft and Oracle. Recent large client wins has bought back the focus on this company which has good expertise in the niche areas.

Hexaware Technologies - On-track to deliver; company update; Buy :Edelweiss PDF link

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. 

Angel Broking - Hexaware - RU1QCY2012 - Result Updates - PDF link

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Hexaware - RU1QCY2012

Hexaware Technologies --Limited catalyst, stay on the side‐line :PL Research

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We intiate coverage on Hexaware with a ‘Reduce’ rating and a target price of Rs100,
implying 15% potential downside from the current level. Three reasons for our
bearish view – growth seems less secure as discretionary spend trajectory
disappoints, there is limited leverage as the best growth profile era is over and last
but not the least – valuation is full.
􀂄 Discretionary spend losing steam, momentum at risk: Hexaware was the
beneficiary of accelerated momentum in IT spend, particularly for ERP. The
strong demand in 2010-11 gave it increased focus and renewed vigour in the
vertical. But uncertainty around discretionary spend has put growth trajectory at
risk. We believe that momentum is likely to decelerate as cost cognizance
remains the central theme for CIOs.
􀂄 Best is behind us, growth less secure: Industry fundamentals appear to have
peaked-out for this cycle. The enterprise’s focus on cost-cutting means that
application spending growth is likely to be subdued. Competitive positioning,
execution and cash generation are the key. We believe that organic growth can
drive 12% EPS growth for the next two years — an opportunity already reflected
in a demanding rating of 11x times CY12 earnings. Our price target of Rs100
implies 15% potential downside and would put Hexaware at 9x CY12, still at par
with its Indian technology peers, despite potential downside risk of growth
prospects.
􀂄 Risk‐Reward skewed to downside: The current run-up in the stock price factors
in upside due to potential stake sale by promoters and current private equity
holders. We believe that any failure of such talks would push the valuation back
to fundamentals. If the stake sell-out happens, a potential open-offer could give
upside to the current upside.
􀂄 Valuation & Recommendation: We are initiating coverage on Hexaware with a
‘Reduce’ rating. We believe the stake-sell news, which is the primary reason
why we have a volatility flag on the stock, has pushed the valuation that is not
supported by fundamentals. Downside risk of discretionary spend cut could put
earnings at risk.

ENGINEERING & CAP GOODS Media reports: L&T Infotech in race to buy Hexaware ::Edelweiss

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According to news reports, Hexaware’s top brass is believed to have met
Mr. AM Naik (CMD, L&T). Though details of the discussion are still not
known, timing of the meeting has triggered large‐scale speculation about
L&T Infotech, the engineering company’s IT arm, exploring options to buy
out Hexaware. While L&T management did not comment on the
development, Hexaware Tech denied of any such meeting with L&T
Infotech.
L&T Infotech may bid for Hexaware; deal likely at over USD800mn
As per a recent news article, Hexaware top brass is believed to have met Mr. AM Naik,
CMD of L&T. Hexaware founder and Chairman Atul Nishar and his two private equity
(PE) shareholders, General Atlantic and ChrysCapital, recently roped in investment
banks, Morgan Stanley and Credit Suisse to advise them on selling a majority stake in
the company. While the promoter stake stands at 28%, General Atlantic owns a little
less than 15% and ChrysCapital 9.77%. Several foreign technology giants like NEC, NTT
Group and US PC manufacturer and services player, Dell along with a clutch of large PE
buyout funds like Providence and Advent have also been approached, as per reports.
Promoters expect the company’s value to be USD700mn‐800mn which is 15x CY11
EBITDA and around 2.5x CY11 sales, say media reports.
Our view: Negative in the near term
If the deal takes place, this is negative in the near term given L&T’s sizeable
commitment to developmental projects which coupled with this deal could put further
pressure on the company’s balance sheet. We believe that L&T is in a divestment
mode, looking to sell stakes in non‐core businesses like switchgear, material handling
JVs, etc hence buying out another IT company at this juncture looks unlikely. Our IT
team believes that if the deal goes through, the target valuation would be atleast 13x
forward P/E, implying INR43bn. We have a `BUY/SO’ rating on Larsen & Toubro

Hexaware Technologies: Solid CY2011 exit, robust guidance for CY2012; reiterate ADD :: Kotak Securities

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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.

Earning Updates - Hexaware Technologies Ltd ::CSEC Research

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Earning Updates - Hexaware Technologies Ltd

Dear All,

Results above expectation

Hexaware posted a sequential revenue growth of 6.69% at US$84.07mn which is above our expectation of US$82.43mn (ahead of company guidance of US$82 – 82.5). In Rupee terms revenue sequentially grew by 18% to Rs. 4,319mn.

Top 10 clients the prominent growth engines

Growth in CY11 was largely contributed by its Top 10 clients which accounts ~52% of the total revenue grew ~41% YoY vs. company growth rate of 33.3%. We expect the top 10 clients continue to grow in CY12 and the management is confident in mining higher share from these accounts, through cross selling and up selling.

Volumes are expected to drive growth, pricing to be stable

Like-to-like pricing scenario in CY12 is expected to be stable; hence the revenue growth for next year will be largely contributed by volume growth. Hexaware plans to hire 1,500 employees on a net basis of which over 40% is through fresher.

Valuation:

We expect Hexaware to report an EPS of Rs. 10.6 and Rs. 11.4 for CY12 and CY13 respectively. At the CMP of Rs. 99.15 the stock trades at 9.3X and 8.7X to the CY12E and CY13E earnings respectively. We retain our “Outperformer” rating on the stock with a target price of Rs. 125 (a potential upside of 26%) based on 11X CY13E EPS of Rs. 11.4.

Regards,

CSEC Research

Hexaware rallies on stellar Q4 numbers Ø CSEC Research

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Hexaware rallies on stellar Q4 numbers 

Ø   The S&P CNX Nifty posted its gains for the third straight day and managed to close above 5250 mark. Volumes were also on the higher side.

Ø   The Supreme Court cancelled licenses given to the telecom firms involved in 2G spectrum allocation scam. A total of 122 licenses had been issued since January 2008. Bharti remained firm and posted 7 percent gains on hopes that the company might get more spectrum post court verdict.

Ø   Cement stocks rallied on the back of its strong January production and dispatches numbers. ACC, Ambuja and India cements posted modest gains.

Ø    In the midcap space, Hexaware Technologies surged 10 percent on the back of better than expected numbers in Q4CY11.

Ø   BHEL and ONGC were in action ahead of EGOM meet to take a call on divestment stake in these firms. However, the EGOM committee decided not to divest its stake in this current scenario.

Outlook

Ø  U.S. indices were flat ahead of January employment report as the next indicator of the economic recovery.The economy created 121,000 jobs last month and the unemployment rate likely held steady at 8.5%.

Ø  In today’s trade Asian peers are trading mixed and SGX Nifty is trading flat, indicating our market to open on a flattish note.

 

Regards,

CSEC Research