neutral on Hexaware Tech

“For 1QCY2012, Hexaware reported a healthy set of results. Major highlights of the results were whopping 6.6% qoq volume growth even in a seasonally soft quarter for IT companies. Hexaware has been outperforming in the mid-cap space since eight quarters by reporting a scorching 7.7% CQGR. Management has been outperforming its guidance every quarter and has maintained CY2012 yoy revenue growth guidance of at least 20%. We expect the company to continue its revenue growth on the back of increasing traction for enterprise services as well as continue its operational exuberance. We remain Neutral on the stock.”

“For 1QCY2012, Hexaware reported USD revenue of US$88mn, up 4.7% qoq, led by 6.6% qoq volume growth. In INR terms, revenue came in at Rs438cr, up 1.5% qoq. The company’s EBITDA and EBIT margins declined by 61bp and 77bp qoq to 22.4% and 20.8%, respectively, majorly due to qoq INR appreciation against USD. PAT for the quarter stood flat qoq to Rs88cr.”

“Hexaware signed two deals during 4QFY2012, each worth US$10mn plus. Also, management indicated that it is in the final stages of signing two large deals �" each worth US$25mn plus. Management intends to hire 1,500 net employees in CY2012 with 600-700 of them being freshers. Management has maintained the company’s CY2012 yoy revenue growth guidance of at least 20% i.e., above US$370mn. We expect USD and INR revenue to post a scorching 18.1% and 20.5% CAGR over CY2010�"12E, respectively. Hexaware has adequate levers to expand its margins- such as strong volume growth, improvement in utilization level, broadening of the employee pyramid and rationalizing SGA costs �" which can elevate its EBITDA margin to 19.0% for CY2012 from 18.2% in CY2011. Thus, we expect EBITDA and PAT to post a CAGR of 21.7% and 9.5%, respectively. We value the company at 12x CY2013E EPS of Rs10.7, which gives us a target price of Rs128. The stock price has run up significantly and we see limited upside from current levels. We maintain our Neutral rating on the stock,” says Angel Broking research report.