Hexaware Technologies Ltd. share price target

Maintain BUY with TP of Rs 545, at 22x (20x earlier) Mar-20E EPS. Strong growth visibility and >38% RoIC to support valuations. Hexaware posted in-line (robust) rev and strong operating performance in 2Q. Revenue came at USD 168mn, 4.7/9.9% QoQ/YoY in CC terms. Growth was supported by top-5 accounts (42.4% of rev) which posted its strongest sequential performance in last four qtrs. EBITDA% stood at 15.6%, +10bps QoQ as INR depreciation tailwinds was offset by impact of lower utilisation and visa cost (-51bps QoQ impact).

Hexaware Technologies (Hexaware) has reported an in-line revenue performance in 2QCY18. Aided by healthy revenue performance in Insurance & Healthcare (+10.9% QoQ), MFG & Consumer (+11.2%) and Professional Services (+9.2%) verticals, its USD revenue grew by 3.8% QoQ (4.7% QoQ in CC terms) to US$168.3mn. However, on YoY comparison USD revenue grew by 10.3%, which marks deceleration for the 5th successive quarter. Volume growth came in at 4.9%, more or less in line with CC revenue growth. The key BFS vertical grew by a subdued 1.8% QoQ, while YoY growth slipped to 9%, marking the slowest YoY USD revenue growth in last 4 years (since 2QCY14) and the first quarter since...

Hexaware reported growth of 4.7%/3.8% qoq in CC/USD terms as against our estimates of 4.0%/3.3% qoq growth. EBIT margin at 14.0% was largely flat but lower than our expectation (14.8%) despite the significant INR depreciation and absence of wage hikes in Q2CY18. margins were due to the absence of one-time revenue received on completion of a project (not highlighted in Q1CY18), which impacted margins negatively by ~95bps in Q2CY18. Hexaware upgraded its revenue and EPS growth guidance to 12-13% and 13-14%, respectively from 10-12% guidance for both revenue and EPS growth provided at the start...

24 July 2018 HEXWs 2QCY18 CC revenue growth of 9.9% was in line with our estimate (dollar revenue grew 3.8% QoQ to USD168.3m v/s our estimate of USD169m). However, EBITDA margin came in flattish at 15.6% (+10bp QoQ; est. of 16.5%), despite revenue traction and a weaker INR. The impact came from a higher base (one-time 100bp gain from a project) not called out by management back then. PAT grew 25% YoY (14% QoQ) to INR1,534m (est. of INR1,497m), led by higher other income and waiver of ~USD0.4m quarterly liability. HEXW upped its dollar revenue growth guidance to 12-13% (from 10-12%), implying an ask rate of 2.6-3.8%.

Hexaware went up by over 20% in yesterday's trade (closed 8% high) without any filling or announcement. The likely factor in our opinion could be possible expectations of upward revision in guidance and strong Q2CY18 numbers. However, we do not see these valuations sustainable and should cool off in the subsequent sessions....

Maintain BUY with TP of Rs 490, 20x Mar-20E EPS (19x earlier) Hexaware posted strong revenue growth (IMS contributed ~50% of incremental growth) and slightly lower operating performance (higher S&M;). Revenue came at USD 162mn, 3.9% QoQ led by Europe & APAC (~86% of incremental growth). EBITDA% came lower at 15.5%, -41bps QoQ impacted by higher S&M; expense.

Hexaware Technologies (Hexaware) recorded a largely in-line performance in 1QCY18. USD revenue rose by a healthy 3.9% QoQ, while CC revenue rose by 3.3% QoQ. Growth was led by good performance in the Travel & Transportation (+13.6% QoQ) and MFG & Consumer (+13%) verticals, aided by closure of some large projects. USD revenue came in at US$162.2mn, with YoY growth at a decent 12.1%. However, it should be noted that this is the 4th successive quarter of YoY revenue deceleration, owing to client-specific issues faced last year. Volume growth came in at 3.5%, more or less in line with revenue growth. Regards other verticals, the key BFS vertical grew by a relatively subdued 2.1% QoQ, Insurance and Healthcare revenue declined...

HEXW's 1QCY18 CC revenue growth of 3.3% QoQ was in line with our expectation (+3%). EBITDA margin shrunk 40bp QoQ to 15.5%, below our estimate of 16%. The company reinvested gross profits in S&M early in the year in anticipation of continued traction. PAT grew 11% QoQ to INR1.34b (in-line). On a YoY basis, USD revenue grew by 12.1% (CC revenue 10.1%), EBITDA by 0.2% and PAT by 17.8%

Over the past three years, HEXW's revenue growth has outperformed that of peers on an organic basis, led by its 'Shrink IT, Grow Digital' strategy. The burden of legacy has been weighing upon service vendors, to a larger extent for the larger ones, as deals erode in value to the tune of ~30% at the time of renewal. HEXW too has exposure to legacy business - application management, on-premise ERP, manual testing and business intelligence. In each service line, however, it has been aggressively tilting towards newer areas, thereby reconstituting the portfolio. Agile development, cloud-based ERP, automated testing and analytics have been gaining a larger share in the overall mix

IT solutions. In 4QCY17: Revenue share from Application Development & Maintenance (37.2%), Enterprise Services (10.8%), Testing (19.5%), Business Intelligence & Analytics (13.8%), BPS (7.0%) and Remote Infrastructure Management services (11.7%). The total headcount stands at 13,705 while the number of active clients stood at 221. The company's geographical revenue break-up is as follows; America (77.7%), Europe (12.1%) and ROW (10.1%). Company's revenue share amongst industry segment: BFSI (44.4%), Transport & Logistics (12.0%), Healthcare (16.7%) and...