Hexaware Technologies Ltd. share price target

Marred by the extended impact of client-specific issues, Hexaware Technologies (Hexaware) delivered a weak performance in 4QCY17. Its USD revenue grew by 1.3% QoQ (same in CC terms) to US$156.1mn, while volume rose by 1.1% QoQ. From vertical perspective, Travel & Transportation witnessed steep pressure with segmental USD revenue declining by 7.5% QoQ. On a positive note, USD revenue from the key BFS vertical grew by a decent 3.9% QoQ, while USD revenue from Insurance & Healthcare and MFG & Consumer rose by 2.2% QoQ and 1.1% QoQ, respectively. However, owing to wage hike and investments made for acquiring new clients, EBIT margin declined by a steep 151bps QoQ to 14.3%, which along with lower other...

Maintain BUY with TP of Rs 420, 18x Dec-19E EPS (17x earlier). Hexaware posted strong revenue and in-line operating performance as compared to expectations. Revenue stood at USD 156.1mn, 1.3% QoQ (1.1% volume growth) and 12.3% YoY. CY17 rev growth at 15.6%, as compared to upper-end of 14 to 15% band guided (10 to 12% guided at the beginning of fiscal). EBITDA% stood at 15.9%, -154bps QoQ impacted by -280bps at gross margin (onshore wage hike and increase in new account investment). APAT came at Rs 1.21bn, impacted by higher ETR.

Strong underlying momentum: Revenue growth of 1.4% QoQ was ahead of our estimate of -1%, which had baked in ramp-down of one of its top customers. Growth of 12.4% YoY, despite these headwinds, is a testimony to the underlying strength in the business ??? fuel led by the same bits: Europe and APAC among geographies, and ADM, BPS and IMS among services. Conservative guidance: Despite the residual impact of ramp-downs (spread equally over CY17 and CY18), HEXW guided for 10-12% revenue growth for CY18 ??? compared to 15.7% delivered in CY17. This implies a CQGR of 3% in CY18, the same that was delivered in the previous year, despite a neat uptick in deal wins from new customers at USD72m, breaking the average of ~USD40m per quarter and taking the total for the year to USD180m (+19% YoY). Comments around the guidance indicated conservatism ??? to avoid a downward revision in the future. We are baking in 12.5% revenue growth, a notch higher than indicated

Hexawares reported revenue at ~USD 154 mn (up ~1% QoQ, 0% in CC) (AxisCapE/Cons.: USD 154 mn) was in line with expectation.

Maintain BUY with a TP of 315, 15x Sep-19E EPS. Hexaware posted in-line revenue, while operating performance came in stronger than estimates. Revenue came in at USD 154mn, 0.9% QoQ (USD 153mn est.), on 0.4% CC. EBITDA% came in at 17.4%, (+120bps QoQ), supported by lower ESOP cost (+41bps QoQ impact) and absence of visa cost (+65bps impact). APAT was higher at Rs 1.42bn, supported by lower ETR and higher forex gain (Combined impact of Rs 100mn sequentially on profit).

Weak Revenue; Trend to Continue in Next Quarter As Well Led by client-specific issues, Hexaware Technologies (Hexaware) has delivered a weak performance in 3QCY17, with its USD revenue rising by 0.9% QoQ (0.4% QoQ in CC terms) to US$154mn, which was below our estimate by 0.7%. Volume growth came in at 0.9%, similar to revenue growth. Vertical-wise, the key BFS vertical grew by a subdued 1% QoQ, Travel & Transportation revenue declined by 0.6% QoQ and MFG and Consumer declined by 2% QoQ. The Insurance and Healthcare vertical was the stand-out performer, clocking a healthy 7.4% QoQ growth in USD revenue. Notably, EBIT margin (ex-ESOP charges) rose by 78bps QoQ...

five customers. IMS and BPO remained stars among services, together contributing 40% of incremental growth in the year so far. further cemented by deal wins: Deal wins of USD43m from new customers take the 9MCY17 TCV to USD108m, 10% higher YoY. Led by current momentum, the company expressed the likelihood of meeting the top end of its 14-15% revenue guidance for CY17, implying ~1.3% decline in 4Q revenue, which would be driven by seasonal weakness and the residual impact of one of the client ramp-down....

EBITDA margin declined by 64bps QoQ to 16.2% mainly on account of lower bill rate and higher ESOP & visa charges. However higher utilisation (190bps QoQ to 80.8%) partially supported the margin. Management has raised CY2017 revenue growth guidance to 14-15% in USD terms from 10-12% earlier, implying a soft H2CY17 amid weakness in two large clients. We expect revenue to grow at 10% CAGR over CY16-18E owing to strong momentum in deal wins and traction in BFS, IMS and BPS verticals. However, we reduce our EBITDA margin estimate for CY18E to 16.1% (16.4% earlier) as...

At its analyst meet, Hexaware Technologies' (Hexaware) reiterated its target to achieve sustainable and industry leading growth by leveraging its focus on - Shrink IT and Grow Digital. It believes that it has all the three ingredients - 1) Right strategy & execution plan, 2) Right people and 3) Culture - to achieve its target. Hexaware is targeting to add steam to its growth engine by establishing two services lines every year which can grow at 40%+YoY. It is confident that IMS and BPS will continue to be high growth services for FY18/19E. Key Highlights and Investment Rationale...

Maintain BUY with a TP of Rs 290, 15x Sep-19E. We attended Hexawares Analyst Meet and re-iterate our positive outlook based on (1) IMS/BPM growth leadership, (2) Revival in enterprise solutions supported by leadership focus, going ahead, and product diversification, (3) Acceleration in new wins (1HCY17 TCV grew 16% YoY), with 80% of wins in focus areas, (4) Strong growth in Non-Top-10 accounts (5.6% CQGR in the past three quarters) and established account mining strategy. Expect revenue/EPS growth of 11/12% over CY16-19E.