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Hexaware 4QCY2011 performance highlights and results update

Contributed by Angel Broking

For 4QCY2011, Hexaware reported robust set of results. Major highlights of the results were whopping growth of 6.7% qoq revenue growth (highest in the industry) even in a seasonally soft quarter for IT companies. Hexaware has been outperforming in the mid-cap space since six quarters by growing at a scorching 8.1% CQGR over 1QCY2010–4QCY2012. Management has been outperforming its guidance every quarter and has guided for at least 20% yoy revenue growth for CY2012. 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 maintain Accumulate rating on the stock.

Quarterly highlights: For 4QCY2011, Hexaware reported USD revenue of US$84.1mn, up 6.7% qoq led by 4.8% qoq volume growth. In INR terms, revenue came in at Rs.432cr, up 18.0% qoq. The company’s EBITDA and EBIT margins expanded by 427bp and 455bp qoq to 23.0% and 21.6%, respectively, largely aided by INR deprecation. PAT for the quarter stood at Rs.88cr, up 36.3% qoq.

Outlook and valuation: On the back of an improving deal pipeline, management has guided to grow its revenue in CY2012 by at least 20% i.e., above US$370mn, which is highest in the industry. This seems easily achievable by the company given the revenue visibility on account of six large deals signed in past few quarters. Thus, we expect the company’s niche focus in enterprise solutions and business intelligence to play out strongly. Further, we expect USD and INR revenue to grow at a scorching 17.9% and 20.6% 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 maintaining SGA at absolute levels – which can elevate its EBITDA margin to 19.0% for CY2011 from 18.2% in CY2011. Thus, we expect EBITDA and PAT to grow at a CAGR of 20.3% and 6.3%, respectively. We value the company at PE of 10.8x CY2013E EPS, which gives us a target price of Rs.109. We maintain Accumulate rating on the stock