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Hexaware Technologies 4QCY2012 performance highlights and results update

Contributed by Angel Broking

For 4QCY2012, Hexaware Technologies (Hexaware) reported broadly in-line set of results. Overall volume of the company declined by 1.1% qoq due to sudden project closure of one of the company’s top clients. The company cited that work from its top account remains intact outside of the project cancellation impacting revenues in 4QCY2012 and 1QCY2013. The Management has guided for a double digit revenue growth in CY2013 and expects revenue to grow by 1.7-2.4% qoq in 1QCY2013. We maintain our Buy rating on the stock.

Quarterly highlights: For 4QCY2012, Hexaware reported USD revenue of US$92.4mn, down 0.4% qoq. In INR terms, revenue came in at Rs.502cr, down 1.0% qoq. The company witnessed a 477bp and 481bp qoq decline in its EBITDA and EBIT margins to 16.9% and 15.1%, respectively, impacted majorly because of challenges faced at one of its top clients. PAT came in at Rs.66cr, down 21.2% qoq.

Outlook and valuation: The Management indicated that the company remains confident of growing in double digits in CY2013 and cited that work from its top account remains intact outside of the project cancellation impacting revenues in 4QCY2012 and 1QCY2013. Also, the account should grow on a yoy basis in CY2013. For 1QCY2013, the company has given revenue guidance of US$94- 95mn, which translates to sequential growth of 1.7-2.8%. To achieve full year guidance of double digit growth (assuming 1QCY2013 revenues remain in the middle of the guidance range), the company needs to clock ~4% CQGR for the rest three quarters which looks a bit stretched. We expect the company to grow by 8.5% in CY2013; and post a USD and INR revenue CAGR of 9.3% and 9.8% over CY2012–14E, respectively. The Management expects margins to improve by ~150-200bp qoq in 1QCY2013. The margin slide during 4QCY2012 is expected to be recovered only gradually, however, as utilization picks up and growth improves, we expect margins to improve going forward. We value the company at 9.5x CY2014E EPS of Rs.11.9, which gives us a target price of Rs.113 and maintain our Buy rating on the stock.