Hexaware Technologies 4QCY2013 performance highlights and results update
February 10, 2014, Monday, 15:52 GMT | 10:52 EST | 21:22 IST | 23:52 SGT
For 4QCY2013, Hexaware Technologies (Hexaware) reported broadly in-line set of results on the revenue as well as profit front but disappointed marginally on the operating margin front. Growth during the quarter was hit because of a 6.5% qoq decline in revenue from its top client. Building up a pipeline for sustained growth will require fresh investments in service offerings and sales capabilities. We retain our Neutral view on the stock.
Quarterly highlights: For 4QCY2013, Hexaware reported a USD revenue of US$100mn, up 1.3% qoq, marginally below our growth estimate of 1.5%. In INR terms, the revenue came in at Rs.620cr, down 0.2% qoq. During 4QCY2013, the company witnessed a 131bp qoq decline in its EBITDA margin to 22.5%. Operating margins were impacted due to stronger INR, full impact of offshore wage hike and higher SG&A investments. The PAT came in at Rs.103cr, up 4.6% qoq.
Outlook and valuation: The company expects growth momentum to continue, anchored by the improved demand pipeline, particularly in the US and Europe, driven by spurt in discretionary spending. Hexaware indicated that it was chasing 2-3 deals of over US$25mn. Two such deals, in advanced stages of negotiation at the end of the previous quarter, were lost to larger peers and strong incumbents. Even as the Management appeared confident about the pipeline and near-term growth prospects, we are concerned about continued under-investments in several areas and reliance on large deals. We expect the company to post a USD and INR revenue CAGR of 9.0% and 11.8% over CY2013–15E, respectively. The management understands the need to step up investments to spur growth; this could keep margins and earnings under pressurein the near future. At the current market price, the stock is trading at a PE of 10.8x CY2014E and 10.4x CY2015E EPS. We value the company at 10.5x CY2015E EPS of Rs.13.5, which gives us a target price of Rs.142. We retain our Neutral view on the stock.