Hexaware - 2QCY2012 Result Update - Angel Broking

For 2QCY2012, Hexaware reported a healthy set of results, with major highlight of the result being 4.2% qoq volume growth. Hexaware has been outperforming in the mid-cap space since nine quarters by reporting a scorching 7.2% CQGR in USD revenue. Management has maintained CY2012 yoy revenue growth guidance of at least 20%. 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 recommend Buy rating on the stock.

Quarterly highlights: For 2QCY2012, Hexaware reported USD revenue of US$91mn, up 3.6% qoq, led by 4.2% qoq volume growth. In INR terms, revenue came in at Rs.500cr, up 14.1% qoq. The company's EBITDA margin improved by 53bp qoq to 22.9%, as negative impact of offshore wage hike and H1B visas got absorbed by INR depreciation and lower SG&A expenses. PAT came in almost flat qoq at Rs.89cr, negatively impacted by forex loss of Rs.6cr in 2QCY2012 as against Rs.3cr profit in 1QCY2012.

Outlook and valuation: The company signed one large deal with a multi-billion dollar global corporate in a BOT model, estimated to yield US$100m in revenues over four years, starting early CY2013. Management has given guidance of 1.4-3.0% qoq USD revenue growth guidance for 3QCY212, which is slightly less than our expectations, 2QFY/3QCY being the seasonally strong quarter for IT companies. To achieve 20% yoy USD revenue growth guidance for CY2012, if the company meets its 3QCY2012 guidance, the ask rate required in 4QCY2012 is 2.6-5.7% qoq. Given company's deal pipeline, we expect the company to grow by 20% yoy in CY2012 (in-line with guidance). 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 post a scorching 15.9% and 22.1% CAGR over CY2011-13E, respectively. We expect EBITDA and PAT to post a CAGR of 32.1% and 16.6%, respectively. We value the company at 11x CY2013E EPS, which gives us a target price of Rs.133. We recommend Buy rating on the stock.

Source : Equity Bulls

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