Hexaware Technologies - Break not a full stop - Dolat Capital

Steamed out: Hexaware has delivered best organic revenue growth in CY11 at 33% with a CQGR of 6% but is now seeing the momentum falling of in CY12 (likely to clock annual growth of over 18% in USD Revenues) though the annual growth would still be one of the best in the sector. We believe the growth engine 'Large Deal Win' has sort of steamed out at the moment and would take some time before it start get back in the groove.

Solution based model: Hexaware has build in its differentiation through solutions based offerings viz; Focusframe (Testing), Caliber point (HR and F&A), Risktech (Analytics). It has also focused on few niches such as less served verticals like Airlines and Peoplesoft practice.

Healthcare the next hope: It has added healthcare as a separate vertical in Q4CY11 and now banks heavily on the opportunities of HIPAA (Health Insurance Portability and Accountability Act) compliance before the regulatory deadline of 2014. It has created certain solution for the segment and is scaling up team of domain specialist to target this large opportunity.

Margin trends downward: In line with its topline OPM has also started trending off despite the supporting currency tailwinds and would see further softening as growth rate cools off; restricting EPS growth inline with the topline growth.

Valuation attractive: The stock has corrected over 30% in last 3 months owing to slipping growth rate, margin drag and recent guidance cut by the management. We believe the stock is attractive at 7x of its FY13E consensus estimates but would take its own sweet time to regain the confidence of sustained outperformance

Source : Equity Bulls

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