2026-07-11 23:33:09
Latest Post
NTPC board approves investment in Lara Super Thermal Power Project
Fabtech Cleanrooms Ltd - Business Update for June 2026
Hariom Power and Energy Pvt Ltd commissions 5 MW AC Solar PV Power Project
The Monarch Surveyors and Engineering Consultants Ltd receives order worth Rs. 2.61 crore
Veerhealth Care Limited receives order worth Rs. 1.11 crore
Research
Hexaware - Recent correction makes valuations attractive - Tata Securities
Posted On : 2013-03-28 04:39:45( TIMEZONE : IST )
For Hexaware, things are not going well for some time now. Not only has the growth slowed down in the last two quarters due to lack of large deal signing and cancellation/deferment of a project by a large client, the EBITDA margin has also declined by over 600bps during the same period. Though CY13/FY14 is likely to be better than CY12/FY13 for IT companies, lower revenue growth in 2HCY12 is likely to result in a below-industry-growth for the company in CY13. We estimate the revenue to grow ~9% in CY13, implying a CQGR of 3.1%. Moreover, we expect it to report a 260bps decline in its EBITDA margins in CY13.
EPS downgrades and PER de-rating due to the above reasons have resulted in a ~30% decline in the stock price in the last couple of quarters. However, we believe that current CY13 and CY14 PER of 8.7x and 7.4x factor in all the negatives. Low valuations, coupled with dividend yield of ~6%, in our opinion, protect the downside. We, therefore, initiate coverage on the stock with a Buy rating and a target price of Rs106/share, 9x CY14 PER.
Key highlights
Muted 2HCY12 growth to result in lower than industry CY13 growth: Compared to higher-than-industry-growth in the last two years, Hexaware's CY13 growth rate is expected to be lower on account of muted 2HCY12. As against a revenue growth of 18.3% in CY12, we expect Hexaware to report a revenue growth of 9.3% in CY13, as against NASSCOM industry growth estimate of 12-14%.
Subdued performance to reflect on margins: Muted growth and lower margins in 4QCY12 are expected to result in a 260bps decline in its EBITDA margins in CY13.
High dividend yield makes valuations attractive: At current CY13 and CY14 PER of 8.7x and 7.4x respectively, we believe the stock has limited downside. Moreover, dividend yield of ~6% and return ratios in excess of 22% are likely to give support to the valuations. We, therefore, initiate our coverage on the stock with a Buy rating and a target price of Rs106/share.
