Hexaware - 4QFY2013 Result Update - Angel Broking

For 1QCY2013, Hexaware Technologies (Hexaware) reported broadly in-line set of results with operating margins coming ahead of expectations. The overall volume of the company came in at 1.9% qoq. The Management has given a 0-2% qoq USD revenue growth for 2QCY2013, which is lower than the expectation of 1-3%. Owing to steep correction in the stock price, we maintain our Buy rating on the stock.

Quarterly highlights: For 1QCY2013, Hexaware reported USD revenue of US$94.0mn, up 1.8% qoq. In INR terms, revenue came in at Rs. 508cr, up 1.1% qoq. The company witnessed a 242bp and 236bp qoq increase in its EBITDA and EBIT margins to 19.3% and 17.5%, respectively, driven by a 670bp qoq increase in utilization including trainees to 70.6% and offshore mix shift of 230bp qoq to 47.5%. The PAT came in at Rs. 79cr, up 19.8% qoq.

Outlook and valuation: For 2QCY2013, the Management has given a USD revenue guidance of US$94-96mn, which implies a growth rate of 0-2%, which is disappointing given our estimate of 1-3%. Assuming the company meeting the upper end of the guidance in 2QCY2013, it requires a 6.4% CQGR in 2HCY2013 to meet the guidance of double digit USD revenue growth that was given at the beginning of CY2013 by the Management, which looks a bit stretched. While the guidance nearly rules out double-digit USD revenue growth in CY2013 (the company's earlier forecast), the Management cited expectations of a better 2HCY2013 as compared to a tepid 1HCY2013. We tone down our USD revenue growth estimates and 6.2% USD revenue growth for CY2013 and expect the company to grow by 8.5% in CY2013. We expect the company to post a USD and INR revenue CAGR of 8% and 8.5% over CY2012-14E, respectively. At the current market price, the stock is trading at a PE of 7.7x CY2013E and 7.2x CY2014E EPS. We value the company at 9x CY2014E EPS of Rs. 11.3, which gives us a target price of Rs. 102. We maintain our Buy rating on the stock.

Source : Equity Bulls

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