Hexaware has declared its first quarter (January-March) results. It is net profit stands at Rs 88.4 crore verus Rs 88 crore on quarter-on-quarter (QoQ) basis. It net sales are at Rs 438 crore versus Rs 431.9 crore on QoQ basis.
In an interview on CNBC-TV18, Atul Nishar, chairman of Hexaware says, the company has seen a consistent performance over the past eight quarters. He see minimum growth of 20% in dollar revenue in calendar year 2012. “We are confident of doing more than that,” he asserts.
Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.
Q: For the next quarter you are guiding to 3.5-4.5% growth, which would imply as well that you are holding your 20% full year guidance. At this point, do you see any scope of upping that guidance something that you did thrice last year?
A: Firstly, if you see the performance, we have been performing consistently over the last eight quarters. In Q1 itself we have done 6.6% volume growth with 4.7% quarter-on-quarter (QoQ) revenue growth in dollar terms. So, we have been outperforming the industry.
Now, in terms of the annual guidance that we have given is not less than 20%. So, it is a minimum of 20%. We are confident of doing more than that. How much exactly we will do? It will be difficult to say. But if you compare that with the NASSCOM guidance of 11-14%, you can find that we are well outperforming the industry.
Q: The market has been rewarding your stock and company for that kind of outperformance. Last year, you finished off with a 33% growth. This quarter itself there hasn't been a major beat in terms of what you have delivered on your dollar revenues. Is this you think going to be a much more quiet year in terms of outperformance, 20% should be the benchmark rather than the base?
A: I would say 2012 will be a very good year for us. Our client wins continue to be good. We have added 12 new clients. In terms of deals, we won two deals during this quarter each over ten million. We are at very advanced stage of discussion on two large deals. We have four-five large deals in the active pipeline. So, I would say this will be a very good year.
In terms of headcount, we have planned to add 1,500 people. We have already added 300 people in Q1. Looking at the pipeline, looking at the growth in individual plant accounts, the headcount addition, the margin expansion, the increase in the offshore revenue, our offshore percentage gone up by 1.7% just QoQ, so not only that the revenue growth is happening, the quality of revenue growth is also improving. That has impacted our margin.
Our gross margin is improved QoQ. We are at 41.3% gross margin. The PAT, at Rs 88 crore, takes into account higher outflow on account of the direct taxes of 5 crore. So, I would call that 2012 will be a very good year. We have no doubt on that. We will continue to perform well. In each of the quarters, we are confident we will outperform the industry.
At the same time, the annual guidance having given in February, we are just in end of April and we would like to just let some more time to go before we can review it.
Q: Volume growth has been extremely strong this quarter as well at 6.5% plus. On core volume growth itself, what is it that you expect to do over the course of this year?
A: The volume growth reflects the robust pipeline that we have got. As you know, the clients in North America as well as Europe, which is almost 93% of our revenue, do want to get more value for the buck they spend. So, for that, they now prefer more off shoring, so that they can execute the projects at a far lower costs. That works for us because that improves our margins.
The volume growth will continue to be good and offshore percentage will keep increasing. This quarter it was over 46%. We believe this will keep improving. That gives us confidence for margins to sustain on a quarter-on-quarter basis, which already are very healthy as you have seen at the 22.4% EBITDA inspite of rupee appreciation of 3% during this quarter.
So, I would guide for a healthy growth in terms of volumes which will reflect in the headcount as well as revenue. While it may not fully reflect in revenues, if the offshore percentage keeps improving. But that would sustain very healthy margins over a period of time which is what will matter.
Q: With regards to the two large deals that you mentioned, which month do you think you will be able to make a formal announcement of it? Is it basically a ramp up of existing projects or is it a fresh project that you are likely to bag?
A: Both of these clients are new. One is an existing client, but it would be entirely incremental work. The other client is a totally new client, in Europe. Although I cannot give you more details, it will be an extremely prestigious win, particularly being in Europe and in sector that we would have liked to grow. In both these cases, we are confident of winning, but the exact timings depends on when the clients want to make an announcement of that or formalise it. So, it is as advance as that.
Q: What would the bucket size of these two potential deals be though?
A: Both of course are large deals. Large deals definition at Hexaware would mean above 25 million each. So, one would be upward of 25 million. Second deal would be much larger than that.
Q: You have indicated in the past that your stated aim over the medium-term getting margins to that 25% range. How close would you say you are to that? Is this looking like a more challenging year in terms of defending margins for you or do you expect it to be a steady state performance on the margin front?
A: I wish it could go that soon to 25%. What we had said is that is a goal over a period of two-three years. There is no way we can reach 25% in the current year. But even if you look at constant currency basis, our EBITDA margin would be 23.4%. So, it has gone up this quarter on a constant currency basis. If the rupee remains depreciated or it keeps depreciating, it will have direct impact on EBITDA margin going up. That is not in our hands. It depends on what you think would be dollar-rupee rate.
Q: One final and statutory question, I know you answer it every quarter, but I must ask with regards to a stake sell and whether or not the management is in any form of any discussion on that front?
A: Since you used the word statutory, if something was statutory, we were duty bound to inform the stock exchanges. So, certainly it is not anything in the arena of statutory for sure.
In terms of speculation, I have seen over last nine years in every time we do well, this speculation goes on. It is very difficult for company to keep responding to rumours and speculations. But ofcourse if it was so statutory, we would have announced by now.
I think the more important is to focus on how well Hexaware is performing and outperforming the industry, how we continue to exceed the expectations. If you look at the attrition, it has fallen to 11%. So, on every single parameter how we are outperforming the industry, that is what one needs to focus on.