Accumulate Hexaware; target Rs 112: Unicon Investment

“Hexaware Technologies Ltd (HTL) posted strong results for the fourth quarter of the financial year, which was above our quarterly estimates. A strong show by the company in the quarter ensured that they surpassed their quarterly guidance of USD 82.5 mn by 6.7% to USD 84.1 mn. HTL posted robust volume growth of 7.4%. Revenue at INR 4.3 bn was up 44.2% and 18% on YoY and QoQ basis respectively. EBITDA for the quarter stood at INR 994 mn, up 44.9% QoQ and 188.1% YoY. EBITDA margins improved by 1150 bps and 427 bps on YoY and QoQ basis respectively at 23% PAT stood at 882 mn up 122.7% YoY. PAT margin increased by 720 bps YoY and stood at 20.4%. HTL saw an increase in realization for the quarter, with average bill rate per hour for Q4FY11 increasing sequentially to USD 73 for onsite services and remained constant at USD 23 for offshore locations.”

“HTL added 15 new clients in the quarter across all major focus areas of the company. For the calendar year the company added 51 new clients. The number of active clients at the end of Q4FY11 stood at 192. HTL signed the largest contract till date this quarter, with an estimated value of USD 250 mn. For this contract the team size is expected to ramp up to 800+ in CY12. The global headcount increased to 8,317 at the end of December 2011, with 1,806 employees added during 2011. Across the verticals for the quarter, the Emerging Segments contributed 34.4% of revenue while Banking & Capital Markets and Travel & Transportation contributed 28.5% and 20.7% of the revenue respectively. Americas contributed 64.4% of the revenue for the quarter while Europe and Asia Pacific contributed 28.7% and 6.9% of the revenue respectively. Attrition declined to 13.9% for the quarter as compared to 14.7% QoQ.”

“HTL has delivered a strong performance, growing at a CQGR of 8.1% over the last seven quarters, despite global macro economic uncertainty specifically in US and Europe. Due to strong leadership and improved operational efficiencies the company has been able to drastically improve margins over the last few quarters. In the quarter, HTL has made a capex of INR 633 mn mainly in Chennai SEZ campus for technical/IT infrastructure. With current scalable infrastructure in place at facilities in Chennai, Pune, and Nagpur, the company is capable of generating revenue of USD 2 bn. HTL has strong cash management and is a debt free company. At CMP the stock trades at a P/E of 11.2x FY12E earnings, we recommend an Accumulate rating on the stock with an upwardly revised price target of INR 112,” says Unicon Investment research report.

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