Angel Broking neutral on Hexaware; target Rs 92

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Angel Broking neutral on Hexaware; target Rs 92

Angel Broking has maintained neutral rating on Hexaware Technologies with a target price of Rs 92, in its October 20, 2011 research report.

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Angel Broking has maintained neutral rating on Hexaware Technologies with a target price of Rs 92, in its October 20, 2011 research report.

"Hexaware Technologies reported robust set of results for 3QCY2011. Major highlights of the results were whopping growth of 9.2% qoq and considerable operating margin expansion, despite wage hikes given to onsite employees during the quarter. Hexaware has been outperforming in the mid-cap space since a year by growing at a scorching 7.5% CQGR over 2QCY2010-3QCY2011. Management has been outperforming its guidance every quarter and has guided for at least 32% yoy revenue growth for CY2011. We expect the company to continue its revenue growth on the back of increasing traction for enterprise services as well as continue its operational exuberance. For 3QCY2011, Hexaware reported USD revenue of US$78.8mn, up 5.3% qoq. In INR terms, revenue came in at Rs 366cr, up 9.6% qoq. The company's EBITDA and EBIT margins expanded by 345bp and 348bp qoq, despite wage hikes given to onsite employees during the quarter, on the back of stronger volume growth, lower SG&A expenses and INR depreciation against USD. PAT for the quarter stood at Rs 65cr, up 7.4% qoq."

"On the back of an improving deal pipeline, management has guided to grow the company's revenue in CY2011 by at least 32% i.e., above US$306mn, which seems easily achievable considering management's previous track record. Thus, we expect the company's niche focus in enterprise solutions and business intelligence (BI) to play out strongly. Further, we expect USD and INR revenue to grow at a scorching 24.4% and 25.2% CAGR over CY2010-12E, respectively. Also, Hexaware has adequate levers to expand its margins - such as strong volume growth, improvement in utilization level, broadening of the employee pyramid and maintaining SGA at absolute levels - which can elevate its EBITDA margin to 16.8% for CY2011 from 8.8% in CY2010. Thus, we expect EBITDA and PAT to grow at a whopping CAGR of 72.3% and 69.4%, respectively. We value the company at PE of 11x CY2012E EPS, which gives us a target price of Rs 92. We recommend Neutral on the stock," says Angel Broking research report.

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