To sustain & improve margins over current levels: Hexaware

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Hexaware Technologies ' fourth quarter net profit more than doubled year-on-year to Rs 88.2 crore, backed by strong demand for outsourcing and healthy bill rates, along with the rupee depreciation. The software services exported reported revenue of Rs 431.9 crore, up 44% year-on-year.

On a sequential basis the net profit was up 36.3% sequentially, while revenue rose 18% from the July-September quarter.

Commenting on the company's excellent performance, PR Chandrasekhar, CEO, Hexaware Technologies said the IT major's growth has been fairly broad based. In the same breath, he added that Hexaware can sustain and even improve margins over current levels going forward.

Furthermore, he said that the current environment is tough and he expects pricing to remain under pressure but hopes to maintain the current structure on the back of the company's healthy mix of business.

Below is the edited transcript of his comments. Also watch the accompanying video.

Q: Take us through where the volume growth came in from this quarter?

A: It has been a pretty good quarter in terms of growth from all sectors. We grew in North America, Europe and Asia-Pacific; we also grew across the board in terms of our verticals as well as all our key technologies. So it was very broad based and from a customer standpoint, our top five customers grew; so we actually delivered about 7.8% quarter on quarter growth in constant dollar terms.

Q: Your margins have now reached 23%. Do you think you can build on that or will it now begin to peak off?

A: No, I think there is still some room. We have guided that based on the fact that we still believe there are some levers in terms of our people pyramid as well as our onsite offshore ratios and certain other capabilities in terms of still leveraging volume from an SG&A stand point. We believe that we can sustain and even improve margins over current levels.

Q: What exactly has volume growth been this quarter for you?

A: Volume growth actually has been about 7.4% versus the growth in terms of dollars of about 6.7%. So it has been a pretty healthy volume growth in Q4.

Q: You have set your guidance at 20% growth in dollar terms. You have revised your guidance thrice through the course of last year. Would you say that this is a conservative guidance?

A: We clearly hope that we will do better. But as we see visibility today and given the kind of news in the macro-economic world, we believe 20% is a very healthy growth and a realistic one for us. As things improve and we see more visibility going into Q1 and Q2, maybe we can do better. At that time, I am sure we will inform the analysts and the media as well.

Q: Can you throw some light on where the volume growth is coming in from - whether it is a few clients which are delivering this kind of growth or any geography where you are getting most of the traction from?

A: We did grow fairly broad based. Having said that, our top 10 clients represent about 52% of our revenues. They have delivered us good growth over the last few quarters. We have also invested a lot in account management which means that the next set of 20 clients have grown and will hopefully continue to do that in 2012 as well. In terms of the geographies, in 2010, we could say North America led growth, in 2011, both the Asia-Pacific and Europe joined in.

I know the news from Europe continues to be somewhat heavy but for us Europe has been growing for the last two-three quarters and we expect that to continue. We have now introduced a new vertical which is healthcare and insurance - that saw a healthy growth last quarter. We also have been witnessing some good growth in our newly introduced horizontal technology which is infrastructure management.

I think one of the reasons we have grown almost 8% CQGR over the last seven quarters which I believe would probably put us amongst the top in the industry is the fact that multiple cylinders and Hexaware has been firing. We took a lot of trouble in 2008-09 to get the right team and make lot of investments and I think it's beginning to pay off.

Q: What is it that you are penciling in, in terms of pricing for this year because some of your larger peers have indicated that the pricing environment is extremely tough?

A: The environment is certainly getting tougher. Having said that, if you look at even our Q4 numbers, our onsite billing rate is about 73% and our offshore remains reasonably healthy at 23%. We expect that we will maintain that because we will find other mechanisms to provide more value to our customers, moving more work offshore, changing the mix of people and providing more fixed price engagements.

But for us, we believe that pricing will remain under pressure but we hope to maintain that at Hexaware partly because the mix of business is very healthy for us.