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Hexaware hopes to get 19-20% EBITDA by 2013-end

Hexaware Technologies hopes to get 19-20 percent earnings before interest, tax depreciation and amortisation by end of 2013 buoyed by an improved sentiment across key market and a new order USD 30 million, Chairman Atul Nishar told CNBC-TV18 today.

April 04, 2013 / 15:50 IST
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Hexaware Technologies hopes to get 19-20 percent earnings before interest, tax depreciation and amortisation by end of 2013 buoyed by an improved sentiment across key market and a new order USD 30 million, Chairman Atul Nishar told CNBC-TV18 today.
 
The company, which follows calender year as financial year, had an EBITDA of 16.6-16.7 percent in quarter ended December and it hopes to see an expansion 150-200 bps in margins in January-March. The information technology company today received a three year contract of USD 30 million from an existing US client. The company has been associated with this client since last seven years and offers various technology solutions like application development, PeopleSoft, SAP and business intelligence.


“What is more important is we would have continuity of revenue, predictability of volume. We will be able to plan the manpower better. We would have more than 100 people working for this client and this would have positive impact on the margin going forward,” Nishar said.


The company which gets majority of its revenues from US is seeing change in investor sentiments. In his recent visit to US, Nishar observed that clients were now more positive and are likely to invest more going forward. He expects this sentiments to be reflected in revenues in the second half of calendar year.

Below is the verbatim transcript of the interview

Q: You have signed a three year pact worth USD 30 million with a US company. Just take us through how much revenue will accrue in calendar year 13 and 14?


A: This has been a client for last seven years. It is a Fortune 500 company and we have had multiple projects executed for this client over a period of time. During last year we had a revenue of over USD 8 million from the same client. We did not have any long-term contract with them. So with this contract we would have over USD 10 million revenue each year over the next three years. So while the incremental revenue over 2012 may not sound that high, because we are looking at around USD 2 million or so in this year or maybe little more, but what is more important is we would have continuity of revenue, predictability of volume. We will be able to plan the manpower better. We would have more than 100 people working for this client and this would have positive impact on the margin going forward.

Q: Your previous quarter numbers obviously went awry because of disappointment from one client. How do you expect the Q1 to emerge at all? Do you want to change your guidance in any fashion or do you think you could still achieve what you had guided for?


A: The quarter is over and I have not seen the accounts myself, but the company’s guidance is USD 94-95 million for Q1 and we stay with the guidance number at this point of time.

Q5: What is the sense you are getting for the year itself? There were very positive vibes we got from Tata Consultancy Services (TCS), Infosys, from a whole lot of the biggies. Are you getting a sense that the calendar 2013 is going to look better than calendar 2012?


A: I would say as far as the economic situation is concerned, in the US the environment is better which has impact on the corporate sector. I was in the US for more than a month, just came back three days back. I met a number of clients of Hexaware and what I find is that the mood is more positive, they want to invest more. I see the mood more positive than I have seen anytime during last two-two and half years. When would it reflect in revenue? There could be a lag. My personal view is that ours being a calendar year it should reflect more in the second half of the year.

Q: What kind of margins would you see from this order itself? Last quarter you did about 17 percent or so. What would the trajectory look like?


A: On Hexaware overall last quarter we had about 16.6-16.7 percent EBITDA. We have already guided that our EBITDA would improve by 150-200 bps in Q1 and we stay with that guidance. We had indicated in Q4 also that the fall in margin is not a continuing matter and it was a one-time factor. Would we go back to the previous margin? It may take a little time, but we would keep improving the margin is what we had indicated already. In this deal, like in any project or any client relationship when you have better predictability, your utilisation would be higher and utilisation is a very major factor in IT sector for margin calculation. So now that we know that we would have USD 10 million plus business. We are covering various competencies of Hexaware. We would be providing services in Enterprise Resource Planning (ERP), particularly PeopleSoft and SAP in testing services, in remote infrastructure management and we are also doing a lot of work on business intelligence and the maintenance work. So since we know what the areas that we will be working on are and be able to plan better, we believe that this relationship being a large relationship of about USD 10 million, margin would be only better than the company’s average margin from this.

Q: When do you think you will get to 21 percent kind of margins, this year itself by the last quarter or so?


A: Since we are investing a lot and we did not do great in terms of growth rate in last two quarters and we want to push the growth rate higher, margin has not worried us so much as probably the way market has taken it, because we are more confident on that, but we do want to invest to push the revenue growth which we think is more important at this point of time. So if we were to be between 19 and 20 percent EBITDA that would be my personal comfort level. We have not given guidance on the whole year margin, but this is what I would say is a comfort level. Whether we will do or less let us see as time goes.

Q: Are there any acquisitions that may take place within this calendar year itself?


A: We are working very seriously on that front. We are looking at some specific targets. I do not think it will happen in next three-four months, but we are working hard towards making that happen sometime during the year.

Q: You have heard part of what Rahul Gandhi said. Are you getting an impression that things will be better managed with him at the helm? What was your first key takeaway from the speech?


A: The message of inclusive politics is a good one. The involving of grassroots will make lot of sense. We just have to see the execution of that policy. It is their government.

Q: It is one thing to make all the right noises. It is another thing to be seen as an effective leader who can actually execute. Do you think that this speech has in anyway changed his case at all?


A: He is not a minister or Prime Minister that we can really expect that from him, so we have to wait and watch.

first published: Apr 4, 2013 01:39 pm

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