IT service provider Hexaware Technologies reported a consolidated net profit of Rs 39.6 crore for the quarter ended December 2010 (fourth quarter), down 5.7% as compared to Rs 42 crore in previous quarter.
Its consolidated net sales went up by 6.4% at Rs 299.6 crore from Rs 281.7 crore (QoQ). Its earnings before interest, taxes, depreciation and amortization (EBITDA) margin improved to 11.2% versus 8.5% (QoQ).
Q: You are guiding to a 25% growth for next year. Can you take us through whether it is at least 25% and you have a reasonable chance of delivering growth which is 30% plus as well in FY11? A: We have said we are confident of at least delivering 25% and Rs 290 million. We are hopeful that we can exceed that. Q: You have also eluded to double digit margins, what is double digit? You are already 11% this quarter, is it low double digit, is it 10%,15%, can you give us a little bit more clarity? A: There the reference was to the EBIT margin. We are about 11.5% on EBITDA. On EBIT, we are at about 9.3%. So, we are saying that we will hit 10% EBIT margin which obviously means even higher EBITDA margins in quarter one. We hope to sustain and improve on that as the year progresses. Q: Even the jump on EBITDA margins is quite strong sequentially. Can you just walk us through what has aided this jump to 11% for you this quarter? A: It has been a pretty good quarter all around. Our revenues grew up. So, in that sense as a percentage our SG&A dropped. Our gross margins also improved by a percentage point over the last two quarters to about 34.5% now. SG&A dropped and we improved the productivity of both our people.
Our utilisation went up by a percentage point. We increased offshore bill rates by 1.7% sequentially. So, in all bill rates, gross margins, SG&A down, resulted in better EBITDA and better operating margins. Q: The criticism for Hexaware in the past has been the fact the client mining has been quite poor in terms of your new clients or your existing clients. Can you give us a sense of the sizes you are now been able to catch? A: Very good. I do not know whether it is fair criticism. We do have I agree 50 million dollar customers. The good news is that the top ten now contribute 50% of our revenues. The growth has been fairly broad based. Frankly, that is the reason why we have been able to sustain good growth over the last three quarters. Actually, our growth has been double digit compounded quarterly growth rate (CQGR) since quarter two because it has been broad based.
We expect other geographies to come in. We have introduced key account mining capabilities and horizontal and domain specialist in to the field. If you really look at the last couple of quarters that has significantly improved. We have now two customers beyond the USD 20 million mark for beyond the USD 10 million mark. Seven in the USD 1 to USD 5 million range. We are continuing to progress in that region as well. Q: I was going to ask you about that. The big deal pipeline because you recently unveiled a five year USD 100 million plus deal in that USD 20 million plus bracket which would qualify as a big deal for you, how are things progressing? What kind of traction are you seeing? A: Actually, there also it has been a fairly good healthy pipeline. We have about six deals in the pipeline across the geographies and in multiple verticals. In that context as well the pipeline looks healthy. In addition to that, the pipeline for somewhat smaller deals in the sub five million dollar category which again is pretty critical and adds to our critical mass is also fairly healthy.
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Q: So this margin improvement that you are talking about for next year is it largely going to be on account of higher volume growth that you expect or are there some levers which you can utilize to nudge it into double digits? A: We do have a fair amount of levers in the sense that margin growth will have because our SG&A will come down. We also have levers in terms of our offshore to onsite ratio. We currently have an onsite offshore of about 60:40. I think, there is some room for improvement there. We do also find that the pricing has firmed up. Our onsite prices has held steady. We have shown some increase in offshore pricing. We are continuing to ask for price increases from our existing customers. New customers are coming in at better pricing so there is some leverage there. We have also inducted close to 540 fresher
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