Accumulate Hexaware Tech; target of Rs 125: Asit C. Mehta

Asit C. Mehta is bullish on Hexaware Technologies and has recommended accumulate rating on the stock with a target of Rs 125 in its November 2, 2012 research report.

“Hexaware Technologies Ltd. (Hexaware) reported a soft Q3CY12, whereby revenues, operating margin and PAT numbers were below our estimates. In $ terms, the company reported revenues at $92.8 mn (a QoQ growth rate of 1.7%), which was at the lower end of its quarterly guidance range of $92.5 mn - $94 mn and below our estimate of $93.5 mn for the quarter. In ` terms, the company reported 1.5% sequential growth in revenues at `5,075.2 mn against an estimated `5,170 mn. The operating margin declined by 130 bps during the quarter and was reported at 21.5%, against our estimate of 22.8%. The PAT at `840.7 mn was also below our estimate of `936 mn. This was due to the higher than expected forex loss and higher tax rates.”

“The December quarter is usually a soft quarter for all Indian IT companies due to the loss of volume on account of fewer onsite working days in the USA. In such conditions, achieving the top-end (4%) of the guided revenue range may become slightly difficult since the company has not managed to grow faster in the September quarter, which is traditionally the strongest quarter. The company needs to grow at 5% in Q4CY12E in order to reach the 20% guidance for CY12E, which implies that, it would have to cross the upper limit (4%) of its guidance range, which seems less likely at the moment. We model lower onsite working days for Q4CY12E and expect revenues to grow by 2.1% to $94.8 mn. For CY12E, we expect the company to post $ revenues of $366 mn, which implies a growth rate of 19.1% versus the company’s projection of $370 mn (20% growth rate YoY) for the year.”

“Hexaware had a relatively soft September 2012 quarter. Although we think that the current results have a little bearing over the longterm prospects of the company, we continue to believe that the company will grow above the industry average on a quarterly basis as well. At the CMP of Rs111, the stock is currently trading 9.3x its CY12E EPS of Rs11.9 and 8.9x it’s CY13E EPS of `12.5. We continue to value the company at 10x the CY13E EPS to arrive at a target price of Rs125 and thus retain our accumulate stance on the stock,” says Asit C. Mehta research report.

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