Buy Hexaware Technologies; target of Rs 445: HDFC Securities

HDFC Securities' research report on Hexaware Technologies

Revenue in 2Q came tad below est. at USD 188.5mn, +5.0/13.0% QoQ/YoY CC (USD 190mn est). Revenue growth included 3.2% QoQ CC organic and ~1.8% inorganic (Mobiquity). Revenue growth guidance for CY20 lowered to 19% (vs. 20% earlier) which includes ~6.5% inorganic. Top-5 accounts (37.3% of rev) declined impacted by a large BFS account (mortgage segment) based on cut in outsourcing spend and is likely to impact 3Q-4Q too. Decline in IMS and APAC was linked to large project (cloud migration) completion and the service-line is expected to recover from 3Q. Net-new deal wins were flat QoQ at USD 36mn from 5 logos. Mgmt stated that pipeline and wins from existing clients is improving. Deal wins are driven by strengthening partner ecosystem esp. Guidewire, Pega, Adobe. Attrition was flat sequentially at 18.2% with no spike in the newly acquired entity. EBIT margin came at 13.3%, -43bps QoQ (13.2% est). Negative impact from visa cost (-70bps impact), acquisition-related cost (-130bps) and INR (-20bps) was offset by bill rate, utilisation and offshore-mix. APAT came at Rs 1.51bn, 9.3% QoQ supported by forex gain of Rs 74mn (vs. loss of Rs 83mn in 1Q).

Outlook

We maintain BUY on Hexaware post its lower/inline rev/margin in 2QCY19. Mobiquity acquisition and cloud/automation led wins will support growth. Estimates and TP unchanged at Rs 445, at 16x Jun-21E EPS.