Buy Hexaware Technologies; target of Rs 476: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Hexaware Technologies

HEXW’s 2QCY20 revenue stood at USD 208mn, declining 0.9% cc QoQ, well above our expectations of 6.1% cc QoQ decline. Supply side issues had an impact of ~60bps on US$ revenues, mainly dragged by the BPS service line. HEXW delivered EBIT margins of 13.2% (+140bps QoQ), above PLE/consensus expectations of 11%/10.5%. HEXW announced NN deal wins with TCV of US$46mn (+28% YoY). It has witnessed material “V-shaped” improvement in activity levels with clients from late May. It has also witnessed wallet share gains in existing customers and seen a material improvement in the deal pipeline. With strong beat on revenue & margin front & revised guidance now we expect growth of 6% USD in FY21E (earlier: -1.4% decline). With sustainable margin performance & confidence coming from Top client we upgrade our EPS by ~14% for CY21/22E.

Outlook

Due to strong beat on fundamentals, strong deal wins & better commentary with upgrade to Buy from Reduce. We value Hexaware on 17X (earlier 12x) CY22 earnings to arrive at a changed TP of Rs.476 (earlier: Rs.282).

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