MOSL: HEXAWARE TECHNOLOGIES (Neutral)-Revenue traction intact but lopsided
Hexaware Technologies: Revenue traction intact but lopsided
(HEXW IN, Mkt Cap USD1.3b, CMP INR322, TP INR365, 13% Upside, Neutral)
- Marginal revenue beat, but profitability short of expectations: 4QCY18 CC revenue grew 3.4% QoQ, above our estimate of +2.1%. EBITDA margin contracted 140bp QoQ to 15.3% (60bp miss), led by seasonal furloughs and wage hike. PAT declined 28.3% QoQ to INR1,234m, below our estimate of INR1,365m (-21% QoQ) due to lower operational income and higher forex losses (INR248m v/s our estimate of INR153m).
- Large deal wins drive sanguine revenue guidance…: For CY19, HEXW guided for 12-14% USD revenue growth v/s 11.6% in CY18. It stated that most of the guidance will be clocked in the later part of the year due to seasonality and 4Q base, in addition to USD100m net new wins in BPO in a customer that will ramp up in September. HEXW also expects the performance to be more broad-based and is confident on increasing revenue traction in ADM, DA (Testing) and BI.
- …but EBITDA post-ESOP to remain below 16%: HEXW guided that growth in margins will mirror that in revenue, implying CY19 margins at ~15.7% (post-ESOP charges). The cost of delivering business at onsite in the US is going up, but HEXW will not sacrifice market share, which may exert pressure on margins at onsite. This may be partly offset by the levers of employee pyramid and utilization.
Hexaware is a global provider of IT and Process outsourcing services. Co. focuses on maximizing client returns from outsourcing and off-shoring. Co. manages IT applications in real time as well as providing high value services around packaged enterprise applications such as SAP and PeopleSoft. Co. maintains operations in business process outsourcing arena. Co.'s solutions aim to provide value by optimising cost of ownership of technology investments for customers. Co. maintains a client base comprising several Global 1000 organizations. Co.'s global operations are located in North America, Europe and Asia Pacific.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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