MOSL: HEXAWARE TECHNOLOGIES (Sell)-Profitability miss that valuations can hardly afford
Hexaware Technologies: Profitability miss that valuations can hardly afford
(HEXW IN, Mkt Cap USD2.1b, CMP INR497, TP INR380, 23% Downside, Sell)
- In-line revenues, but margins fall short
- HEXW's 2QCY18 CC revenue growth of 9.9% was in line with our estimate (dollar revenue grew 3.8% QoQ to USD168.3m v/s our estimate of USD169m).
- However, EBITDA margin came in flattish at 15.6% (+10bp QoQ; est. of 16.5%), despite revenue traction and a weaker INR. The impact came from a higher base (one-time 100bp gain from a project) not called out by management back then.
- PAT grew 25% YoY (14% QoQ) to INR1,534m (est. of INR1,497m), led by higher other income and waiver of ~USD0.4m quarterly liability.
- Marginally better revenue guidance: HEXW upped its dollar revenue growth guidance to 12-13% (from 10-12%), implying an ask rate of 2.6-3.8%. The confidence to buck the trend of weak 4Q drives a marginally better outlook. It also expects dollar EPS to grow 13-14%, which should imply INR EPS growth of ~17.5%. Although 1H EPS growth stands at 22%, lower forex gains in 2H (USD1.35m) v/s 1H (USD7.3m) will weigh on full-year growth.
- Deal wins momentum: Net new deal wins stood at USD41m, taking 1HCY18 wins to USD69m (USD28m in 1Q). This compares with CY18 TCV of USD180m. While the number appears weak, there were two large wins with existing customers, each in the range of USD100m and executable over five years.
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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