MOSL: HEXAWARE TECHNOLOGIES (Neutral)-Strong start sets stage for full-year revenue guidance beat

​Hexaware Technologies: Strong start sets stage for full-year revenue guidance beat

(HEXW IN, Mkt Cap USD1b, CMP INR219, TP INR235, 7% Upside, Neutral)

• Impressive 1Q all but ensures beat to CY17 guidance: HEXW's CC revenue growth of 4.2% in 1QCY17 significantly beat our estimate of +~1% QoQ, with an impressive YoY run-rate of 19.9%. This leaves HEXW with an ask rate of 0-1% QoQ to meet its original CY17 guidance of 10-12%. While the company preferred to remain conservative and refrained from raising the guidance, the outlook for a strong 2Q all but ensures a beat despite the impending impact from client ramp-down in 4Q. We are modeling 13% growth.
  
• Revenue traction drives operating profit beat: Including ESOP expenses, EBITDA margin shrunk 40bp to 16.9% (v/s est. of -80bp) led by strong revenue traction and intact high utilization (HEXW had cited expectation of some contraction earlier). PAT fell 6.3% QoQ to INR1.1b, nearly in line with our estimate, as lower other income offset operational beat.
  
• APAC/IMS to remain growth outliers: 1Q growth was dominated by APAC, (+21% QoQ), and among services by IMS (+21% QoQ). HEXW expects APAC to continue leading growth among regions, along with IMS, where cloud transition still has significant growth opportunities. While net new wins with TCV of USD25m were down QoQ and YoY, HEXW expects TCV to be higher for the full year given the strong pipeline.