Hexaware’s Mar’17 quarter results are quite strong with a 4.1% QoQ US$ revenue growth, much ahead of both street/our estimates. EBIT margins at 15.3%, are a tad better than estimates despite currency appreciation and reflect potential benefits from growth leverage. The company has reaffirmed its CY17 revenue guidance of double digit growth (company guided for a 10-12% growth for the year in Feb ’17) , which is decent relative to peers and continues to lend confidence to our sectoral thesis of Tier II companies seeing an uplift in operational/financial performance as client spending environment normalizes in CY17/FY18.
We currently have an ACCUMULATE rating with a TP of Rs 240. At CMP of Rs214, stock trades at 12.6/11.4x CY17E/CY18E P/E based on our EPS estimate of Rs16.8/18.8 for CY17/CY18E respectively. We do not see any material changes to our above consensus’ estimates for CY17/18. Mindtree and Hexaware are our top picks in the Tier II coverage universe as we continue to reiterate preference for Tier II techs over Tier I techs.
Mar’17 quarter result highlights:
- Hexaware reported revenues at US$ 144.7mn (+4.1% QoQ, + 18.9% YoY) ahead of our expectations of 1.1% sequential US$ revenue growth. Constant currency revenue growth was 4% QoQ.
- EBIT margins at 15.3%, down 50bps sequentially V/s our expectations of 80bps decline. Gross margins were down 60 bps QoQ while SG&A expenses declined by 20 bps QoQ to 17.7%, resulting from growth leverage.
- Reported Profits at Rs 1,139 mn (-6.3% QoQ, +35% YoY) , in line with estimates despite slight beat on operational front on account of lower than expected other income.
Other highlights
Client metrics:
· Top 5: 2.6% QoQ
· Top 10: 2.9% QoQ
· Non Top 10:5.9% QoQ
Revenue by Geography
· US: +3% QoQ,
· Europe : +3.2% QoQ
· APAC: +20.4% QoQ
Revenue by delivery
· Onsite revenues: 66.6% QoQ,
· offshore revenues: 33.4% QoQ
DSO (including unbilled revenues): 74days, up 6 days QoQ
Hexaware Mar’17 quarter result at a glance:
|
In Rs mn
|
Q1CY17A
|
Q4CY16
|
QoQ (%)
|
Q1CY16
|
YoY (%)
|
Q1CY17E
|
|
Reveneus (US$)
|
144.7
|
138.9
|
4.1
|
121.7
|
18.9
|
140.5
|
|
Net sales
|
9,605
|
9,409
|
2.1
|
8,202
|
17.1
|
9,371
|
|
Operating expenses
|
7982
|
7785
|
7008
|
7824
|
||
|
EBITDA
|
1,623
|
1,624
|
-0.1
|
1,194
|
35.9
|
|
|
Margins (%)
|
16.9
|
17.3
|
-40.0
|
14.6
|
230.0
|
16.5
|
|
Depreciation
|
157
|
140
|
138
|
145
|
||
|
EBIT
|
1,466
|
1,484
|
-1.2
|
1,056
|
38.8
|
1,402
|
|
Margins (%)
|
15.3
|
15.8
|
12.9
|
15.0
|
||
|
Forex Gains/(Losses)
|
16
|
126
|
44
|
105
|
||
|
Other income
|
12
|
14
|
11
|
16
|
||
|
Pre-tax profit
|
1,494
|
1,624
|
-8.0
|
1,111
|
1,522
|
|
|
Tax provided
|
355
|
408
|
269
|
381
|
||
|
Profit after tax
|
1,139
|
1,216
|
842
|
1,142
|
||
|
Emkay Net profit
|
1,139
|
1,216
|
-6.3
|
842
|
35.3
|
1,142
|
|
EPS, Rs
|
3.8
|
4.0
|
|
2.8
|
|
3.8
|