Hexaware Technologies is currently trading more than 8 per cent lower. But the correction seems more due to the stiff valuation that it is trading at rather than any earnings disappointment.
The company’s revenues grew marginally by 0.3 per cent sequentially in dollar terms in the March quarter, while net profits fell 4.6 per cent.
Hexaware’s revenue growth is better than what all the top-tier IT players managed. On a year on year basis, the company’s revenue and profit growth look even more impressive at 19.9 per cent and 17.3 per cent respectively, among the best in the industry.
All verticals except manufacturing grew and key services such as application development and maintenance expanded. Traction in the US was robust though the weak Euro hurt revenues from Europe. Client additions have been healthy.
Utilisation rate has improved to 73.6 per cent.
Clearly, the company’s business prospects do appear to be reasonably strong with no critical concerns.
But the stock had run up massively over the past three months. Based on its trailing twelve month earnings the stock’s price-earning multiple was over 31 times. Even post the stock price fall of over 8 per cent on Thursday, the stock’s trailing multiples would still be in excess of 25 times, which is at a huge premium in relation to peers such as Mindtree, Cyient and Persistent that trade at 16-20 times.
Also, the general negative sentiment attached to the software sector in recent months with top-tier players reporting tepid March quarter numbers means that even a mild miss in market estimates could mean severe cut in stock prices.
Hexaware has indicated that it is geared enough to beat the trade body Nasscom’s growth estimate for the industry of 12-14 per cent for FY16.