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Reliance Securities
Hexaware Technologies (Buy)
CMP: ₹342.45
Target: ₹385
Hexaware Technologies (Hexaware) recorded an in-line revenue performance in 1QCY19, which came in at $180 million (marginally above our estimate by 0.5 per cent). This implies growth of 2.2 per cent q-o-q in dollar terms, while in CC terms revenue rose by 2 per cent q-o-q. Growth components include volume growth (positive impact of 1.2 per cent q-o-q), higher billing days (positive impact of 0.7 per cent q-o-q) and favourable cross-currency movement (positive impact of 0.3 per cent). However, owing to higher visa cost, rupee appreciation and increased subcontracting cost, EBIT margin declined by 29 bps q-o-q (60 bps below our estimate). Net profit grew by 12.2 per cent q-o-q to ₹139 crore, 15.3 per cent below our estimate, owing to lower-than-expected other income.
Hexaware has maintained its guidance of 12-14 per cent organic revenue growth in CY19E, with EBITDA growth likely to be similar to revenue growth despite a fairly high ask-rate of 4.1 per cent CQGR in USD terms over 1Q-4QCY19 and >7 per cent EBITDA CQGR. We believe this is an indication of Hexaware’s confidence on deal pipeline along with robust growth in MFG, Insurance and professional services verticals.
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