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(Delayed) Spark Capital: Hexaware




Spark Capital Advisors(India) Private Limited


15 Jul 2013





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Accentuating positive outlook; Retain Buy We hosted Hexaware CEO Mr. P.R. Chandrasekar, in a set of investor meetings. The key takeaways are: Revenue growth momentum is improving with robust deal signing and pipeline Increased focus on top-50 clients to drive better client mining. Targeted efforts to increase number of services rendered to top-50 clients Various strategies are being worked out to counter the provisions of the proposed immigration bill. Some of the strategies adopted are increased local hiring, local delivery centres like the recently announced centre at Dallas, and increase in Green Card applications Uptake of Peoplesoft 9.2 has been lower than anticipated with increasing number of clients exploring other HCM software. Mr. Chandrasekar believes Peoplesoft would be a key growth in CY14E To strengthen their practise on cloud based HCM software, Hexaware is investing in Workday (leading SAAS based HCM Software) capabilities Healthcare and Remote Infrastructure services would grow faster than the company average albeit on a lower base Germany and Nordic regions are showing good traction though deal ramp ups in Europe are slower than expected Currently, the company is negotiating over 5 deals (above US$25mn) which are expected to materialize in H2CY13 Wages hikes would be spread across 3QCY13 and would be inline with the industry average As guided earlier, EBITDA margins are expected to improve in 2QCY13. Mr Chandrasekar mentioned the focus is to maintain EBITDA margins around 20% with benefits from rupee depreciation reinvested in business Retain Buy: We continue to maintain our estimates and expect US$ revenue to grow 7.2% in CY13E and 11.9% in CY14E respectively. Hexaware exit run rate in 4QCY13 with a revenue run rate of US$ 101.4 mn, implying growth of 10% YoY. On the back of current deal pipeline & bookings combined with the expected exit revenue run rate, we expect CY14E revenues to grow faster than CY13E, translating to an EPS growth of 11.7% in CY14E. At 82, stock trades at 7.7x CY13E EPS, attractive in our view. Further the high dividend yield (~6%) makes it an attractive investment opportunity. Retain Buy with a price target of Rs. 115.

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