Hexaware Technology -Company Profile -Key Highlightes -Financials -Valuation & Outlook

1. 24 AUGUST
STOCK
WEEK
OF THE
2019
HEXAWARE
TECHNOLOGY

2. 1
HEXAWARE
24 AUG19
COMPANY SHAPSHOT
PROMOTORS 62.52
INSTITUTIONS 28.65
MF HOLDING 11.85
FII HOLDING 16.76
SHARE HOLDING PATTERN
NSE CODE HEXAWARE
BSE CODE 532129
CMP 24 Aug 2019 385.90
EQUITY CAPITAL 59.6 CR
FACE VALUE Rs. 2.00
EQ SHARE O/S 29.83 CR.
MARKET CAP 11,523 CR
BOOK VALUE 80.3
AVG 52 WEEK
VOLUME
1770810
52 WEEK HIGH 500.9
52 WEEK LOW 294.3
COMPANY PROFILE
Hexaware Technologies Limited is a provider of information
technology (IT), business process outsourcing (BPO) and consulting
services. The Company is engaged in computer programming,
consultancy and related activities, IT consulting, software
development and business process management.
Its segments include Travel and Transportation, Banking and
Financial Services, Insurance and Healthcare, and Manufacturing,
Consumer and Others. Its business units provide offerings in the
areas of Shrink IT and Grow Digital. The Company provides various
service offerings to its clients across various industries, including
travel, transportation, hospitality, logistics, banking, financial
services, insurance, healthcare, manufacturing and services.
Its service offerings include application development and
management, enterprise package solutions, infrastructure
management, business process and independent testing. Its
geographical segments are North America, Europe, India and Rest of
the World.
Solid Quarter, Outlook Robust
• Hexaware Technologies (HEXW) recorded a strong 2Q CY19, with
revenue up 4.7% QoQ to US$188.5mn. Adjusted for 15 day
revenue impact for Mobiquity (acquired in Jun’19), USD revenue
rose 2.8% QoQ,
• Growth components include volume growth of 3.9% QoQ and
higher billing days of 1.1% QoQ, totalling 5% CC growth, while
there was an adverse currency impact of 0.3% QoQ.
• Owing to healthy revenue growth, lower visa cost, improved
billing rate, favourable delivery-mix, higher utilisation and cost
efficiencies, EBIT margin rose 87bps QoQ to 14.6% (154bps above
our estimate). Aided by higher margin, other income and lower
tax rate, adjusted net profit surged by 21.5% QoQ with reported
net profit rising by 9.3% QoQ after accounting for one-time
acquisition cost of Rs170mn.
• EBITDA growth is likely to track revenue growth, thus implying
slight downgrade in EBITDA, given that the IT firm had given the
same EBITDA growth guidance earlier but on 20% revenue
growth guidance vs. 19% currently.
• HEXW is seeing a strong pipeline in its non-BFS verticals, with
MFG and Consumer likely to see healthy growth from 3Q, with
the client-specific issue out of the equation (completion of a
project with no backfill), while Travel, Healthcare & Insurance
and Professional Services are all expected to see a strong
2HCY19, even stronger than 1HCY19 (17.3% YoY growth).

3. 1
KEY HIGHLIGHTS
Corporate Overview
Hexaware is one of the fastest growing
IT services company with consistent
growth on the back of increased order
wins and geographical expansion and
with the vision of having 50 digital
workforce and strong culture of
innovation.
Company is creating a culture of
automation first approach, building
capabilities and focusing on products
and alliances to transform how IT
services are delivered.
The company is enabling this through
excellent client relationships and strong
execution capabilities that helps us build
trust with our clients and within client
organizations.
Management lowered its CY19 revenue
growth guidance a notch to 19% from
20% earlier to factor in rising challenges
at one of its large secondary-mortgage
industry clients. HEXW is still optimistic
about achieving CY19 organic growth
within its earlier stated range of 12-
14%. Management expects Q3CY19
growth (including organic revenue) to
be better than that in Q2 and hinted at
the possibility of lower seasonal
softness in Q4 as contracts won in
recent quarters scale up.
HEXAWARE
24 AUG19

4. 1
KEY STRATEGIES
Hexaware is focussed on helping enterprises
maximise the potential of cloud as they pursue
their digital transformation agenda.
Companies services and solutions are focussed on
solving the most critical and complex problems for
our customers as they navigate the cloud
ecosystem to realise a digital future.
Company is helping many leading companies
migrate seamlessly to the cloud to realise the
benefits of improved automation and
orchestration capabilities and helping them
achieve business transformation, scalability and
agility while also managing drive down their cost
their cost over 50% customer satisfaction
increased agility and lower costs.
Hexaware recorded a solid performance despite
client and vertical-specific headwinds in a quarter
when most mid-sized IT firms have reported poor
results in terms of on revenue and margin. The
Mobiquity acquisition will also expand further its
service offerings to digital commerce and
platforms.
Management’s confidence on sustaining growth
in non-BFS verticals is heartening. Factoring the
Mobiquity acquisition on revenue, profit and
amortisation, we increase our revenue estimates
by 5-10% for FY20E/FY21E. Given well above
industry average growth along with solid margin
management, we remain positive on Hexaware.
HEXAWARE
24 AUG19

5. 1
ORGANIZATION PERFORMANCE FOR FY 2019
HEXAWARE
24 AUG19

6. 1
INVESTMENT RATIONAL
Inline revenue performance: Revenues came at $188.5mn up 4.7% QoQ/12% YoY and inline with
our estimates. CC growth for the quarter stood at 5% QoQ (Ple: 5.1% CC growth). Growth
components were Volume growth (+700bps), billing days’ improvement (+210bps) and cross
currency impact (- 50bps).
Strong beat on margins: EBIDTA margin (excluding ESOP cost) for the quarter came at 16.5% up
~120bps QoQ and above our ests (Ple: 15.5%). EBITDA improved by 120bps during the quarter.
Headwinds from higher SG&A expenses (-90bps), H-1B visa Cost (-70bps) and INR appreciation (-
20bps) was more offset by tailwinds from Billing rates (+90bps), Higher utilisation (+60bps), improve
in offshore-onsite mix (+50bps), Lower other costs (+70bps) and calendar (+40bps). PAT at
Rs1513mn was 5% above our estimates (Ple: Rs1443mn) led by strong beat on margins and higher
other income. There was exception cost related to transaction cost of acquisition amounted to
Rs171mn impacted PAT.
Net-new deal wins were flat QoQ at USD 36mn from 5 logos. Management stated that pipeline and
wins from existing clients is improving. Deal wins are driven by strengthening partner ecosystem
esp. Guidewire, Pega, Adobe. Attrition was flat sequentially at 18.2% with no spike in the newly
acquired entity.
BSF Vertical on Firm Footing Despite continued BFS headwinds, Hexaware’s lowdouble digit
(organic) growth trajectory is sustainable supported by IMS/BPM (no legacy) and driven by
Automation, Cloud and Digital offerings. We expect strong synergies/cross sell from Mobiquity
acquisition with portfolio augmentation across BFS, Healthcare and Retail verticals backed by robust
partner ecosystem
HEXAWARE
24 AUG19

7. 1
Tech Mahindra ltd
22nd Mar 19
Key Conference Call Takeaways
 Hexaware has created US$36.2mn of intangible assets after the acquisition of Mobiquity, out of
which customer relationships account for US$34.2mn and brand US$2.3mn.
 Customer relationships will be amortised over 7 years, while brand will be amortised over 18
months, leading to US$1.6mn/quarter incremental amortisation, going forward.
 Hexaware won new deals worth US$36mn in 2QCY19 (flat on QoQ basis).
 Attrition remained stable at 18.2%, a positive, given a consistent increase in this metric over the
past few quarters.
 HEXW will see a partial wage hike impact in 3QCY19 for the months of August and September for
offshore hikes, while 4QCY19 will see the full quarter impact of onsite wage hikes and residual
impact of offshore wage hikes for October.
 Hexaware had outstanding hedges of US$197.2mn @ INR73.54 at 2QCY19-end (US$196.8mn @
INR72.93 at 1QCY19-end).
 The company will record forex gains of US$1.7mn and US$1.1mn in 3QCY19E and 4QCY19E,
respectively based on the closing rate as on June 30, 2019.
 Effective tax rate is pegged at 18.5% in CY19E, a reduction from 20% earlier
Key Risks
 Continuing issues in BFS vertical.
 Event-specific risks that could impact IT budgets, cut discretionary spend and delay new deals.
 Cost escalation could impact margin.
 Global trade wars could adversely impact business sentiment and IT spend. f Currency risk.

8. 1
KEY FINANCIAL FOR FY 2019
HEXAWARE
24 AUG19

9. 1
Revenue
Q2 2019 revenue at $ 188.5 Mn o QoQ growth of 4.7%, 5.0% in cc o YoY growth of 12.0%, 13.0% in cc
Q2 2019 revenue at Rs. 13,083 Mn; up 3.5% QoQ; up 15.1% YoY
EPS
Q2 2019 EPS at Rs 5.08 up 9.2% QoQ
New Wins
• 5 new clients signed in Q2 2019 with TCV of US$ 36 Mn Dividend
• Interim Dividend of Rs 1.50 (75%) for Q2 19
Business Update In Q2 2019, Europe showed 16.1% QoQ and 23.1% YoY growth. Travel & Transportation
(GTT), Healthcare & Insurance (H&I) and Professional Services (PS) all showed double digit QoQ growth in
Q2 19. Professional Services (PS) displayed 30.9% YoY growth. In Q2 2019, Application Development &
Maintenance (ADM) showed 12.1% QoQ and 13.0% YoY growth. Business Process Services (BPS) clocked
10.6% QoQ and 24.8% YoY growth. Infrastructure Management Services (IMS) clocked 27.0% YoY growth.
Q2 C.Y. 2019 KEY HIGHLIGHTS
HEXAWARE
24 AUG19

10. 1
Revenue
❑ Q2’19 revenue of $ 188.5 M
▪ Q/Q growth of 4.7%, 5.0% in CC
▪ Y/Y growth of 12.0%, 13.0% in CC
❑ Q2’19 revenue of INR 13,083 M
▪ Q/Q growth of 3.5% and Y/Y growth of 15.1%
 Revenue growth included 3.2% CC organic and ~1.8% inorganic (Mobiquity 15-days)
 Revenue growth guidance lowered to 19% for CY20 (vs. 20% earlier) which includes ~6.5% inorganic
HEXAWARE
24 AUG19

11. 1
Balance Sheet & Other Updates
Outlook & Valuation
Hexaware recorded a solid performance despite client and vertical-specific headwinds in a quarter when
most mid-sized IT firms have reported poor results in terms of on revenue and margin.
The Mobiquity acquisition will also expand further its service offerings to digital commerce and
platforms. Management’s confidence on sustaining growth in non-BFS verticals is heartening.
Factoring the Mobiquity acquisition on revenue, profit and amortisation, we increase our revenue
estimates by 5-10% for FY20E/FY21E. Given well above industry average growth along with solid margin
management, we remain positive on Hexaware.
Upwardly revising our EPS estimates by 5-7% for forward years and assigning higher target PE multiple of
17x (from 16x earlier) in light of improving visibility, we maintain our BUY recommendation on the stock
with a Target Price of Rs 450
HEXAWARE
24 AUG19

12. 1
INCOME STATEMENT
HEXAWARE
24 AUG19

13. 1
BALANCE SHEET
HEXAWARE
24 AUG19

14. 7
Tech Mahindra ltd
22nd Mar 19
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