*Hexaware (HOLD, CMP Rs 377, TP Rs 390) Sep’19 quarter results: Revenue fall short; company pares revenue growth guidance*
*Hexaware’s Sep’19 quarter results were a tad short on the revenue front with a 2.4% QoQ US$ revenue growth on an organic basis ( V/s expectations of ~4% QoQ growth) albeit EBIT margins came in a tad higher than our expectations at 13.9% (Emkay est: 13.3%, Consensus: 14.5%). Net profit beat aided significantly by forex gains during the quarter.*
✳ The company has revised its revenue guidance lower by ~50 bps to 17-18% US$ revenue growth (V/s 19% constant currency revenue growth as suggested in July’19 quarter). *We note that we have continued to highlight risks to company’s revenue growth outlook due to stiff arithmetic in the back drop of a difficult macro environment and unexciting order intake ( US$ 28 Mn in Sep’19 quarter) that poses some risks on CY20 revenue growth outlook.* We see slight cuts to revenue /margin assumptions prima facie although EPS estimates may not see significant change due to other income led beat seen in Sep’19 quarter. *We currently have a HOLD rating on Hexaware with a TP of Rs 390.*
*Sep’19 quarter results highlights*
✳ Revenues at US$ 210.5 (11.7% QoQ, 23.1% YoY) and 12.3% QoQ in constant currency terms) was below Emkay/street expectations (+13.1% QoQ), Note that revenue growth has been helped by full quarter consolidation of Mobiquity (our rough cut estimate of ~9.3% QoQ inorganic growth) which means organic growth was 2.4% QoQ in US$ terms V/s expectations of ~3.8% QoQ organic growth.
✳ EBIT margins at 13.9% down by 70 bps QoQ ahead of our expectations (13.3%) however lower than street expectations of 14.5%.
✳ Profits at Rs 1.84bn (+21.4% QoQ, +6.8% YoY) ahead of expectations aided significantly by forex gains despite slight miss on revenues.
✳ Revenue guidance lowered to 17-18% revenue growth ( V/s ~19% constant currency revenue growth guidance earlier which based on Sep’30 exchange rates translates to 18.5% YoY US$ revenue growth) which also remains contingent on how Dec’19 quarter seasonality plays out along with the impact of a top 3 client account.
Regards,
Manik/Devanshu
Emkay Global