Company Report | Q3FY11 Result Update

LONG TERM INVESTMENT CALL

21 October 2011 Industry CMP (INR) Target (INR) Upside / Downside 52 week High / Low (INR) Market Cap (INR bn) 3M Avg. Daily Volumes P / E (FY11 E) Shareholding Pattern (%)
Others 22.2% DII 7.1% FII 42.4% Promoters 28.3%

BUY

IT / ITES 87 107 23% 93/37 2.59 2215.29 11.2x

Strong performance in the quarter, with improved revenue guidance

Hexaware Technologies Ltd (HTL) posted great results for the quarter, with strong revenue growth and an increase in EBITDA margins despite an increase in onsite wages. Strong Volume growth: HTL posted robust volume growth of 9.2% sequentially and offshore revenue mix went up 300 bps QoQ to 46.3% HTL reported top-line and bottom-line numbers which were above our quarterly estimates. Revenue at INR 3.6 bn was up 30% and 9.5% on a YoY and a QoQ basis respectively. EBITDA for the quarter stood at INR 686 mn, up 34.2% QoQ and 186% YoY. PAT stood at 646 mn up 54% YoY. PAT margin increased by 274 bps YoY and stood at 17.7%. HTL saw an increase in realization for the quarter which contributed to a 1.15% increase in revenue in USD terms. Depreciation of INR added 105 bps to the top line for the quarter. Increase in wages in the quarter impacted the gross margin by -75 bps this quarter.

1 Year Stock Chart

New deals in the quarter: HTL added 12 new clients in the quarter across all major focus areas of the company. The quarter saw 3 new clients
NSE Nifty

290 260 230 200 170 140 110 80 50 20 Dec

HTL

added to the Travel & Transportation Vertical and 4 new clients added to the BFSI vertical. In the Enterprise Solutions space 5 clients were added, 1 client added in Quality Assurance & Testing Services (QATS), 2 clients in Business Intelligence & Business Analytics (BI/ BA) horizontal, and 1 client in Business Process Outsourcing (BPO) space. The share of revenue contributed by the new clients stood at 6.5%
Aug

Jun

Oct

Apr

Feb

Oct

Performance across Industry Verticals & Geographies: Across the Stock Performance (%) 1 Month 12.2 2.1 3 Months 19.3 -8.5 1 Year 112.9 -14.7
(INR in mn)

verticals for the quarter, the Emerging Segments contributed to 42.4% of revenue and BFSI and Travel & Transportation contributed to 34.4% and 23.2% of the revenue respectively. Americas contributed to 64.7% of the revenue for the quarter as compared to Europe and Asia Pacific which contributed to 28.4% and 6.9% of the revenue respectively. Improved Guidance by the management: The management is confident of strong revenue growth for the quarters moving ahead. They have given an improved annual USD revenue guidance with a 32% YoY growth. The company expects broad base growth moving forward and has been successful in growing large accounts over the last few quarters. The company has planned a capex of INR 115 mn for Q4FY11. The companys net cash stood at INR 4500 mn at the end of the quarter.

HTL Nifty

Particulars Total Income EBITDA Reported PAT

Actual 3,660 686 646

Estimates 3,510 545 621

* Source: Bloomberg, Unicon Research

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Outlook & Valuation

Macro economic factors will be an important factor for all IT companies in the quarters moving ahead as the US and Europe contributes to the majority of their revenue. HTL has delivered strong results over the last few quarters and the management is upbeat about the future prospects of the company moving ahead, by giving improved revenue guidance. The company has won some large deals over the last few quarters and we are optimistic about future wins for deals currently in the pipeline. With large deals wins in the quarter, HTL has also seen a drop in attrition levels by 330 bps to 14.7% which is a positive sign for the company. At CMP 87 the stock is trading at P/E 11.2x FY11E earnings. We believe the stock can see a potential upside of 23% and recommend a BUY on the stock with a revised price target of INR 107.

Consolidated Financials
(INR in mn)

Q3 FY11 Net Sales Direct Costs Total Income Total Expenditure EBITDA EBITDA (%) Depreciation and Amorisation EBIT Other Income(net) Forex (Gains)/ Losses PBT before Exceptional Item Exceptional Item PBT Tax PAT PAT (%) EPS
Source: Company, Unicon Research

Q2 FY11 3,341 2,117 1,224 713 511 15.29 59 452 104 -163 719 0 719 116 603 18.0 2.01

Q-o-Q 9.5% 6.8% 14.2% -0.1% 34.2% 345 bps 8.5% 37.6% 17.3% -76.7% 8.8% N.A 8.8% 17.2% 7.1% -30bps 7.5%

Q3 FY10 2,817 1,874 943 703 240 8.52 58 182 71 76 177 252 429 9 420 14.9 1.41

Y-o-Y 29.9% 20.7% 48.3% 1.3% 185.8% 1022 bps 10.3% 241.8% 71.8% -150.0% 341.8% N.A 82.3% 1411.1% 53.8% 274 bps 53%

3,660 2,262 1,398 712 686 18.74 64 622 122 -38 782 0 782 136 646 17.7 2.16

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in