- IL&FS Broking Services Private Limited

India Equity Research IT Services February 09, 2015
Hexaware Technologies BUY Target price (INR) 265 Company report Last Price (INR)
237.7
Bloomberg code
HEXW IN
Reuters code
HEXT.BO
Avg. Vol. (3m)(mn)
1.81
Avg. Val.(3m)(INRmn)
389
52‐wk H/L (INR)
242 / 130
28,227
Sensex
MCAP (INRbn/USDbn)
71.53 / 1.15
Shareholding (%)
Promoters
MFs, FIs, Banks
09/14
12/14
64.5
71.5
2.5
2.9
FIIs
14.8
14.1
Public
Others
11.2
7.1
11.5
0.1
Stock Chart (Relative to Sensex)
240
4QCY14 Preview HEXW is likely to report a revenue of INR6.8bn, a 1.4% q‐o‐q growth, driven by a 2.3% average INR depreciation against the USD during the quarter ended Dec14. The weakness of the quarter is likely to be evident in a 97‐bp margin erosion, leading to a 4% q‐o‐q EBITDA decline to INR1.2bn. This margin erosion would be mainly led by lower utilisation, which is further worsened by higher fresher additions. Excluding potential forex loss, the net income is likely to rise 12% q‐o‐
q. There is likely to be a dividend announcement along with the quarterly results, as this is the year ending quarter for Hexaware. In 2014, HEXW declared an INR7.5 per share dividend in the past quarter. Key factors to watch for will be: (1) employee and fresher additions; (2) movement of clients within various billing buckets; and (3) outlook on CY15 revenue and margins. Announcement of a large deal win will be positive for the stock. We have a Buy rating on the stock. Currently, the stock is trading at a P/E of 14.1x on CY16f EPS. Exhibit 1: 3QFY15 preview 210
(INRmn)
180
150
Dec‐13
Sep‐14
Dec‐14
q‐o‐q (%)
Total operating income
6,200
6,706
6,802
1.4
9.7
Total operating expenses
4,806
5,498
5,643
2.6
17.4
EBITDA
1,394
1,208
1,159
‐4.0
‐16.8
106
24
168
Other Income
Depreciation
120
EBIT
Feb14
Jun14
Oct14
Hexaware
Feb15
Sensex Rebased
Forex loss/(gain)
PBT (reported)
Total taxes
y‐o‐y (%)
101
111
113
2.1
12.2
1,399
1,121
1,214
8.3
‐13.2
‐5.9
108
35
1,291
1,087
1,214
11.7
259
227
248
9.3
‐4.2
1,032
860
966
12.3
‐6.4
Stock Perfm. (%)
1m 3m
1yr Net income (reported)
Absolute
13.6
13.1
69.4
Shares outstanding (mn)
302
302
302
0.1
0.1
Rel. to Sensex
10.8
11.8
30.8
EPS (INR)
3.4
2.9
3.2
12.2
‐6.5
Financials (INRmn)
12/13
12/14f
12/15f
Sales
22,853
25,460
29,159
EBITDA margin
22.5
18.0
17.0
‐97.3‐bp
‐544.3‐bp
EBIT margin
22.6
16.7
17.9
112.7‐bp
‐471.4‐bp
Net profit margin
16.6
Source: Company, IL&FS Institutional Equities 12.8
14.2
137.7‐bp
‐244.4‐bp
YoY (%)
EBITDA (%)
A.PAT
17
11
15
21.0
17.6
19.3
4,204
3,791
3,432
Sh o/s (diluted)
300
301
303
A.EPS (INR)
12.6
11.4
13.9
YoY (%)
14
‐10
22
D/E (x)
‐0.7
‐0.6
‐0.6
P/E (x)
18.8
20.9
17.1
EV/E (x)
13.1
14.4
11.6
32
32
29
29
36
37
RoCE (%)
RoE (%)
12/13
03/14
06/14
09/14
Sales (INRmn)
Quarterly Trends 6,200
5,889
6,104
6,706
PAT (INRmn)
1,032
703
766
860
Please refer to the disclaimer towards the end of the document. Operating ratios(%)
Abhay Moghe, +91 22 66842857 abhay.moghe@ilfsindia.com Hexaware Technologies
Analyst Certification The following analyst(s) is(are) primarily responsible for this report and, certifies(y) that the opinion(s) on the subject company(ies) and its security(ies) and any other views or forecasts expressed herein accurately reflect their personal view(s): Abhay Moghe Disclosures Meaning of IL&FS Broking Services Private Limited’s equity research ratings The rating represents the expected change in the price of the stock over a horizon of 12 months. Buy: more than +15% Add: +5% to +15% Reduce: ‐5% to +5% Sell: less than ‐5% Analyst disclosures None of the analysts involved in the preparation of this research report or a member of his/her household is an officer, director or supervisory board member of any of the company(ies) that is/are the subject of this research report. 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