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30 April 2020 Results Review 1QCY20
Hexaware Technologies
HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Endurance testing underway
Maintain ADD on Hexaware based on lower rev/margin, offset by higher PAT
(forex-led) and strong NN wins. Steady cash generation, marquee accounts
limiting risk on high-impact verticals, and IMS recovery/BFS & HTPS
outperformance ahead will mitigate near-term volume/pricing headwinds.
Our TP is Rs 300, at 13x CY21E EPS (~1% change).
Hexaware’s rev stood at USD 211mn, -1.1/+18.2% QoQ/YoY CC with COVID-19
impact at -2 to 3% QoQ (largely dd-led). Mgmt indicated similar-to-slightly
better than industry impact on rev for Jun-qtr (indicative of <5% QoQ decline),
but suspended its earlier guidance of 15-17% rev growth for CY20.
Strong NN wins, BFS and HTPS vertical outperformance. Hexaware
posted its strongest NN deal wins with TCV at USD 69mn (vs. USD 130mn
in CY19) and strongest (organic) client adds. BFS (36.8% of rev) rebounded
supported by recovery of large account following a QoQ decline over 3Q-
4Q. BFS and HTPS verticals (aggregating to 52.5% of rev) are expected to
outperform.
Marquee logos and limited systematic risks mitigates near term dent.
Sequential decline was led by Travel & Transportation vertical at -5.5% QoQ,
Healthcare & Insurance vertical at -5.9% QoQ and Manufacturing &
Consumer vertical at -6% QoQ. Despite the QoQ decline, segmental
profitability improved for Travel & Transportation. Marquee logos in the
impacted verticals as well as limited systematic risks of client bankruptcies
are offsets to the temporary near-term volume & pricing impact.
IMS recovery ahead. Apps and BI & Analytics services grew whereas steep
decline in services was led by IMS (expected to recover ahead) and ES.
Supply factors impacting growth are limited with 99% of Hexaware’s IT
workforce and 80% of BPS workforce is in WFH currently (97.4% of rev
being delivered WFH).
Forex boost to PAT. EBIT margin came at 11.8%, -158bps QoQ impacted by
lower volume, utilisation (-60bps QoQ impact), increments (-40bps) and
COVID-19 impact (-100bps) offset by lower SG&A. APAT came at Rs 1.75bn
aided by forex gain of Rs 0.43bn.
Valuation and view. We remain constructive on Hexaware based on (1)
Stronger sales hunting engine (NN wins), (2) Lower client concentration risk
and stability in T-10 (including largest BFS ac) with continued momentum in
T6-10, (3) Improvement in Travel & Transportation profitability despite the
declining trend, and (4) Steady cash generation (73% OCF/EBITDA)
supported by stable DSO (including unbilled) at 89 days (87 in 4Q). Factored
CY20 rev growth at 3.4% (~2% organic decline) and -190bps lower EBIT%.
Valuations are at 12.9x CY21E (10-yr avg. at 14x).
Financial Summary
YE Dec (Rs bn) 1QCY20 1QCY19 YoY
(%) 4QCY19
QoQ
(%) CY17 CY18 CY19 CY20E CY21E
Net Revenues 15.42 12.64 22.0 15.29 0.8 39.42 46.48 55.83 59.92 66.16
EBIT 1.82 1.74 4.6 2.05 -11.1 5.92 6.69 7.58 7.02 8.60
APAT 1.75 1.38 26.4 1.68 4.3 4.99 5.83 6.42 5.90 6.85
Diluted EPS (Rs) 5.9 4.6 26.1 5.6 4.3 16.7 19.6 21.5 19.8 22.9
P/E (x)
17.7 15.1 13.8 15.0 12.9
EV / EBITDA (x)
12.6 10.9 10.1 10.1 8.3
RoE (%)
26.6 26.5 24.9 20.2 20.9
Source: Company, HSIE Research
ADD
CMP (as on 29 Apr 2020) Rs 296
Target Price Rs 300
NIFTY 9,553
KEY
CHANGES OLD NEW
Rating ADD ADD
Price Target Rs 295 Rs 300
EPS % CY20E CY21E
0% 1.4%
KEY STOCK DATA
Bloomberg code HEXW IN
No. of Shares (mn) 298
MCap (Rs bn) / ($ mn) 88/1,166
6m avg traded value (Rs mn) 170
52 Week high / low Rs 456/202
STOCK PERFORMANCE (%)
3M 6M 12M
Absolute (%) (15.9) (9.8) (16.0)
Relative (%) 4.7 8.0 0.2
SHAREHOLDING PATTERN (%)
Dec-19 Mar-20
Promoters 62.44 62.44
FIs & Local MFs 12.41 12.83
FPIs 16.97 16.82
Public & Others 8.18 7.91
Pledged Shares 0.00 0.00
Source : BSE
Apurva Prasad [email protected] +91-22-6171-7327 Amit Chandra [email protected] +91-22-6171-7345 Vinesh Vala [email protected] +91-22-6171-7332
Page | 2
Hexaware Technologies: Results Review 1QCY20
Quarterly consolidated Financial Snapshot
Particulars (Rs bn) Dec Y-E 1QCY20 1QCY19 YoY (%) 4QCY19 QoQ (%)
Net Sales (USD mn) 210.6 180.0 17.0 214.3 -1.7
Net Sales 15.42 12.64 22.0 15.29 0.8
Employee Expenses 9.17 6.66 37.7 8.45 8.6
Other Operating Expenses 3.83 4.05 -5.5 4.56 -16.0
EBITDA 2.34 1.89 23.8 2.40 -2.7
Depreciation 0.52 0.15 249.2 0.36 45.6
EBIT (ESOP adj) 1.90 1.78 6.6 1.93 -1.4
ESOP Compensation Cost 0.08 0.04 85.8 -0.12 NM
EBIT 1.82 1.74 4.6 2.05 -11.1
Interest Costs 0.11 0.00 NM 0.03 270.8
Other Income 0.44 -0.04 NM 0.01 3,127.3
PBT 2.15 1.70 26.5 2.03 5.8
Tax 0.40 0.31 27.1 0.35 13.2
RPAT 1.75 1.38 26.4 1.68 4.3
E/o (adj for tax) 0.00 0.00 NM 0.00 NM
APAT 1.75 1.38 26.4 1.68 4.3
Source: Company, HSIE Research
Margin Analysis
Particulars 1QCY20 1QCY19 YoY (bps) 4QCY19 QoQ (bps)
Employee Expenses % Net Sales 59.5 52.7 681 55.3 424
Other Expenses % Net Sales 24.8 32.0 -721 28.3 -343
EBITDA Margin (%) 15.2 14.9 23 15.7 -55
EBIT Margin (%) 11.8 13.8 -196 13.4 -158
Tax Rate (%) 18.5 18.4 8 17.3 120
APAT Margin (%) 11.3 11.0 40 11.0 37
Source: Company, HSIE Research
Revenue Growth Trajectory (% QoQ) NN TCV Trend (USD Mn)
Source: Company, HSIE Research
Source: Company, HSIE Research; 4QCY18 wins had large cancellations
Revenue stood at USD
210.6mn, -1.1/+18.2%
QoQ/YoY in constant
currency terms
COVID 19 negatively
impacted revenue during
the qtr (2-3% of the
revenue)
Due to significant
uncertainty in the current
environment, company
suspended its CY20
guidance
EBITDA margin at 15.2%,
declined 55bps QoQ (100-
120bps impact due to
COVID), offset by gains
from AS 116
1Q margins impacted by
lower utilisation &
volume, increments,
COVID-19, offset by lower
SG&A expenses
-1.9
6.6
4.3
2.7
4.2
5.4
0.9 1.3
3.9
3.8
1.6
3.0
2.2
4.7
11
.7
1.8
-1.7
-4
-2
0
2
4
6
8
10
12
14
1Q
CY
16
2Q
CY
16
3Q
CY
16
4Q
CY
16
1Q
CY
17
2Q
CY
17
3Q
CY
17
4Q
CY
17
1Q
CY
18
2Q
CY
18
3Q
CY
18
4Q
CY
18
1Q
CY
19
2Q
CY
19
3Q
CY
19
4Q
CY
19
1Q
CY
20
36
20
42
55
25
40
41
72
28
41
25
11
6
36
36
28 30
69
0
20
40
60
80
100
120
140
1Q
CY
16
2Q
CY
16
3Q
CY
16
4Q
CY
16
1Q
CY
17
2Q
CY
17
3Q
CY
17
4Q
CY
17
1Q
CY
18
2Q
CY
18
3Q
CY
18
4Q
CY
18
1Q
CY
19
2Q
CY
19
3Q
CY
19
4Q
CY
19
1Q
CY
20
Page | 3
Hexaware Technologies: Results Review 1QCY20
Onsite-Offshore Revenue Break-up
(% of revenue) 2Q
CY18
3Q
CY18
4Q
CY18
1Q
CY19
2Q
CY19
3Q
CY19
4Q
CY19
1Q
CY20
Onsite Revenue 65.2 64.9 63.9 63.4 63.0 62.7 60.4 61.6
Offshore Revenue 34.8 35.1 36.1 36.6 37.0 37.3 39.6 38.4
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Company, HSIE Research
Onsite-Offshore Revenue Growth
(QoQ, %) 2Q
CY18
3Q
CY18
4Q
CY18
1Q
CY19
2Q
CY19
3Q
CY19
4Q
CY19
1Q
CY20
Onsite Revenue 3.4 1.2 1.4 1.4 4.1 11.1 (1.9) 0.2
Offshore Revenue 4.4 2.5 5.9 3.6 5.9 12.6 8.1 (4.7)
Total 3.8 1.6 3.0 2.2 4.7 11.7 1.8 (1.7)
Source: Company, HSIE Research
Vertical Revenue Break-up
(% of revenue) 2Q
CY18
3Q
CY18
4Q
CY18
1Q
CY19
2Q
CY19
3Q
CY19
4Q
CY19
1Q
CY20
Banking and Financial Services 42.8 42.5 42.1 40.8 39.8 38.6 35.5 36.8
Manufacturing, Consumer and
Others (includes HT & PS) 29.0 28.2 29.0 31.5 30.9 32.0 33.2 33.2
Insurance and Healthcare 17.1 18.8 19.1 18.3 19.2 19.3 21.0 20.1
Travel & Transportation 11.1 10.5 9.9 9.5 10.1 10.1 10.3 9.9
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Company, HSIE Research
Vertical-wise Revenue Growth
(QoQ, %) 2Q
CY18
3Q
CY18
4Q
CY18
1Q
CY19
2Q
CY19
3Q
CY19
4Q
CY19
1Q
CY20
Banking and Financial
Services 1.6 0.9 1.9 -1.0 2.3 8.3 -6.4 1.9
Manufacturing,
Consumer and Others 10.6 -1.2 5.7 11.0 2.9 15.6 5.6 -1.7
Insurance and
Healthcare 10.9 11.8 4.6 -2.1 9.9 12.3 10.8 -5.9
Travel & Transportation -12.1 -3.8 -2.9 -1.9 11.4 11.7 3.8 -5.5
Total 3.8 1.6 3.0 2.2 4.7 11.7 1.8 -1.7
Source: Company, HSIE Research
Service Line Break-up
(% of revenue) 2Q
CY18
3Q
CY18
4Q
CY18
1Q
CY19
2Q
CY19
3Q
CY19
4Q
CY19
1Q
CY20
ADM 36.6 36.0 35.1 34.5 37.0 41.8 40.4 42.5
Quality Assurance and Testing
Services 18.4 17.7 17.5 17.5 17.7 15.7 15.6 15.9
Business Intelligence & Analytics 13.5 14.5 13.1 13.1 12.3 10.9 10.6 11.4
Enterprise Solutions 10.5 9.7 9.5 9.5 9.4 9.2 9.2 8.3
IMS 13.8 14.7 17.5 17.8 15.6 14.2 15.8 13.4
BPM 7.2 7.4 7.3 7.6 8.0 8.2 8.4 8.5
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Company, HSIE Research
Offshore revenue declined
4.7% QoQ largely due to
lower volume while Onsite
recovered helped by BFS
recovery
BFS recovered with a growth
of 1.9% QoQ, supported by
bottoming out of large BFS
account (US secondary
mortgage market)
Within BFS, Asset servicing
and mortgage to be positive
on account of liquidity in
system (refinancing due to
lower interest rate)
High-Tech & Professional
services improved 2.8% QoQ
and expected to outperform
Sequential decline witnessed
among all other verticals
like Travel &
Transportation, Insurance &
Healthcare and Mfg &
Consumer
Prolonged impact of COVID
expected in Travel &
Transport and Mfg
(Automotive); while
recovery in Insurance &
Healthcare to be fast due
clinical trials
Digital (Cloud, Automation,
CX) remains focus area
Page | 4
Hexaware Technologies: Results Review 1QCY20
Service Line Growth
(QoQ, %) 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19 1QCY20
ADM 5.8 0.0 0.4 0.4 12.3 26.2 -1.6 3.4
Quality Assurance and
Testing Services -0.1 -2.2 1.8 2.2 5.9 -0.9 1.2 0.2
Business Intelligence &
Analytics -1.4 9.2 -7.0 2.2 -1.7 -1.0 -1.0 5.7
Enterprise Solutions -0.1 -6.1 0.8 2.2 3.6 9.3 1.8 -11.3
IMS 10.1 8.3 22.6 3.9 -8.2 1.6 13.3 -16.7
BPM 8.3 4.5 1.6 6.4 10.3 14.5 4.3 -0.6
Total 3.8 1.6 3.0 2.2 4.7 11.7 1.8 -1.7
Source: Company, HSIE Research
Client Metrics
2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19 1QCY20
Client Concentration (% of
revenue)
Top-5 42.4 42.1 42 41.7 37.3 35.2 33.4 34.3
Top-10 52.8 52.2 51.6 51.1 46.4 44.4 43.4 45.1
Clients (Nos)
>USD 1mn 93 95 99 99 120 124 129 126
>USD 20mn 4 4 5 5 5 6 6 6
Growth (QoQ %)
Top-5 4.5 0.9 2.7 1.5 -6.3 5.4 -3.4 0.9
Top-10 3.8 0.5 1.8 1.2 -4.9 6.9 -0.5 2.1
Source: Company, HSIE Research
Geographic Revenue Break-up
(% of revenue) 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19 1QCY20
Americas 77.0 77.4 76.9 76.1 76.8 75.4 74.4 74.2
Europe 12.7 13.3 13.0 12.6 14.0 16.6 17.5 17.8
Asia-Pacific 10.3 9.3 10.1 11.3 9.2 8.0 8.1 8.0
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Company, HSIE Research
Geographic Revenue Growth
(QoQ, %) 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19 1QCY20
Americas 6.1 2.2 2.3 1.1 5.7 9.6 0.5 -2.0
Europe 5.4 6.5 0.6 -1.0 16.4 32.4 7.3 0.0
Asia-Pacific -12.4 -8.2 11.8 14.3 -14.7 -2.9 3.1 -2.9
Total 3.8 1.6 3.0 2.2 4.7 11.7 1.8 -1.7
Source: Company, HSIE Research
Headcount, Utilisation Data
(Nos.) 2QCY18 3QCY18 4QCY18 1QCY19 2QCY19 3QCY19 4QCY19 1QCY20
Total headcount 15,357 16,050 16,205 16,509 18,294 19,062 19,999 19,998
Technical Employees 14,205 14,862 15,006 15,287 16,904 17,632 18,499 18,358
Sales & Marketing 461 482 486 479 549 553 580 620
General
Management/Support 691 706 713 743 842 877 920 1,020
Net Employee
Addition 738 693 155 304 1,785 768 937 -1
Attrition (%) 14.4 15.7 17.0 18.2 18.2 17.3 15.8 15.1
Utilisation including
trainees (%) 78.2 79.0 78.7 79.0 80.7 79.0 78.5 76.5
Source: Company, HSIE Research
Growth in ADM & BI
(+3.4% &+ 5.7% QoQ) was
negated by decline in
Enterprise and IMS (-11.3%
& -16.7% QoQ)
IMS decline was largely
attributed to large client
specific issue in BFS;
however increased WFH and
Cloud migration will
support recovery in near
term
T10 concentration for
Hexaware lowered and is
expected to gain in near term
but will sustain at current
levels
APAC region declined due to
full qtr impact of COVID 19,
offset by Europe
outperformance
Expect Q2 to bear the worst
impact and recovery
expected in Q3 and Q4
Attrition trending lower at
15.1% in 1QCY20 with peak
at 18.2% 3 qtrs back
Utilisation lowered at
76.5% in Q1 with peak at
80.7% 3 qtrs back, expected
to be impacted in 2Q
Headcount addition was
flat
Page | 5
Hexaware Technologies: Results Review 1QCY20
BFS Growth Trajectory (% QoQ) DSO (including unbilled) Trend (Days)
Source: Company, HSIE Research; 3Q19 surge supported by Mobiquity
Source: Company, HSIE Research
Key Assumptions
Particulars CY16 CY17 CY18 CY19 CY20E CY21E
Total USD Revenue Growth (%) 8.3 15.6 11.6 17.1 3.4 9.0
USD/INR Rate 67.3 64.9 68.5 70.4 73.0 74.0
EBIT Margin (%) 14.8 15.0 14.4 13.6 11.7 13.0
Source: Company, HSIE Research
Change in Estimates
(Rs bn)
CY20E CY21E
Earlier New % Change Earlier New % Change
Revenue (USD Mn) 840 820 -2.3 912 894 -2.0
Revenue 61.19 59.92 -2.1 67.48 66.16 -2.0
EBIT 7.33 7.02 -4.3 8.39 8.60 2.5
EBIT Margin (%) 12.0 11.7 (27)bps 12.4 13.0 57bps
EPS (Rs) 19.8 19.8 0 22.6 22.9 1.4
Source: HSIE Research
2.5
8.7
8.5
4.0
5.7
6.9
1.2
3.7
2.3
1.6
0.9 1
.9
-1.0
2.3
8.3
-6.4
1.9
-8
-6
-4
-2
0
2
4
6
8
10
1Q
CY
16
2Q
CY
16
3Q
CY
16
4Q
CY
16
1Q
CY
17
2Q
CY
17
3Q
CY
17
4Q
CY
17
1Q
CY
18
2Q
CY
18
3Q
CY
18
4Q
CY
18
1Q
CY
19
2Q
CY
19
3Q
CY
19
4Q
CY
19
1Q
CY
20
78
7475
68
74
70
7271
7475
83
81
74
7776
80
82
65.0
70.0
75.0
80.0
85.0
1Q
CY
16
2Q
CY
16
3Q
CY
16
4Q
CY
16
1Q
CY
17
2Q
CY
17
3Q
CY
17
4Q
CY
17
1Q
CY
18
2Q
CY
18
3Q
CY
18
4Q
CY
18
1Q
CY
19
2Q
CY
19
3Q
CY
19
4Q
CY
19
1Q
CY
20
Page | 6
Hexaware Technologies: Results Review 1QCY20
Peer Set Comparison
Company
MCap CMP TP RECO
EPS (Rs) P/E (x) RoE (%)
(Rs bn) (Rs) (Rs) FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E
TCS* 7,141 1,903 1,680 REDUCE 83.9 86.2 78.9 88.3 22.7 22.1 24.1 21.5 36.1 37.3 35.1 38.9
Infosys* 2,879 678 680 BUY 37.1 38.6 36.7 42.4 18.3 17.5 18.5 16.0 24.3 25.2 23.2 25.3
HCL Tech 1,343 495 525 BUY 37.3 39.5 37.5 43.9 13.3 12.5 13.2 11.3 26.0 23.5 19.1 19.4
Wipro* 1,031 181 185 REDUCE 15.8 17.0 15.6 17.0 11.5 10.6 11.6 10.7 17.3 17.3 14.9 14.2
TechM 513 532 660 BUY 48.9 48.3 45.0 50.9 10.9 11.0 11.8 10.4 22.0 20.6 17.7 17.8
Tier-1 IT Median
13.3 12.5 13.2 11.3 24.3 23.5 19.1 19.4
LTI 254 1,460 1,650 ADD 87.1 86.2 93.1 109.9 16.8 16.9 15.7 13.3 34.6 28.2 26.3 27.0
Mphasis 131 704 800 ADD 57.6 60.4 59.6 66.9 12.2 11.7 11.8 10.5 20.0 20.5 18.6 19.3
L&T Tech 121 1,161 1,215 ADD 67.8 77.2 72.9 86.7 17.1 15.0 15.9 13.4 32.0 29.8 24.4 25.2
Mindtree* 145 882 830 ADD 44.1 40.5 43.7 55.1 20.0 21.8 20.2 16.0 24.9 19.5 21.6 24.0
Hexaware# 88 296 300 ADD 19.6 21.5 19.8 22.9 15.1 13.8 15.0 12.9 26.5 24.9 20.2 20.9
Persistent 36 473 535 REDUCE 47.8 45.7 36.2 44.5 9.9 10.3 13.1 10.6 15.7 14.0 11.3 12.9
Tata Elxsi 51 811 NA NR 46.6 41.2 40.2 45.1 17.4 19.7 20.2 18.0 34.5 25.2 21.4 20.9
Cyient 23 208 280 ADD 43.6 34.7 27.8 31.1 4.8 6.0 7.5 6.7 19.5 14.7 11.0 11.5
Zensar 19 85 95 ADD 14.2 10.3 9.2 11.8 6.0 8.2 9.3 7.2 17.6 11.5 9.4 11.2
Sonata 22 215 250 BUY 23.7 27.3 22.4 27.5 9.0 7.9 9.6 7.8 35.1 34.6 25.6 28.6
Intellect 10 74 NA NR 7.7 (1.7) 1.7 4.9 9.6 NM 43.0 15.0 11.1 (2.2) 2.2 6.1
Majesco 7 259 360 BUY 18.3 18.0 20.5 24.8 14.1 14.4 12.7 10.5 8.4 7.3 7.8 8.8
Mastek 7 236 333 BUY 39.9 39.8 39.6 43.2 5.9 5.9 6.0 5.5 15.9 15.0 13.3 12.8
Tier-2 IT AVG
12.2 12.6 15.4 11.3 22.8 18.7 16.4 17.6
Tier-2 IT Median
12.2 12.7 13.1 10.6 20.0 19.5 18.6 19.3
Source: HSIE Research, #Dec YE, * Actual numbers for FY20
Page | 7
Hexaware Technologies: Results Review 1QCY20
Financials Consolidated Income Statement YE Dec (Rs bn) CY16 CY17 CY18 CY19 CY20E CY21E
Net Sales (US$ mn) 526 607 678 793 820 894
Growth (%) 8.3 15.6 11.6 17.1 3.4 9.0
Net Sales 35.35 39.42 46.48 55.83 59.92 66.16
Growth (%) 13.20 11.50 17.90 20.10 7.30 10.40
Employee Expenses 19.67 21.43 24.80 30.28 36.13 38.96
Other Operating Expenses 9.90 11.44 14.34 16.93 15.04 16.78
EBITDA 5.78 6.55 7.34 8.61 8.76 10.42
EBITDA (%) 16.4 16.6 15.8 15.4 14.6 15.7
Depreciation 0.56 0.63 0.65 1.03 1.74 1.82
EBIT 5.23 5.92 6.69 7.58 7.02 8.60
EBIT (%) 14.8 15.0 14.4 13.6 11.7 13.0
EBIT Growth (%) 7.2 13.3 13.0 13.4 -7.4 22.6
Other Income 0.39 0.49 0.58 0.29 0.55 0.14
Interest 0.00 0.00 0.00 0.07 0.28 0.24
PBT 5.61 6.40 7.27 7.80 7.29 8.50
Tax (incl deferred) 1.42 1.41 1.43 1.38 1.39 1.66
RPAT 4.19 4.99 5.83 6.42 5.90 6.85
APAT 4.20 4.99 5.83 6.42 5.90 6.85
APAT Growth (%) 6.8 18.9 16.9 10.0 -8.1 16.1
EPS 14.1 16.7 19.6 21.5 19.8 22.9
EPS Growth (%) 6.8 18.9 16.9 10.0 -8.1 16.1
Source: Company, HSIE Research
Consolidated Balance Sheet
YE Dec (Rs bn) CY16 CY17 CY18 CY19 CY20E CY21E
SOURCES OF FUNDS
Share Capital - Equity 0.60 0.59 0.59 0.60 0.60 0.60
Reserves 16.81 19.48 23.32 27.06 30.27 34.07
Total Shareholders' Funds 17.41 20.07 23.92 27.65 30.87 34.67
Total Debt - - - 1.43 4.02 3.43
Net Deferred Taxes -1.25 -1.34 -1.78 -1.44 -1.44 -1.44
Long Term Provisions & Others 0.30 0.21 0.31 0.47 0.47 0.47
TOTAL SOURCES OF FUNDS 16.46 18.95 22.44 28.12 33.92 37.13
APPLICATION OF FUNDS
Net Block 3.03 3.76 3.93 8.61 8.69 9.01
CWIP 3.23 2.56 2.24 0.86 0.86 0.86
Goodwill 1.76 1.66 1.81 11.76 11.76 11.76
Investments 0.02 0.02 0.03 0.03 0.03 0.03
Other non-current assets 1.48 1.58 1.67 1.73 1.73 1.73
Total Non Current Assets 9.52 9.58 9.68 23.00 23.07 23.40
Cash & Equivalents 4.45 5.49 8.31 2.47 3.88 5.70
Debtors 4.38 5.36 8.03 9.80 10.51 11.61
Other Current Assets 3.50 3.69 3.53 4.99 5.32 5.83
Total Current Assets 7.88 9.05 11.56 14.79 15.84 17.44
Creditors 1.96 2.20 3.30 3.95 4.10 4.53
Other Current Liabilities & Provns 3.44 2.97 3.81 8.18 4.76 4.87
Total Current Liabilities 5.40 5.17 7.11 12.13 8.86 9.40
Net Current Assets 2.48 3.88 4.45 2.66 6.97 8.04
TOTAL APPLICATION OF FUNDS 16.46 18.95 22.44 28.12 33.92 37.13
Source: Company, HSIE Research
Page | 8
Hexaware Technologies: Results Review 1QCY20
Consolidated Cash Flow
YE Dec (Rs bn) CY16 CY17 CY18 CY19 CY20E CY21E
Reported PBT 5.62 6.40 7.27 7.80 7.29 8.50
Non-operating & EO items 0.22 0.37 0.33 -0.09 -0.45 -0.11
Interest expenses 0.00 0.00 0.00 0.07 0.28 0.24
Depreciation 0.55 0.63 0.65 1.03 1.74 1.82
Working Capital Change -0.20 -0.90 -1.17 -1.27 -0.83 -1.07
Tax paid -1.45 -1.75 -1.59 -1.57 -1.39 -1.66
OPERATING CASH FLOW ( a ) 4.74 4.76 5.49 5.97 6.65 7.72
Capex -2.22 -0.96 -0.61 -10.16 -5.38 -2.14
Free cash flow (FCF) 2.52 3.80 4.88 -4.19 1.26 5.58
Non-operating income 0.00 0.02 0.07 0.09 0.45 0.11
INVESTING CASH FLOW ( b ) -2.24 -0.94 -0.54 -10.07 -4.94 -2.03
Debt Issuance - - - 1.43 2.59 -0.59
Interest expenses 0.00 0.00 0.00 -0.07 -0.28 -0.24
FCFE 2.52 3.80 4.88 -2.83 3.57 4.75
Share capital Issuance 0.01 0.01 0.00 0.00 0.00 -
Dividend/ Buyback -2.51 -2.81 -2.51 -3.05 -2.69 -3.05
FINANCING CASH FLOW ( c ) -2.49 -2.80 -2.50 -1.69 -0.38 -3.88
NET CASH FLOW (a+b+c) 0.01 1.02 2.44 -5.79 1.33 1.82
Closing Cash & Equivalents 4.45 5.49 8.31 2.47 3.88 5.70
Source: Company, HSIE Research
Key Ratios
CY16 CY17 CY18 CY19 CY20E CY21E
PROFITABILITY (%)
EBITDA Margin 16.4 16.6 15.8 15.4 14.6 15.7
APAT Margin 11.9 12.7 12.6 11.5 9.8 10.3
RoE 25.8 26.6 26.5 24.9 20.2 20.9
RoIC or Core RoCE 35.7 36.2 38.9 31.4 20.4 22.5
RoCE 27.3 28.2 28.2 25.6 19.7 19.8
EFFICIENCY
Tax Rate (%) 25.2 22.0 19.7 17.7 19.1 19.5
Fixed Asset Turnover (x) 3.1 3.3 3.7 3.1 3.2 3.1
Debtors (days) 45 50 63 64 64 64
Other current assets (x) 36 34 28 33 32 32
Payables (days) 20 20 26 26 25 25
Other current liab & provn (x) 36 27 30 53 29 27
Cash Conversion Cycle (days) 26 36 35 17 42 44
Net Debt/EBITDA (x) -0.8 -0.8 -1.1 -0.1 0.0 -0.2
Net Debt/Equity (x) -0.3 -0.3 -0.3 0.0 0.0 -0.1
Interest Coverage (x) 3,709 5,016 15,923 102 25 36
PER SHARE DATA
EPS (Rs/sh) 14.1 16.7 19.6 21.5 19.8 22.9
CEPS (Rs/sh) 15.9 18.9 21.7 25.0 25.6 29.0
DPS (Rs/sh) 7.0 4.0 7.0 8.5 7.5 8.5
BV (Rs/sh) 58.4 67.3 80.2 92.7 103.5 116.2
VALUATION
P/E 21.0 17.7 15.1 13.8 15.0 12.9
P/BV 5.1 4.4 3.7 3.2 2.9 2.5
EV/EBITDA 14.5 12.6 10.9 10.1 10.1 8.3
OCF/EV (%) 5.7 5.7 6.9 6.8 7.5 9.0
FCF/EV (%) 3.0 4.6 6.1 -4.8 1.4 6.5
FCFE/mkt cap (%) 2.9 4.3 5.5 -3.2 4.0 5.4
Dividend Yield (%) 2.4 1.4 2.4 2.9 2.5 2.9
Source: Company, HSIE Research
Page | 9
Hexaware Technologies: Results Review 1QCY20
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential
Date CMP Reco Target
1-Apr-19 345 BUY 430
9-Apr-19 351 BUY 430
25-Apr-19 333 BUY 430
17-Jun-19 345 BUY 440
5-Jul-19 365 BUY 440
9-Aug-19 367 BUY 445
27-Aug-19 388 BUY 445
22-Sep-19 377 BUY 445
4-Oct-19 369 BUY 450
24-Oct-19 366 BUY 445
7-Jan-20 335 BUY 450
12-Feb-20 375 BUY 430
2-Mar-20 360 ADD 430
18-Mar-20 276 ADD 355
6-Apr-20 221 ADD 295
30-Apr-20 295 ADD 300
From 2nd March 2020, we have moved to new rating system
RECOMMENDATION HISTORY
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Hexaware TP
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Hexaware Technologies: Results Review 1QCY20
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