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Hexaware’s growth resilient but stock valuations can limit gains

  • Hexaware Technologies Ltd maintained growth momentum despite a notable slowdown in one large business vertical, BFS
  • Apart from banking and financial services (BFS) , growth lagged in manufacturing and consumer segment

Hexaware Technologies Ltd maintained its growth momentum in April-June despite a notable slowdown in one large business vertical - banking and financial services (BFS).

Constant currency revenue grew an impressive 5% from the March quarter, helped by strong growth in travel and transportation, healthcare and insurance and professional services. Apart from the BFS segment, growth lagged in manufacturing and consumer segment. Profitability expanded which helped the company clock healthy growth in operating earnings (excluding the impact of employee stock option expenses). As a result, the stock rose on Friday.

Noting the weakness in BFS segment, the management lowered revenue growth guidance for the current year to 19% from 20%. Excluding the benefit from Mobiquity acquisition, organic growth is pegged at around 12% for the full year. Hexaware follows January-December financial year.

Adjusting for incremental Mobiquity contribution, Hexaware will need to clock around 4.3% compounded quarterly growth rate which is not an easy task, points out analysts at SBICAP Securities Ltd.

Evens so, analysts at SBICAP said, the management was fairly confident of meeting the revised guidance aided by healthy deal wins, pipeline and traction in non-BFS business verticals.

“Despite weakness in financial services, reasonable growth in net new deal wins (+15.8% year on year on trailing twelve month basis) and broad-basing of wins across all three themes—automation, cloud and customer experience, lend some comfort on growth expectations for 2019," brokerage firm Kotak Institutional Equities said in a note.

While the performance indeed is encouraging, the stock valuations at about 18 times the current year’s earnings estimates are not cheap and can limit the potential gains

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