Company Report | Q2CY11 Result Update

LONG TERM INVESTMENT CALL

27 July 2011 Industry CMP (INR) Target (INR) Upside / Downside 52 week High / Low (INR) Market Cap (INR bn) 3M Avg. Daily Volumes P / E (FY12 E) Shareholding Pattern (%) IT / ITES 82 96 17% 82 / 34 24.14 1,352,780 14.16

Accumulate

Another Good Quarter driven by Improving Margins

Hexaware Technologies Ltd. (HEXW) has posted a growth in revenue of nearly 33% on an annual basis and 5% on a quarterly basis to INR 3,341 mn. This was in line with our estimates. Revenue growth was aided by a 6% growth in volumes while pricing remained stable during the quarter.

EBITDA, at INR 511 mn, clocked a growth rate of 201% YoY and 12% QoQ. Strong growth of operating margin of HEXW was aided by the strong volume growth in this quarter. EBITDA was in line with our estimates. A corresponding improvement in EBITDA margin too was witnessed. Margin improved by nearly 850 bps on a YoY basis and 101 bps on a sequential basis despite the increase in compensation of its off shore employees.

1 Year Stock Chart Net Profit came in at INR 603 mn for the quarter, reflecting a growth of 251% on an annual basis. On a sequential basis, PAT witnessed a growth of 12%, in line with our estimates. Net Profit margin was 18.0% in Q1, a 1,232 bps growth YoY.

Other Highlights: HEXW signed its largest deal to-date during Q2. An agreement worth approximately USD 177 mn was signed with an existing US client; incremental business of USD 100 mn and extending Stock Performance 1 Month 18.8% 0.0% 3 Months 17.1% -4.1% 1 Year 105.1% 2.4%
(INR in mn)

existing business worth another USD 77 mn over five years Head count as of Q2 stood at 7,419, up by 755 employees which included 145 freshers. 14 new clients were added taking HEXWs total client base to 190.

HEXW Nifty

Outlook & Valuation

HEXW is benefiting from a demand revival in the BFSI segment as well as its travel & transport segment. The company is also witnessing increased IT spending in the enterprise resource planning application segments from various clients. We maintain Accumulate on this stock with a revised target price of 96, implying a 17% upside from current levels

Particulars Total Income EBITDA Reported PAT

Actual 3,341 511 603

Estimates 3,325 520 497

* Source: Bloomberg, Unicon Research

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

Consolidated Financials
(INR in mn)

Particulars Net Revenue Operating Exp. EBITDA EBITDA Margin Depreciation EBIT EBIT Margin Interest Other Income Tax Provision Tax Rate PAT Extraordinary Items Minority Interest Reported PAT PAT Margin Diluted EPS (INR)
Source: Company, Unicon Research

Q2 CY11 3,341 2,830 511 15.3% 59 452 13.5% 0 267 116 16.1% 603 0 0 603 18.0% 2.7

Q2 CY10 2,512 2,342 170 6.8% 59 111 4.4% 0 80 19 9.9% 172 (28) 0 144 5.7% 2.4

Y-o-Y 33% 21% 201% 853 bps 0% 307% 911 bps N.A. 234% 511% 619 bps 251% -100% N.A. 319% 1232 bps 13%

Q1 CY11 3,185 2,730 455 14.3% 62 393 12.3% 0 188 44 7.6% 537 0 0 537 16.9% 3.0

Q-o-Q 5% 4% 12% 101 bps -5% 15% 119 bps N.A. 42% 164% 856 bps 12% N.A. N.A. 12% 119 bps -10%

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