30 april 2020 results review 1qcy20 hexaware technologies · 30 april 2020 results review 1qcy20...

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


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


Revenue Growth Trajectory (% QoQ) NN TCV Trend (USD Mn)


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

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16

4Q

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16

1Q

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17

2Q

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17

3Q

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17

4Q

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17

1Q

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2Q

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18

3Q

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18

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18

1Q

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19

2Q

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19

3Q

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1Q

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20

Page | 3


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


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)


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


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


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


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


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


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


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


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


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


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


BFS Growth Trajectory (% QoQ) DSO (including unbilled) Trend (Days)

Source: Company, HSIE Research; 3Q19 surge supported by Mobiquity


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


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

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CY

18

1Q

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20

Page | 6


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


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


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


Page | 8


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


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


Page | 9


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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