Company update| IT

December 07, 2012

Hexaware
Guidance cut
Hexaware Technologies (Hexaware) has announced downward revision of its 4QCY2012 revenue guidance to US$92mn from US$94.7-96.5mn earlier; and thereby its full year CY2012 USD revenue growth guidance is now lowered down to 18% yoy from 20% earlier. The company attributed this to a sudden change in project scope and deliverables from a large client which is amongst its top-10 clients. This decline is likely to impact 4QCY2012 operating margin by 500700bp qoq. However, the management indicated that this is a oneoff event and the rest of the business currently continues to operate as earlier. Unanticipated change in a large project scope drives guidance downgrade: Hexaware has downgraded its 4QCY2012 revenue guidance from a range of US$94.7-96.5mn (2-4% qoq growth) to US$92mn (1% qoq decline) due to changes in the scope and timeline of one specific project with one of its top-10 clients. Also, hurricane Sandys negative impact of US$0.45mn is built in into the guidance cut. The management also hinted that growth and margin in 1QCY2013 could also be impacted, but reiterated that the worst is behind. Margin impact worse: The management indicated that this will have a material adverse impact on the profitability margin metrics during 4QCY2012 and could impact operating margins by 500-700bp qoq. This downward revision seems to be disproportionate as the revenue cut is of US$2.5-4.5mn while EBITDA is being cut by US$6-7mn. Change in estimates: The downward revision in guidance and margin decline has lead to our CY2013E revenue growth estimate being revised down to 13.5% from 15.0% and EBITDA margin to 19.8% from 21.1% earlier. EPS estimate of CY2012 and CY2013 is being revised down by 6% and 8.5% to `10.7 and `11.2, respectively. Outlook and Valuation: We believe that this is a one-off event and the rest of the business currently continues to operate as earlier. This move is undoubtedly negative, but we believe the steep ~25% fall in Hexawares stock price over the past three months, captures most of the negatives at this juncture and the current level makes a good entry point to the stock. We maintain our Buy rating on the stock with a revised target price of `123, valuing it at 11x CY2013E EPS. Key financials (Indian GAAP, Consolidated)
Y/E December (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`)* P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) CY2010 1,055 1.5 85 (36.4) 8.9 2.9 33.6 2.9 11.2 7.1 2.2 25.2 CY2011 1,451 37.6 267 212.9 18.2 8.9 10.8 2.8 26.3 23.6 1.6 8.9 CY2012E 1,924 32.7 321 20.4 20.7 10.7 9.0 2.2 25.3 28.9 1.2 5.7 CY2013E 2,116 10.0 335 4.4 19.8 11.2 8.6 1.9 22.8 26.2 1.0 5.1

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 2,819 (403) 0.9 142/73 232,765 2 19,424 5,907 HEXT.BO HEXW@IN

`97 `123
12 Months

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 28.1 9.2 42.6 20.1

Abs. (%) Sensex Hexaware

3m 9.8 (27.1)

1yr 15.1 15.1

3yr 14.4 105.4

Ankita Somani
+91 22 39357800 Ext: 6819 ankita.somani@angelbroking.com

Source: Company, Angel Research; Note: *Excluding exceptional item

Please refer to important disclosures at the end of this report

Hexaware | Company update

Exhibit 1: Change in estimates

CY2012E Parameter (` cr) Net revenue EBITDA PBT Tax PAT Earlier estimates 1,944 424 425 83 341 Revised estimates 1,924 398 399 78 321 Variation (%) (1.0) (6.1) (6.0) (6.4) (5.9) Earlier estimates 2,159 457 470 103 367 CY2013E Revised estimates 2,116 419 430 95 335 Variation (%) (2.0) (8.3) (8.5) (8.5) (8.5)

December 07, 2012

Hexaware | Company update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Hexaware No No No No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

December 07, 2012