The company hopes to add $20 million in revenues in FY13 and improve its focus on client retention and acquisition on its non-core client base. Nomura thinks the company is worth Rs110 per share
Nomura Equity Research, which hosted Hexaware non-deal roadshow, reports that the management of the company seemed optimistic and bullish of its future prospects. The company’s revenue is expected to grow at 10% in dollar terms, mainly driven by BFSI, healthcare and insurance verticals. However, Nomura reports that Hexaware management is concerned about its lack of focus on its non-core clients (non top-20 clients). The report said, “Among clients, the management is confident about growth from Hexaware’s top 20 clients but acknowledges that its focus on non top-20 clients has been insufficient in the past, which will need refocusing.” It also hopes to make acquisitions in order to focus on the manufacturing/retail space with SAP capabilities.
Despite the focus on top clients, the Nomura report mentions that revenues of its top clients (i.e. top 20) had declined 21% quarter-on-quarter in the fourth quarter because of work stoppage in a particular project.
Hexaware management is not only confident of delivering on the revenue front but also on the EBITDA front. Nomura states that the management expects EBITDA margins to be in the range of 18%-20% range once it gets to steady utilization rate. The management also reiterated that not much hiring would be required. EBITDA margins have been plummeting in recent times but Nomura has forecasted that it would increase and stabilize. Check the graph below:
Most information technology companies rely on the US dollar for revenues and hence hope that Indian rupee will remain ‘weak’. Hexaware is no stranger to this. It has hedged at least 80% of its 2013 receivables at Rs53-Rs53.50 per dollar.
Despite the expected optimism amidst challenging economic circumstances and volatile currency rate movements, the company remains upbeat and is likely to maintain dividend payouts. According to Nomura, the company has indicated that 50% dividend payout will be maintained and translates to an impressive 6% dividend yield.
Based on the road show, Nomura has fixed a target price of Rs110 per share and has maintained a BUY recommendation.
For our analysis on other Nomura reports, check here.
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