EMKAY RECOMMENDS: Accumulate Hexaware Tech; target of Rs 66

Emkay Global Financial Services is bullish on Hexaware Tech and has recommended accumulate rating on the stock with a target of Rs 66 in its March 11, 2011 research report.

“Hexaware, like other mid tier peers, bore the brunt of downturn during late FY09/early FY10 as its historical policy of a horizontal led sales strategy adversely impacted its revenues (-18% in FY10). However, Hexaware used the downturn to address its inherent weaknesses by hiring senior talent, revamping the entire management team as well adopting a vertical led sales approach. Hexaware’s ability to survive vendor consolidation exercises at several clients has driven strong revenue growth in the past 3 quarters (13%, 11%, 9% q-o-q) as clients reverted to normal spending levels.”

“We expect revenue momentum to sustain through FY12/13 driving an improvement in operating margins ahead Operating margins have already improved by ~500 bps in the last 2 quarters after a steep fall over Sep’09-June’10. We forecast a 25% US$ revenue CAGR, driving a 52% EBITDA CAGR over FY11-13E. Despite a step up increase in tax rate to 20%/22% in FY12/13 (V/s 10% in FY11), we estimate a 50% profits CAGR over FY11-13E, with further help from a favorable hedging V/s significant forex losses over nearly 3 years. We believe that the company’s FY12 revenue guidance of USD 290 mn (+25% YoY) could err on conservative side, given the strong momentum evident in the past few quarters. We estimate 30%+ revenue growth for FY12 as we expect pickup in discretionary spending to fuel Enterprise Services revenues.”

“Hexaware like most other mid tier peers has had a chequered past in the form of (1) forex hedging mishaps and (2) flip flops on guidance policy (along with misses in between). However, valuations at ~9.7xFY12E/8.3xFY13E earnings are attractive, given the imminent uptick in financial performance. Initiate coverage with ACCUMULATE rating and a TP of Rs 66,” says Emkay Global Financial Services research report.

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SOURCE: moneycontrol.com