Add Hexaware Technologies Ltd for the Target Rs 600 by Emkay Global Financial Services Ltd
HEXT posted an in-line operating performance in 2Q. Revenue grew 4.4% qoq to $405.4mn (4.4% CC) in 2Q, in line with our estimate. Growth was volumeled, aided by higher number of billable days. Reported EBITM expanded by 30bps qoq to 13.6% in 2Q, above our expectation of 13.3%. Deal momentum stayed healthy, with rising traction in legacy-modernization deals of over $10mn. HEXT lowered its CY26 revenue growth guidance to 6-7%, including 50bps from the CP rebadging deal (vs at least 7.6% growth guided earlier), implying ~2.7% CQGR at mid-point, while retaining EBITM of 13–14%. The management attributed the lowering of guidance to the delayed ramp-up of deals (now by mid-to-late 3Q/4Q) and spending cuts, particularly in T&T. Among verticals, H&I, Banking, and M&C are expected to drive growth in CY26, with M&C seeing a turnaround, while T&T may remain subdued due to macro headwinds. HEXT expects to exit CY26 at closer to double-digit yoy growth, with growth continuing across 3Q and 4Q. We believe strong exit in CY26 augurs well for acceleration in growth in CY27. We tweak CY26-28E EPS by -7% to +1%, factoring in 2Q performance. We increase TP by ~4% to Rs600 (from Rs575), at 20x Jun-28E EPS. However, we downgrade the stock to ADD from Buy, considering limited upside after 12%/29% rally over 1M/3M.
Results summary
Revenue grew 4.4% qoq to $405.4mn (4.4% CC) in 2Q, in line with our expectation of $405mn, led by volume ($9mn) and calendar benefit ($5mn). The CP rebadging deal contributed ~30bps. EBITM expanded by 30bps sequentially to 13.6% on the back of FX/calendar tailwinds (160bps) and utilization-led operational gain (30bps), partly offset by 2Q seasonality, investments (including annual client event, M&A costs, higher CSR; 70bps), and people investment (50bps). Reported PAT was dragged down by ~$8mn of hedge and translation losses (expected to reduce over next two quarters). Revenue from top-5/10 clients grew 3.1/3.8% qoq. Total headcount grew 2.1% qoq to 34,506. IT headcount grew by 179, while that for BPS grew by 529 qoq, in anticipation of a seasonal volume increase in 2H. What we liked: Momentum in H&I, Banking, and M&C; deal wins. What we did not like: Weakness in T&T, another quarter of lowering of guidance.
T&T drags down growth due to macro; all geographies show sequential growth
Revenue growth was led by Professional Services (13.3% qoq in USD terms), H&I (6.8%), Banking (3.9%), M&C (3.5%), and FS (1.1%), partially offset by T&T (-1.0%) and Tech, Products, and Platforms (-3.1%). Across geographies, growth was largely broad-based, led by APAC (14.1%), followed by Europe (7.0%) and Americas (2.9%).
‘Zero License’ offering receiving strong customer interest since launch
Zero License offering is seeing strong traction, particularly in client conversations, since its launch early this year. The company has closed a few deals and sees healthy build-up of pipeline across three archetypes. Deal sizes are currently small, but the management expects some of these to scale across enterprises after initial POV. The company has built 65 parsers in platform, letting HEXT discover the underlying business logic of SaaS platforms and help clients transition from legacy platforms to modern, AI-built code.
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