Hexaware stock under pressure as client troubles slow orders

ET Intelligence Group: The stock of Hexaware Technologies has fallen by nearly 8% in the two trading sessions following its September quarter results on Wednesday after the company’s reduction in the full year revenue guidance and stress in one of its top client accounts.

The mid-tier software company’s stock may continue to remain under pressure in the medium term given the slower order booking in the September quarter and continued client-specific challenges in the current quarter ending December, which is also the final quarter in the company’s financial year.

The company’s revenue rose by 11.7% sequentially in the third quarter to $210.5 million (Rs 1,481.3 crore) largely aided by $21million contribution from Mobiquity, which it acquired in June 2019 for $182 million. Excluding this, sequential revenue growth was flat at 0.5% in dollar terms. The reduction in the outsourcing budget by one of its top clients in the finance vertical to 30% of the total IT budget from around 65% shed over 2% from the topline growth.

“The client specific issue will have an impact in the fourth quarter (December quarter) as well. But it will continue to remain our significant client. Barring this, the underlying growth trend is intact,” R Srikrishna, CEO of Hexaware Technologies told ET.

Despite the client issue, the company was still able to clock 8.4% sequential growth in the banking and finance vertical, which contributed 38.6% to the total revenue in the September 2019 quarter.

The travel and transport segment, which accounted for 10.1% of revenues, clocked a sequential growth of 12.4%. Srikrishna confirmed that the company did not have any exposure to UK’s Thomas Cook, which filed for bankruptcy in September.

The company reduced the full-year revenue guidance to 17-18% from 19% earlier citing higher number of holidays in the December quarter and the client specific issues. Also, the salary increase is expected to have a marginal impact on the profit growth for the quarter.

On the positive side, the company’s employee attrition rate fell by 90 basis points to 17.3% sequentially. In addition, the company’s revenue receivables days or days sales outstanding (DSO) fell to 51 days from 54 days in the previous quarter and 58 days in the year-ago quarter implying higher revenue collection efficiency.

While analysts have largely retained their target prices for Hexaware’s stock, some have expressed concerns over future growth.

“While revenue growth was in line, we expect organic growth to moderate on the back of client-specific issue in BFSI. In that context, we cut our revenue growth estimate by 90bps/370bps (basis points) for CY19/

20. Our margin and EPS estimates remain largely unchanged,” said Motilal Oswal Securities in a report. The brokerage has a “neutral” rating on the stock with a target price of Rs 400.