Sell Hexaware Technologies, target Rs 390: Motilal Oswal Securities

Motilal Oswal Securities has a sell call on Hexaware Technologies Ltd. with a target price of Rs 390. The current market price of Hexaware Technologies Ltd. is Rs 391.9. The time period given by the brokerage is a year when Hexaware Technologies Ltd. price can reach defined target.
Hexaware Technologies Ltd., incorporated in 1992, is a mid-cap company with a market cap of Rs 11499.59 crore.

Investment Rationale by Motilal Oswal
Valuation view: Steep multiples drive downgrade: HEXW’s CMP discounts forward earnings by 20x. Our CY17-19 USD revenue/earnings CAGR stands at 13/12.6%. We see following challenges to sustenance of valuations at current levels:


[1] HEXW plans to grow revenue in ‘teens’ while retaining current profitability. If achieved, this will be a healthy performance, but, in our view, does not warrant a multiple in excess of the peer group (comprising the likes of TCS, MTCL and LTI).

[2] The company may not benefit as much as peers in the near term from a depreciating INR, given that it is heavily hedged. Management confirmed the same via its CY18 commentary of EPS growth mirroring revenue growth irrespective of currency.

[3] Dividend yield, which was elevated in earlier years, is now below 2% for payout of INR8/share in CY18. Our price target for HEXW is INR390 (14% downside), which discounts forward earnings by 17x. We would ascribe a higher multiple for a much higher growth rate in revenue and earnings than current expectations. Therefore, we are downgrading our rating to Sell.