Hexaware’s Profits Rise; Outlook Positive For The Next Quarter

In its results for the quarter ending June 30, 2013 (Q2 2013), Hexaware has reported a robust financial performance and a strong deal pipeline.

During the period, the company’s revenues touched USD 94.8 million, up 0.8% from that in Q1 2013. In rupee terms, the revenue growth stood at 5.7% (Rs 536 crore) and in constant currency terms, at 1.1% (USD 95.1 million).

On a sequential basis, its volume grew by 1.5%. In terms of pricing, onsite pricing declined by 0.79% to USD 73.06 per hour while offshore pricing grew by 0.13% to USD 23.4 per hour. Thus, growth in revenues has been moderate in the quarter under review.

On the profitability front, Hexaware’s performance was outstanding. In Q2 2013, the company’s EBIT increased sequentially by 33.1% to Rs 117.9 crore. This translates into an expansion of 460 basis points in its EBIT margin, which came in at 22%. The improvement was mainly because of a 10% decline in selling, general and administration expenses.

Its net profit also increased by 23.5% to Rs 97.9 crore, which took its net profit margin up 260 basis points to 18.2%. The margin expansion was smaller as compared to the rise in the operating profit margins, as the company witnessed a foreign exchange loss of Rs 4 crore in Q2 2013 against a gain of Rs 2.3 crore in Q1 2013.

Hexaware added 30 employees during the quarter, taking its total headcount to 8700. It witnessed stable utilisation at 70.9%. The company is planning to raise the wages of its offshore employees by 10% in a staggered manner over the next quarter. This is likely to impact its Q3 2013 margins by 100 basis points.

The performance on the client front also looks impressive, with 14 new clients added as compared to 11 in Q1 2013. This took the total number of active clients in Q2 2013 to 219. The company is currently pursuing four large deals – over USD 25 million. It is expected to close one deal each in the US and in Europe in the next two quarters.

With the order pipeline looking strong, expectations of stable pricing and equivalent growth from the US and Europe, Hexaware has provided a guidance of 3.5-5.5% growth in Q3 2013. Moreover, it has also expressed the hope of announcing an acquisition in early 2014. These factors add up to create a positive outlook for the company’s performance in the future.