Hexaware deal ramp-ups and AI engagements support stronger CY27 growth outlook

Investment View and Core Thesis

Motilal Oswal Financial Services retains a Buy rating on Hexaware Technologies with a target price of Rs 660. The broker believes that the reduction in CY26 revenue-growth guidance reflects deferred deal ramp-ups rather than lost demand. Delayed ramps from late 3QCY26 into 4QCY26, healthy momentum in large modernisation deals, and strength in banking, healthcare and manufacturing are expected to support a stronger CY26 exit and high-single-digit to double-digit growth in CY27, assuming macro conditions remain stable.

2QCY26 Financial Performance

Hexaware reported 2QCY26 revenue of USD 405 million, up 4.4% quarter on quarter in constant currency, slightly below Motilal Oswal's 4.8% estimate. Revenue growth was supported by approximately USD 9 million of underlying volume growth and about USD 5 million of calendar and billing-day benefit.

Adjusted EBIT margin was 13.6%, broadly in line with the broker's 13.5% estimate and around 60 basis points higher quarter on quarter. FX and calendar effects contributed about 160 basis points, while improved utilisation added around 30 basis points. These benefits were partly offset by seasonal and event costs of around 70 basis points and hiring investment of around 50 basis points.

Adjusted PAT was Rs 3,300 million, down 6.1% quarter on quarter and 13% year on year, below Motilal Oswal's Rs 3,800 million estimate. Hedge and translation losses of about USD 8 million muted earnings growth. Management expects approximately USD 5 million of these losses to unwind in 3QCY26 and USD 3 million in 4QCY26. The effective tax rate was 25.1%, within the guided 25-26% range.

CY26 Guidance and Operating Metrics

Management narrowed CY26 revenue-growth guidance to 6-7% from about 7.6% previously, including around 50 basis points from the CPE rebadging deal. The revision was attributed to delayed implementation of earlier wins and worsening conditions in Travel and Transportation, particularly in the Middle East.

Hexaware retained its 13-14% CY26 EBIT-margin guidance. Management expects utilisation to remain healthy, while operating leverage from delayed ramps should help offset continued hiring and AI-capability investment. Headcount rose 2.1% quarter on quarter to 34,506, including net additions of 708. IT utilisation increased 220 basis points to 84.8%, while LTM attrition rose 10 basis points to 11.2%. The board approved an interim dividend of Rs 8.5 per share.

AI-Led Growth Opportunities

The broker identifies AI-led opportunities as an additional growth driver. Hexaware is launching one AI service each month, has formed AI champion squads, and is building its zero-license platform across 65 SaaS partners.

Management said 13 of its top 20 clients have completed vendor consolidation over the previous five quarters, largely driven by AI. This may create growth optionality as these accounts enter a more stable post-consolidation phase. The company is also piloting input-, output- and outcome-based AI pricing, as clients increasingly assess token costs alongside labour costs.

DSO was elevated due to an ERP-transition-related invoicing blackout but is expected to normalise to 70-75 days by year-end. LTM operating cash flow to PAT remained about 125%.

Broker Estimates and Valuation

The target price is based on 23 times CY27E EPS.

Key Risks to the Thesis

• Further delays in deal ramp-ups.
• Persistent weakness in Travel and Transportation.
• A weaker macroeconomic environment.
• Hiring and AI investments not being offset by operating leverage.