From the Research Desk

Hexaware Technologies Ltd. Result Update for Q4 CY06

Hexaware delivered decent performance in the quarter with revenues growing 6.8% qoq and earnings de-growing 2.7% qoq marred by the impact of sharp rupee appreciation. The Dollar revenue growth of 10.7% qoq was impressive in the quarter. For the full year CY06, revenue and profit growth stood strong at 39.9% and 99% respectively excluding PeopleSoft ISC. Company has entered CY07 with a strong order book of ~US$170mn (for the year) and confidence of doubling its operations over the next 8-10 quarters. FocusFrame integration is running ahead of schedule and is expected to complete by end CY07. Management has issued a guidance of a robust topline growth and subdued bottomline growth in Q1 CY07.

Outlook

Based on the company’s broad guidance for CY07, it is likely to post an EPS of about Rs12.4, which discounts CMP Rs174 at 14x. Being a reasonably large and old mid-cap IT company with good management, the current valuations appear attractive to us. Valuing Hexaware at the higher-end (due to CY ending unlike peers) of the one-year forward peer P/E band of 15-19x, we arrive at a 10-12 month target price of Rs224 representing 29% upside