Hexaware share price plunges 9% post Q1; why you should still hold

Hexaware share price tanked a whopping 9 per cent on Wednesday even as the mid-sized IT services firm posted 25.4 per cent rise in consolidated net profit to Rs 153.6 crore for the quarter ended June 30, in-line with Street expectations. The company's net profit stood at Rs 122.4 crore in the same quarter last year, Hexaware said in a statement.

Reacting to its numbers, Hexaware plunged as much as 8.96 per cent to Rs 452 on the BSE. 

Brokerage Reliance Securities believes Hexaware Technologies (Hexaware) has reported an in-line revenue performance in Q2CY18, aided by healthy revenue performance in Insurance & Healthcare, MFG & Consumer and Professional Services verticals. However, it acknowledged growth has been slowing. 

"Hexaware’s differentiated business strategy appears to be playing out well, as is evident from outperformance of the stock over the past year vs. broader market. However, growth has been slowing down over the past few quarters owing to client-specific issues. In light of slowing growth, we believe current valuation at 25.3x/21.9x CY18E/CY19E EPS is not inexpensive," said Reliance Securities. 

"Upwardly revising our EPS estimates by 2-8% for CY19E and CY20E and target PE multiple to 18x (from 16x earlier) and incorporating a higher INR-USD rate of 67.50 (from 65 earlier), we maintain our REDUCE recommendation on the stock with a revised Target Price of Rs 410 from Rs 340 earlier," it added.

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Brokerage HDFC Securities maintained its positive stance on Hexaware based on continuity in IMS/BPM (automation-led) growth leadership, trong deal momentum, stable outlook of top accounts (growth accelerating), cross-sell opportunity from Barings’ portfolio, and recovery in NorthAm and APAC (service-line and vertical expansion) ahead.

The brokerage has a BUY rating on the stock with target price of Rs 545, at 22x (20x earlier) Mar-20E EPS. Strong growth visibility and >38 per cent RoIC will support valuations, it said.