Hexaware: Defying logic

Shobhana Subramanian & Varun Sharma / Mumbai February 13, 2009, 0:59 IST

Going by the $50 million of cash on its balance sheet, the Street believes that Hexaware Technologies might buy back its shares. That, together with news of a possible stake sale to another firm, were the reasons attributed to the stock’s intra-day surge of over 100 per cent — it finally closed Thursday’s trading session 65.6 per cent higher at Rs 33.30. Over the past year, the stock had lost 71 per cent of its value and it is disconcerting to see such dramatic movements in stock prices just before the announcement of the company’s results, scheduled for February 16, 2009.

The promoter and executive chairman says he has not pledged any shares, nor has he sold any part of his stake in the past two years. He now holds a 23.58 per cent stake, which is lower than the 35.16 per cent held in December 2004.

With 40 per cent of revenues derived from the BFSI space, it’s not that Hexaware is expected to turn in very strong numbers. Over the past five years, revenues have grown a compounded 32 per cent, but despite a weak rupee, revenues were up just 8.4 per cent in the nine months to September 2008. Weak operating margins, down 390 basis points at 8 per cent dragged down the adjusted net profit by 52 per cent in the January- September 2008 period to Rs 420 crore.
Although it added 66 new clients in 2007, in 2008 so far there have been just 25 additions and Hexaware’s sales for the December 2008 quarter should be lower than the $ 66.3 million earned in the September 2008 quarter.

Even Patni Computers, a much bigger competitor,didn’t fare too well in 2008 though the weaker rupee helped it post a 33 per cent rise in revenues to Rs 3,492 crore. Despite that Patni’s operating profit margins fell sharply by 730 basis points to 10.6 per cent while the net profit was up just 10 per cent to Rs 493 crore, including a forex loss of Rs 89 crore.