Hexaware Tech rises on likely US rate cut, weak rupee

ET Intelligence Group: The stock of Hexaware Technologies has gained over 5% in seven trading sessions since September 05 compared with the 3% gain in the ET Infotech index. A weaker rupee and an expected interest rate cut by the US Federal reserves, which may prompt the US clients to increase technology spending have lifted investors’ interest in IT stocks. The uptick has also reduced the three-month loss in Hexaware’s stock price to 9%. Analysts have retained ‘buy’ rating on the stock highlighting the margin improvement and tapering pressure on larger client accounts.

Hexaware is a mid-tier global IT services company with full-year revenue of $1.4 billion (₹11,974 crore) in 2024, offering services in banking, financial services, healthcare, manufacturing and travel verticals. The US is its largest market contributing over three-fourth to the top line followed by Europe, which contributes 20%.

The company’s sequential revenue growth in constant currency (CC) was modest at 1.3% in the June quarter due to reduction in spending by one of its large clients. Barring the manufacturing and consumer (M&C) vertical, other major verticals reported sequential revenue growth. According to the company management, M&C’s performance was affected by macroeconomic factors including tariff uncertainties which delayed decision making by clients. It expects the situation to improve gradually in the coming quarters. The banking vertical, which contributed 8% to revenue in the June quarter, reported a strong sequential growth of 13.8% reflecting strong momentum.

The company has been taking efforts to improve the proportion of offshore revenue thereby supporting the overall profitability. In the June quarter, the share of offshore services increased by 110 basis points sequentially and 290 basis points year-on-year to 46.7%. The employee utilisation has also been on the rise. It increased by 160 basis points and 130 basis points to 83.7% by similar comparison. Unlike some of the larger peers, the company’s employee attrition remained well under control. It fell marginally by 10 basis points to 11.1% in the June quarter from the previous quarter.

These factors augur well for the company’s margin profile. The operating margin before depreciation and amortisation (Ebitda margin) expanded by 70 basis points sequentially and 160 basis points year-on-year to 17.3%. The company is expected to meet the guidance of 17.1-17.4% margin for the current year.

Analysts have reduced the growth estimates given the client delays while retaining buy rating on the stock. JM Financial Services has cut the CC revenue growth forecast to 7% for 2026 from 9%.