Hexaware Q2 Results: Profit Up 38% – Misses Estimates
Hexaware’s Profit Misses Expectations Amidst Rising Costs and Subdued Revenue Guidance
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Mumbai, India – [Date of Publication] – Hexaware Technologies reported a disappointing financial quarter, with profits falling short of market expectations primarily due to a notable increase in “other expenses,” including acquisition-related costs and customer contract impairments stemming from a previous acquisition. The IT services firm also issued a cautious revenue outlook for the upcoming year, signaling potential headwinds in the global economic landscape.
Q2 Performance: Revenue Growth Trails Estimates, Profit Hit by Expenses
Hexaware, which operates on a January-December financial calendar, posted a Q2 revenue of Rs 3,260 crore. This represents an 11.1% year-on-year increase and a 1.6% sequential rise in constant currency terms. though, this performance lagged behind analyst estimates, with revenue in constant currency standing at $382.1 million, marking a 1.3% sequential growth and a 7.5% increase from the previous year.
The company’s revenue growth during the quarter was adversely affected by a downturn in its manufacturing and consumer segments,alongside flat growth in the crucial financial services sector.
Key Financial Highlights:
Profitability: Profitability was impacted by a more than 20% surge in other expenses.
Revenue: Q2 revenue of Rs 3,260 crore,up 11.1% YoY and 1.6% sequentially in constant currency.
Constant Currency Revenue: $382.1 million, up 1.3% sequentially and 7.5% YoY.
Segment Performance: Decline in manufacturing and consumer segments, flat growth in financial services.
Muted Revenue Guidance and macroeconomic Concerns
Looking ahead, hexaware’s management has signaled a more conservative revenue forecast for the year. R.Srikrishna, CEO of Hexaware, acknowledged that growth expectations have been recalibrated downwards as the beginning of Q2.
“Our growth expectations for the year are a little bit lower now than it was in the beginning of Q2,” Srikrishna stated in an interview. He cited a mixed global economic environment, with “lots of new promises of higher tariffs against multiple countries” posing a negative influence. Conversely, he noted the positive impact of recently announced trade deals with smaller nations and the potential for more such agreements in the near future.
The subdued outlook and earnings declaration led to a sharp decline in Hexaware’s share price, with the stock closing 10.7% lower at Rs 738.25, underperforming the broader BSE Sensex which saw a marginal 0.88% dip.
Management Commentary on Market conditions:
Macro Environment: Hexaware management highlighted “softness and cyclicality” in the macro environment.
Deal Pipeline: While large consolidation deals are progressing, decision-making for small and mid-sized deals has slowed, contributing to lowered expectations.
* Geographical Performance: Europe demonstrated growth both year-on-year and sequentially. Asia Pacific, though, experienced a year-on-year decline and only marginal sequential growth. Srikrishna expressed optimism for the long-term prospects of Asia Pacific, anticipating occasional “blips.”
Strategic Acquisitions and Margin Advancement
Despite the prevailing challenges, Hexaware continues to pursue strategic growth initiatives. The company recently acquired Bengaluru-based SMC Squared for $120 million (approximately Rs 1,038 crore) in an all-cash transaction.This acquisition is anticipated to contribute positively to revenue growth in the upcoming two quarters.
In terms of profitability, Hexaware reported an improvement in its adjusted margin, which rose to 18.1% from 17.1% in the previous quarter.Though, the full-year margin guidance has been set between 17.1% and 17.4%.
The company expects the banking sector to remain a key driver of sequential growth, notwithstanding a one-off dip in Q1 that will influence the full-year financial services performance. Regarding the manufacturing sector, Srikrishna noted that customers are awaiting greater clarity on costs before making investment decisions, a process that typically takes several weeks to translate into actionable plans.
Hexaware’s strategic focus on expanding its presence in the Middle East and leveraging its recent acquisition in India to serve Global Capability Center (GCC) customers underscores its commitment to navigating the current economic landscape and positioning for future growth.