Hexaware Technologies Limited reported Q1 CY25 results with a flattish quarter-on-quarter performance but solid 12.4% year-on-year growth in reporting currency (12.7% in constant currency). INR growth was 16.5% year-on-year.
Q1 performance was impacted by revenue headwinds exceeding 100 basis points from planned client work movement offshore and a delayed program start.
EBITDA margin improved by 40 basis points sequentially to 16.7% in Q1, driven by improved offshore mix and operational benefits. Absolute EBITDA grew 20% year-on-year.
Net profit improvement was moderated by an increased ETR of 25% in Q1 (vs 23% in Q4 CY24). Full year ETR guidance is approximately 26%.
The company ended the quarter with a healthy cash balance of $225 million.
Hexaware declared a dividend of $5.75 per share post-quarter close, totaling a $40 million payout.
Operational highlights include a 200 basis point sequential improvement in offshore mix, a slight increase in IT headcount (net headcount reduced due to BPS), stable attrition at 11.2%, improved utilization, and a DSO of 75 days (expected to return to 70-72 target by year-end).
Strategic investments were made in expanding facilities in Dehradun and Hyderabad, and opening customer experience centers in New Jersey and London.
Key wins include entry into a transnational bank's restricted vendor list (potential $200 million per annum bidding pool), lead implementer role for SAP co-transformation at a European bank, app modernization work with a large global bank, GenAI app platform work for a legal firm, airline industry's new standard implementation, work with another top 10 global legal firm, app/legacy modernization for a healthcare division, and strategic supplier status with a large pet insurance company.
Updates on large consolidation opportunities: A previously won deal execution was delayed but has started (expected $20-30 million per annum incremental revenue from Q2). A GSC client experienced a sharp ramp down (approx 1% of company revenue impact) effective immediately, but management intends to consolidate vendors where Hexaware is the largest and sees potential large upsides. Two other very large consolidation opportunities are in the pipeline.
Outlook for 2025: While not providing formal guidance, the company expects underlying Q2 performance to be strong, but near-term headwinds will make it a 'good' quarter instead of 'great'. Accelerated growth is expected in Q3, and sequential growth is anticipated in Q4, bucking the usual trend.
Plans to hire 1800-2000 IT people in Q2.
Vertical outlook: Banking & Financial Services expected to lead growth (Banking specifically expected sharp QonQ growth from Q2), TNT/HTPS/HNI at company average, and MLC expected to face significant weakness.
Full year EBITDA margin guidance of 17.1% to 17.4% was reiterated, with a focus on growth over immediate profit maximization. ERP costs will be a tailwind from the end of Q2.
Management expressed confidence in achieving the medium-term goal of $3 billion revenue by CY2029, driven by strategic accelerators.
Commented on reshoring (potential opportunity) and the USD bond refinancing (good options available).
Announced plans to split High-tech and Professional Services into distinct verticals.