rewrite this title and make it good for SEOHexaware Technologies Q2 Results: Profit jumps 38% YoY to Rs 380 crore but misses estimates

Carlyle-backed Hexaware Technologies reported a 38% on-year rise in June quarter net profit in rupee terms at Rs 380 crore. Profit rose 16% sequentially.

Profit trailed expectations, largely due to a more than 20% increase in other expenses such as acquisition-related cost, and impairment of customer contract associated with an earlier acquisition.

Hexaware issued a muted revenue guidance for the year ahead. The company follows a January to December financial year.

Unlike its mid-tier peers, Hexaware’s Q2 revenue was relatively subdued at Rs 3,260 crore, rising 11.1% on-year and 1.6% sequentially in constant currency terms, lagging Street estimates. In constant currency terms, revenue stood at $382.1 million, growing 1.3% sequentially and 7.5% from a year ago.

During the quarter, revenue growth was impacted by decline in manufacturing and consumer segments, and flat growth in financial services.

“Our growth expectations for the year are a little bit lower now than it was in the beginning of Q2,” R. Srikrishna, CEO, Hexaware told ET.“With lots of new promises of higher tariffs against multiple countries…that’s on the negative side. On the positive side, some trade deals have been announced with some smaller countries and there could be a slew of them in the next few weeks,” he added.Shares of Hexaware fell sharply on the earnings announcement. They closed 10.7% lower at Rs 738.25 apiece, underperforming a 0.88% decline in the benchmark BSE Sensex.

The Hexaware management said there is softness and cyclicality in the macro environment, and that all large consolidation deals are continuing.

“Small and mid-sized deals are progressing well. However, decision making is slowed. Consequently, lowered expectations for the rest of the year,” the company said.

Geographically, Europe witnessed growth both on-year and sequentially, but Asia Pacific witnessed a decline from a year ago, and marginal growth from the March quarter.

“There will be one or two quarters which will have blips (in Asia Pacific) but long-term, in general, it will be positive,” said Srikrishna. “In India, we made an acquisition to serve GCC (global capability centre) customers here. In the Middle East, we continue to have a strong pipeline and expect to convert in Q3 and grow revenues in Q4.”

This month, Hexaware acquired Bengaluru-based SMC Squared for $120 million (about Rs 1,038 crore) in an all-cash deal, which is expected to add revenue growth in the coming two quarters.

While adjusted margin improved to 18.1%, up from 17.1% in the March quarter, its full-year margin guidance stood at 17.1–17.4%.

The company expects banking to continue to deliver better sequential growth despite a one-off degrowth in Q1 which will impact financial services for the full year.

“On manufacturing, customers are waiting for clarity on costs. Once that happens, it takes a few weeks to translate that into what it means for them,” Srikrishna said.