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    Hexaware Technologies Limited

    HEXT
    Information Technology·25 Jul 2025
    Management Summary

    Hexaware Technologies reported a Q2 CY25 with softer-than-anticipated revenue growth of 8.6% YoY, primarily due to delayed customer decision-making and macro headwinds. Despite this, EBITDA grew 19.4% YoY, and the company maintained its full-year EBITDA margin guidance of 17.1%-17.4%, supported by improved operational metrics like utilization and offshore mix. The strategic acquisition of SMC is expected to be EPS accretive and capitalize on the growing GCC market, while the long-term growth ambition of $3 billion by CY29 remains unchanged.

    Highlights

    6

    • YoY revenue growth of 8.6%, with five out of six verticals delivering YoY growth.

    • EBITDA grew solidly at 19.4% YoY, and EPS grew even faster.

    • Operational performance improved with utilization at 83.7% (up 160 bps sequentially) and offshore mix improving by 110 bps sequentially.

    • Ranked number one in 2025 Whitelane Research for UK and Ireland.

    • SMC acquisition is EPS accretive on day one and strategically positions Hexaware in the growing GCC market.

    • OCF to EBITDA at 76% on LTM basis, exceeding the target of 70%.

    Concerns

    5

    • Q2 revenue performance was softer than anticipated due to delayed decision-making from customers.

    • Lower expectations for the remainder of the year due to macro uncertainties (tariffs, geopolitics) and continued softness.

    • One-time charges of 15 bps impacted EBITDA, including a $9 million legal provision, $3.8 million restructuring expense, and $1.5 million M&A diligence costs.

    • Manufacturing & Consumer (M&C) vertical experienced negative growth due to macro impacts.

    • ERP costs are continuing longer than expected, though tapering, impacting profitability.

    Key financials

    Metrics

    8

    Periods

    3

    Headline

    6
    • Revenue Growth
      8.6%
      YoY+8.6%
    • EBITDA Growth
      19.4%
      YoY+19.4%
    • EBITDA Margin
      17.2%
      QoQ+0.5%
    • Utilization Rate
      83.7%
      QoQ+1.6%
    • Offshore Mix Improvement
      0.011 bps
      QoQ+1.1%

    Q2

    1
    • ETR
      19%

    LTM

    1
    • OCF to EBITDA
      76%

    Segment breakdown

    IT Business
    9% Growth Rate
    BPS Business
    4.7% Growth Rate
    Financial Services (FS)
    very strong qualitative YoY Growth
    Banking
    13.5% Sequential Growth
    Manufacturing & Consumer (M&C)
    negative qualitative Growth
    Healthcare & Insurance (H&I) and High-Tech & Professional Services (HTPS)
    marginally below company average qualitative Growth
    List

    Order Book

    medium confidence

    Pipeline

    deal pipeline tcv

    Pipeline is rapidly growing, including four mega consolidation deals still in the works.

    "The long-term revenue outlook remains solid due to a strong pipeline, recent wins, and progress on strategic initiatives, despite delayed decision-making on mega consolidation deals."

    Source:
    Prepared remarks

    Capital allocation

    2
    high confidence
    CategoryHeadline
    M&A

    SMC

    acquisition · closed

    Liquidity

    Liquidity disclosed

    The company maintains a solid cash balance.

    Guidance & targets

    6
    CategoryTargetPriority
    Profitability
    Reported EBITDA Margin
    17.1%-17.4%
    		High
    Tax Rate
    Effective Tax Rate (ETR)
    24%
    		High
    Cash Flow
    Operating Cash Flow (OCF) to EBITDA
    >70%
    		High
    Operational Efficiency
    Utilization Rate
    83%-84%
    		High
    Revenue
    Long-term Revenue Ambition
    $3 billion
    		High
    Headcount
    Gross Headcount Addition
    1,500 - 1,800 people
    		High

    What to watch in Q2 FY26

    5

    Macroeconomic Stabilization

    next quarter
    CurrentContinued softness, delayed decision-making
    TargetStabilization, lifting of uncertainty, improved decision-making

    Why it matters

    Macroeconomic conditions are a key driver for customer decision-making and overall revenue growth, impacting the company's ability to achieve its growth targets.

    It's hard to predict📌 where macro will go. If there's already one trade deal that got announced that's one set, I think if there is more that happen in the next 2 weeks, which is the deadline that the administration has set, I think we will see uncertainty lifting quite a bit. It could be pretty quick.

    Risks & concerns

    4
    RiskSeverity

    Macroeconomic Headwinds

    Continued softness in macros, tariffs, geopolitics, and trade barriers are leading to delayed decision-making from customers and lower growth expectations for the year. — Management acknowledged

    high

    Client Spend Cuts

    One large client in the FS vertical reduced spend, impacting sequential growth, though this was factored into the outlook. — Management acknowledged

    medium

    ERP Costs Continuing Longer Than Expected

    ERP implementation costs are tapering but continuing beyond initial expectations, though operational improvements are offsetting their impact on full-year margin guidance. — Management acknowledged

    medium

    Legal Dispute and Provision

    A $9 million provision was taken for a European client involved in a legal dispute, representing a one-time charge. — Management acknowledged

    low

    Q&A highlights

    8

    “Two things. One, we already called out the negative. We said we don't expect further negatives, and that's been true. Second thing we said that one of them is undertaking a large consolidation deal. That hasn't progressed as fast as we thought it will, but what we know now, or recently, is that actually they have suddenly pushed the pedal on that.”

    Clarifies the impact of prior client spend cuts and indicates progress on a large consolidation deal in FS, which is a key vertical.

    asked by Ankur Rudra

    2 min read6 chapters

    Detailed Narrative

    01

    Q2 CY25 Performance and Outlook

    Hexaware's Q2 CY25 revenue performance was softer than anticipated, primarily due to delayed decision-making from customers, leading to slightly lower expectations for the remainder of the year. Despite this, the company's reported EBITDA grew solidly at 19.4% YoY, with EPS growing even faster. The company remains confident in its long-term growth trajectory and maintains its full-year reported EBITDA margin guidance of 17.1%-17.4%.

    02

    Strategic Initiatives and Client Wins

    The company made significant progress on strategic initiatives, including launching a new AI-based software engineering offering and advancing legacy modernization with two paid RapidX customers. Key wins included Amaze-based app modernization for a global healthcare company and a top five global bank, as well as AI-driven product development for a large US Fintech firm. Hexaware also expanded its customer experience centers, opening a new one in Chicago.

    03

    SMC Acquisition and GCC Market Opportunity

    A major event was the acquisition of SMC in July, which is expected to be EPS accretive from day one. This acquisition strategically positions Hexaware to address the growing Global Capability Center (GCC) market in India, projected to increase from 1,700 to 2,700 over the next 4-5 years. SMC's specialization in setting up GCCs is seen as a distinct capability that complements Hexaware's transformation expertise, allowing the company to capture a market segment not typically served by traditional outsourcing firms.

    04

    Operational Efficiency and Margin Management

    Hexaware demonstrated strong operational performance, with a 50 bps sequential improvement in reported margins. This was driven by a 160 bps sequential improvement in utilization to 83.7% and a 110 bps sequential improvement in offshore mix. Despite one-time📎 charges totaling 15 bps (including a $9 million legal provision and $3.8 million restructuring expense), the company's full-year EBITDA margin target of 17.1%-17.4% remains on track. The Operating Cash Flow (OCF) to EBITDA on an LTM basis was 76%, exceeding the target of 70%.

    05

    Vertical and Geographic Performance

    Five out of six verticals showed YoY growth, with Financial Services (FS) demonstrating very strong growth and Banking recovering sharply with 13.5% sequential growth. However, the Manufacturing & Consumer (M&C) vertical experienced negative growth due to macro uncertainties. All geographies saw sequential growth, and the IT business grew at a faster pace (close to 9%) compared to the BPS business (4.7%).

    06

    Macroeconomic Outlook and Growth Trajectory

    Management acknowledged continued macro softness🌐, tariffs, and geopolitics as factors contributing to delayed decision-making and a softer Q2. While Q3 is expected to show better sequential growth than Q2, it will be lower than earlier anticipated. The company's long-term ambition of achieving $3 billion in revenue by calendar '29 remains unchanged, supported by a solid pipeline and ongoing strategic initiatives, with confidence that macro improvements will accelerate growth.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.