Hexaware Technologies Limited — Q1 FY26 earnings call

Call held 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

  • 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

  • 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

3 periods

Headline

  • 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 sequential bps
    QoQ +1.1%
  • DSO
    73 days
    QoQ -2.7%

Q2

  • ETR
    19%

LTM

  • OCF to EBITDA
    76%

What they filed

Q1 FY27: revenue up 17.9%, net profit down 13.2% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue3,136 3,154 3,208 3,261 3,484 +11%3,478 +10%3,613 +13%3,845 +18%
EBITDA491 490 528 404 601 +22%378 −23%571 +8%605 +50%
Net profit300 321 327 380 370 +23%292 −9%352 +8%330 −13%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

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

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

high confidence
  • M&A SMC Acquisition · Closed

    To address the growing Global Capability Center (GCC) market in India (expected to grow from 1,700 to 2,700 in 4-5 years), leverage SMC's specialization in setting up GCCs, and bring Hexaware's transformation capabilities to deepen customer relationships. Also, to expand into other regions like East Europe, Southern Europe, or LATAM.

    EPS accretive on day one. Expected to grow significantly with Hexaware's combination.

    The most important event for us from a business perspective was the acquisition of SMC. I will talk to the strategic rationale behind it in a few minutes.
  • Liquidity Liquidity disclosed The company maintains a solid cash balance.
    As always, we have a solid cash balance.

Guidance & targets

Profitability

  • Reported EBITDA Margin Profitability · Full Year · High confidence 17.1%-17.4%
    On profitability, we've said that we will get to a 17.1%-17.4% range on reported EBITDA. We are right there.

    — R Srikrishna

Tax Rate

  • Effective Tax Rate (ETR) Tax Rate · Full Year · High confidence 24%
    With this, we estimate that our full year ETR for the year is going to be at 24%.

    — Vikash Jain

Cash Flow

  • Operating Cash Flow (OCF) to EBITDA Cash Flow · LTM · High confidence >70%
    Our cash conversion continues to be very strong. On an LTM basis, the OCF to EBITDA is at 76%, higher than the target that we have set for ourselves at 70%, so we'll continue to work in terms of continuing to deliver 70% plus on an LTM basis on OCF to EBITDA.

    — Vikash Jain

Operational Efficiency

  • Utilization Rate Operational Efficiency · Full Forward Basis · High confidence 83%-84%
    We expect the utilization to be range bound within 83%-84% on a full forward basis. That's the level what we had even spoken about in the past that we feel comfortable that we can take our utilization up to 84%.

    — Vikash Jain

Revenue

  • Long-term Revenue Ambition Revenue · Calendar '29 · High confidence $3 billion
    What that means long term is that our ambition for $3 billion in calendar '29 remains unchanged.

    — R Srikrishna

Headcount

  • Gross Headcount Addition Headcount · Annual · High confidence 1,500 - 1,800 people
    One, on headcount, our gross headcount addition in IT. We had said we'll hire between 1,500 - 1,800 people. We're actually well in that range, actually in the upper end or higher than the upper end of that range in Q2.

    — R Srikrishna

What to watch in Q2 FY26

Macroeconomic Stabilization

next quarter
Current Continued softness, delayed decision-making
Target Stabilization, 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

  • Macroeconomic Headwinds

    high

    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

  • Client Spend Cuts

    medium

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

    Management acknowledged

  • ERP Costs Continuing Longer Than Expected

    medium

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

    Management acknowledged

  • Legal Dispute and Provision

    low

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

    Management acknowledged

Q&A highlights

6 direct
Outlook on Financial Services (FS) and GSE accounts Direct
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

Overall growth outlook and return to double-digit growth Partial
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.

Links the company's growth trajectory directly to macro stabilization and specific external events, indicating uncertainty for the return to double-digit growth.

Asked by Ankur Rudra

Underlying margins excluding one-time items Direct
The underlying margin, like we said, is stronger. If you look at the cost, the biggest line item of cost is the provision in our caution; for a client who's acting in bad faith, we are in a legal process. That's the biggest element. The second biggest element is restructuring cost, which I think will have a ROI very rapidly.

Provides clarity on the core operational profitability, separating it from one-time charges and highlighting positive drivers like offshore mix, utilization, and attrition.

Asked by Ankur Rudra

Q3 and Q4 growth outlook given revised expectations Partial
In some ways, it's a bit of a sliding scale. The sliding scale start depends on when some of these deals decide. But having said that, just basis what we already have, I think Q3 will still grow—grow reasonably well. I'll even say maybe QoQ CC better than what we grew in Q2. That is without assuming that some large stuff can happen.

Offers a revised, more conservative outlook for the near-term growth, indicating that Q3 will be better than Q2 but not as strong as previously anticipated, with Q4 dependent on pipeline conversion.

Asked by Prateek Maheshwari

ERP cost tapering and benefits from restructuring Direct
On the ERP, we are doing it on a phased basis... Hopefully by the end of this year, we would have gone live by almost all the modules. That's our target. ... On the restructuring cost, we can't quantify the exact number in terms of how much will come in Q3 and Q4 because we have agreed on a program which has been with the workers' council. That needs to be now on an individual by individual basis, executed with the team. I think the full benefit of that will start accruing from Q4 end or beginning of Q1 from next year's perspective.

Clarifies the timeline for ERP cost reduction and the expected accrual of benefits from the restructuring program, which are key to future margin improvement.

Asked by Prateek Maheshwari

Rationale for SMC acquisition (build vs. buy) Direct
We think setting up of GCCs is different from an outsourcer agreeing to do a BOT model. That's the most fundamental reason why we think this is a capability. ... Customers want firms who they see as specialists in setting it up. They will not present firms that don't present a conflict through the process in how they hire people, what salaries they pay them, how they brand the site, resistance, potentially at the end of it for transferring.

Explains the strategic value of the SMC acquisition beyond just financial accretion, highlighting a unique capability and market positioning that Hexaware gains.

Asked by Prateek Maheshwari

Impact of consolidation deals on margins and slower ramp-ups Direct
The first one, the two bigger consolidation deals we won, I think they're largely going both as per plan. It's true that part of confidence or lot of confidence came from the fact that some were in bag, but certainly there is expectation of more wins, especially when you have such a solid pipeline. ... The second part, will some of these deals require some sacrifice in margins? If that is what it takes, we will happily do so.

Addresses concerns about deal execution speed and potential margin pressure from large deals, indicating a willingness to prioritize strategic wins even if it means short-term margin impact.

Asked by Manik Taneja

Nature of $9 million client provision and future provisions Direct
Associated with this client, there won't be any provision. In addition to that, on a quarterly basis, we continue to evaluate the creditworthiness of all the outstandings that we have in the books and make a generic provision or a specific provision which is required, which is BAU, so nothing out of the ordinary, but specific to this client that has no further outstanding in the books to be provided.

Clarifies that the significant $9 million provision is a one-time event for a specific client and not indicative of broader, ongoing credit issues beyond normal business practices.

Asked by Anmol Garg

2 min read 6 chapters

Detailed narrative

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%.

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.

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.

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%.

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%).

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.

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