Hexaware Technologies Limited — Q4 FY25 earnings call

Call held 30 Apr 2025

Management summary

Hexaware Technologies reported a flattish Q1 CY25 QoQ, but achieved solid YoY growth of 2.5% in constant currency and 16.5% in INR. Profitability metrics showed improvement, with EBITDA at 16.7% and EPS up 16.7% YoY. The company highlighted strong progress in legacy modernization with a robust pipeline and strategic investments in new geographies, despite facing headwinds from client-specific ramp-downs and delays, and continued weakness in the MNC vertical.

Highlights

  • YoY revenue growth of roughly 2.5% in constant currency and 16.5% in INR terms.

  • EBITDA improved to 16.7% from the prior quarter, with absolute EBITDA up 20% YoY.

  • EPS increased by 16.7% YoY.

  • Healthy closing cash balance of $225 million, completely credit-free.

  • Strong pipeline for legacy modernization (RapidX) with shy of 40 clients in the POC process, indicating future growth potential.

Concerns

  • Flattish QoQ revenue growth in Q1 CY25.

  • Revenue headwind of over 100 bps due to two clients moving work offshore and one delayed program.

  • MNC vertical continues to face headwinds, delayed decision making, and subdued spend.

  • A sharp ramp-down from one GSE client will account for roughly 1% of company revenue.

  • Days Sales Outstanding (DSO) at 75 days, marginally higher than the target of 70-72 days.

Key financials

2 periods

Headline

  • Revenue Growth (CC)
    2.5%
    YoY +2.5%
  • Revenue Growth (INR)
    16.5%
    YoY +16.5%
  • EBITDA Margin
    16.7%
  • EPS Growth
    16.7%
    YoY +16.7%
  • ETR (Current Quarter)
    25%
  • DSO
    75 days

LTM Q1

  • OCF to EBITDA
    67%

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.

Order book

medium confidence

Pipeline

deal pipeline tcv

Shy of 40 clients in the pipeline for legacy modernization (RapidX) in POC process. Also pursuing two very large consolidation opportunities and a potential half-billion dollar per annum outsource spend at a large global bank.

Cancellations & deferrals

  • cancelled: One large program ended due to client's financial distress, stopping follow-on work.
  • deferred: Client one (consolidation deal) execution was delayed for a few to several weeks.
The company secured several solid wins in Q1, including a transnational bank deal with potential for $200 million per annum work, and a large SAP co-transformation project in Europe. They are also pursuing two mega consolidation opportunities and a potential half-billion dollar per annum outsource spend at a large global bank. While no explicit TCV was provided, management detailed potential annualized incremental revenue from two specific deals ($20-30 million and $25-35 million respectively, ramping from Q2).

Source: Prepared remarks

Capital allocation

high confidence
  • Capex Capex disclosed
    • Expanded footprint in Dehradun
    • Opened new 700-seater in Hyderabad
    • Opened two customer experience centers (New Jersey, London)
    The first is that we expanded our footprint in Dehradun. We actually moved to a much larger facility. ... We also opened a new 700 seater in Hyderabad. ... we decided to open two centers, one each in New Jersey, Jersey City, and the second in London.
  • Dividend USD5.75/share (interim)
    we declared dividend post-a quarter close of $5.75 per share leading to a total payout of $40 million.
  • Liquidity Cash $225 Mn The cash balance is completely credit-free.
    So our OCF to EBITDA for LTM Q1 is 67 percentage, which is marginally lower than our target levels of 70% driven by the DSO being higher in the current quarter. The ETR, as I called out, ETR for last year was 25 percentage. There was some variability by quarters both ways which actually offset the impact on full year basis. ETR for current quarter is 25. We expect our ETR for the full year to be 26 percentage. Last from my side just to add on the dividends, we declared dividend post-a quarter close of $5.75 per share leading to a total payout of $40 million. Keech, over to you.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · Full Year · High confidence 17.1% to 17.4%
    So we remain confident in terms of delivering to our quoted margins of 17.1 to 17.4 percentage from a full year perspective.

    — Vikash Jain

  • Effective Tax Rate (ETR) Profitability · Full Year · High confidence 26%

    Previously 25% → 26%

    We expect our ETR for the full year to be 26 percentage. Last from my side just to add on the dividends, we declared dividend post-a quarter close of $5.75 per share leading to a total payout of $40 million.

    — Vikash Jain

Operational

  • Days Sales Outstanding (DSO) Operational · Year-end · High confidence 70 to 72 days
    We expect the DSO to be back to the 70 to 72 days by the year-end.

    — Vikash Jain

  • Operating Cash Flow (OCF) to EBITDA Operational · LTM basis · High confidence 70%
    Our goal is to generate OCF to EBITDA on an LTM basis at 70 percentage.

    — Vikash Jain

Headcount

  • IT People Hiring Headcount · Q2 · High confidence 1800 to 2000
    A measure of our confidence, we expect to hire 1800 to 2000 IT people in Q2, both to serve Q2 ramp and in anticipation of Q3 ramp.

    — R Srikrishna

Revenue Growth

  • Q2 Growth Revenue Growth · Q2 · Medium confidence Good Q2
    So just between these two, we'll convert Q2 from what would've been a great Q2 to a good Q2. So we still expect to have a good Q2, but actually underlying performance ex of these two will actually be a very solid Q2.

    — R Srikrishna

  • Q3 Growth Revenue Growth · Q3 · High confidence Accelerated growth
    And that momentum will continue into Q3. So we expect to have accelerated growth in Q3 and given some of the deals in the pipeline and the backend nature of the ramp up, we expect at this point that we will buck the usual trend in Q4 and actually deliver sequential growth in Q4 as well and much of this is not macro-contingent for us.

    — R Srikrishna

  • Q4 Growth Revenue Growth · Q4 · High confidence Sequential growth

    — R Srikrishna

Vertical Performance

  • Banking Vertical Growth Vertical Performance · Starting Q2, full year · High confidence Double-digit QoQ growth
    Banking, you've seen a couple of negative quarters, but you will see a very sharp, literally, potentially double-digit Q on Q growth starting immediately from Q2. So it will turn around and actually for the full year, we expect it to be a growth driver for us.

    — R Srikrishna

  • MLC Vertical Growth Vertical Performance · Ongoing · High confidence Significant weakness
    MLC is where actually the biggest impact of macros is and it will help. It has had weakness and it will actually continue to have significant weakness.

    — R Srikrishna

What to watch in Q1 FY26

RapidX Client Conversion from POC

After Q2
Current Shy of 40 clients in POC process
Target At least one or two clients moved out of POC into real full-scale modernization order

Why it matters

Indicates the commercial success and scalability of the strategic investment in the RapidX platform.

I think a good marker of success for us is when we talk the next time after Q2 that we should have moved at least one or two clients out of POCs into real full-scale modernization order.

Risks & concerns

  • Client Two (GSE) Sharp Ramp-down

    high

    A sharp ramp-down from one GSE client will account for roughly 1% of company revenue, due to indiscriminate cost cuts.

    Management acknowledged

  • MNC Vertical Headwinds

    medium

    Facing delayed decision making and subdued spend due to tariff market uncertainties.

    Management acknowledged

  • Client-Specific Revenue Headwinds (Offshoring & Delays)

    medium

    Over 100 bps revenue headwind in Q1 from two clients moving work offshore and one delayed program.

    Management acknowledged

  • Client One (Consolidation Deal) Execution Delay

    medium

    Execution of a consolidation deal was delayed for several weeks, impacting Q1 revenue.

    Management acknowledged

  • Program End Due to Client Financial Distress

    medium

    A large program ended, and follow-on work stopped due to the client's financial distress.

    Management acknowledged

  • MLC Vertical Continued Weakness

    medium

    MLC vertical is expected to continue to have significant weakness due to macro impacts.

    Management acknowledged

  • DSO Increase

    medium

    DSO at 75 days, higher than the target of 70-72 days, due to delays in invoicing and SOW execution.

    Management acknowledged

  • OCF to EBITDA Below Target

    medium

    LTM Q1 OCF to EBITDA at 67%, below the 70% target, primarily driven by higher DSO.

    Management acknowledged

Q&A highlights

7 direct
Client Ramp-downs and Cancellations Direct
I mentioned one, which is a project that was scheduled to get over. Normally, there will be follow-up work from that, but that client, because of financial issues, did not choose to continue. They've chosen not to continue, at least for now. I can't recall another one I mentioned.

Clarified the nature and limited scope of client-specific revenue impacts, distinguishing between project completion and financial distress-driven cessation of work.

Asked by Ankur Rudra

Full-Year Outlook and Growth Momentum Direct
So we'll still have a good quarter, and those two quarter-on-quarter headwinds will go away for Q3, and actually Q3 growth will accelerate. So we actually expect to have a pretty solid year, Ankur.

Provided a forward-looking view on growth trajectory, indicating Q3 acceleration and a solid full year despite Q1 softness and Q2 headwinds.

Asked by Ankur Rudra

Vendor Consolidation and Pricing Pressure Direct
Why we win the ones that we've won is I'll say it's really kind of three things. One, whatever we executed, we execute very well. Two, we are able to bring more intensity and focus to the clients. And three, customers love our platforms.

Explained the company's competitive advantages in winning large deals, focusing on execution, client focus, and platform strength, without directly addressing pricing pressure.

Asked by Abhishek Kumar

TCV Backlog and Revenue Conversion Partial
The reason for the many gaps between TCV to revenue translation is the reason we're not reporting in TCV. Instead, I'm hopefully making it simple for you by translating it to specific revenue range of growth in the key deals.

Management clarified their approach to communicating deal impact, focusing on annualized incremental revenue rather than a cumulative TCV figure, which can make direct comparison difficult.

Asked by Abhishek Kumar

Reshoring Risk and Bond Refinancing Direct
So on reshoring, we're not hearing any clients talk about it, certainly as it pertains to our business. You are hearing enough announcements, including IBM most recently that they're kind of invest more in the US for manufacturing. There's nothing really about services. But should it happen, it's not necessarily a risk for us. I see it as an opportunity.

Management views potential reshoring as an opportunity rather than a risk for their services business, and assured that bond refinancing has good options.

Asked by Shweta Seth

Offshore Mix Improvement from GSE Clients Direct
I mean, in general, I think we will improve our offshore mix. We did improve it this quarter, but that is not because of the JSCs. Actually, there are two other clients that have planned movement from offshore to onshore that was a revenue headwind for us in Q1, but a margin ... sorry, revenue headwind, but a margin tailwind for us.

Clarified the drivers of offshore mix improvement, attributing it to other client movements rather than the GSE client issues, and noted the margin tailwind despite revenue headwinds.

Asked by Manik Taneja

Second GSE Client Trim-down and CY25 Outlook Direct
See, on the first one, I mean what led to the reduction, I explained earlier, but the client is simply doing, and this is their words, quote unquote, 'peanut butter.' There was an ask from the administrator to reduce X amount of cost and they did, and they didn't give thought to where, what programs, what they were, nothing.

Provided insight into the nature of the GSE client's cost-cutting, describing it as indiscriminate ('peanut butter spread') rather than strategic, suggesting potential for future re-engagement based on criticality.

Asked by Dipesh Mehta

Platform-based Contracts and Billing Models Direct
So the old platforms like Tenzai is very kind of managed services. The construct hasn't changed. I think incrementally there is generic benefits into those kind of deals and contracts. On the newest, which is RapidX, I think it's evolutionary. We are going to experiment with different models.

Addressed the evolving business model for new platform offerings like RapidX, indicating a shift towards experimenting with different value-based models beyond traditional managed services.

Asked by Gaurav Rateria

2 min read 7 chapters

Detailed narrative

Q1 CY25 Performance Overview

Hexaware Technologies reported a flattish quarter-on-quarter performance in Q1 CY25. Despite this, the company achieved a solid year-on-year growth of roughly 2.5% in constant currency and 16.5% in INR terms. The quarter was impacted by over 100 basis points of revenue headwinds due to two clients moving work offshore and one program experiencing delayed start. However, the planned offshore movement contributed to margin improvement.

Profitability and Cash Flow

The company's EBITDA improved to 16.7% from the prior quarter, with absolute EBITDA increasing by 20% year-on-year. EPS also saw a healthy rise of 16.7% year-on-year. Hexaware maintains a healthy closing cash balance of $225 million as of March 31, 2025. The Effective Tax Rate (ETR) for the current quarter was 25%, with a full-year guidance of 26%.

Strategic Investments and Footprint Expansion

Hexaware expanded its footprint in Dehradun to a larger facility and opened a new 700-seater in Hyderabad. To enhance client proximity and innovation, the company also inaugurated new customer experience centers in New Jersey and London. These investments are aimed at supporting growth and improving client engagement.

Legacy Modernization (RapidX) Progress

Significant progress has been made in legacy modernization, particularly with the highly differentiated RapidX platform. After beta testing in Q4 with 2-3 clients, the platform now has a pipeline of shy of 40 clients in the Proof of Concept (POC) process. Management expects at least one or two clients to transition from POC to full-scale modernization orders after Q2, marking a key success indicator.

Market Expansion and Vertical Performance

The company is making strong progress in the Middle East and India markets, with a healthy pipeline in the Middle East and active efforts to grow its presence in India GCC. While the Banking and Financial Services (BFSI) vertical is expected to lead growth with double-digit QoQ growth from Q2, the MNC vertical continues to face headwinds. The Manufacturing, Logistics, and Consumer (MLC) vertical is anticipated to experience continued significant weakness.

Operational Metrics and Outlook

The offshore mix improved by 200 basis points sequentially, contributing to margin expansion. Days Sales Outstanding (DSO) increased to 75 days, higher than the target of 70-72 days, impacting the LTM Q1 Operating Cash Flow (OCF) to EBITDA ratio, which stood at 67% against a target of 70%. Management expects DSO to return to target by year-end and ERP costs to become a tailwind by the end of Q2. The company anticipates accelerated growth in Q3 and sequential growth in Q4, bucking the usual trend.

Key Deal Wins and Pipeline

Hexaware secured several significant wins, including a transnational bank deal with potential for $200 million per annum work and a large SAP co-transformation project in Europe. They are also pursuing two 'mega consolidation opportunities' and a potential half-billion dollar per annum outsource spend at a large global bank. Two specific deals are expected to contribute $20-30 million and $25-35 million respectively in annualized incremental revenue, with partial ramp-ups from Q2.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Information Technology earnings calls