Hexaware Technologies Ltd - Mar 2025 Earnings Call Transcript Analysis

March 12, 2025 · 4 min read

Earnings Call Transcript Analysis Report #

Key Financial Metrics:
- Q4 CY ‘24: 0.2% constant currency growth.
- Full Year CY ‘24: 13.5% year-over-year (YoY) growth.
- Reported EBITDA: Up 50% YoY.
- EPS: Up 65% YoY in Q4; 18% for the full year.
- Closing Cash Position: Just under INR 2,000 crores (about $230 million).
- DSO: 65 days (billed and unbilled).
- OCF to EBITDA: 75% (adjusted EBITDA basis), 81% (reported basis).
- Full year ETR 25%
- Dividend Payout: 45% of profit for the full year (INR 8.75 per share).
Comparison with Previous Periods:
- Q4 growth was modest (0.2%), but full-year growth was strong (13.5%).
- EBITDA and EPS showed significant YoY improvement.
- Accelerating YoY growth through 2024.
- Q1 2024 Sequential Growth of 5%, Q2 and Q3 6% Sequential growth.
Revised Guidance or Forecasts:
- No guidance provided.
- Expectation for reported EBITDA in ‘25 to be close to adjusted EBITDA for ‘24 (17.3%).
Areas of Growth or Decline:
- Growth Leaders (FY ‘24): High Tech and Professional Services (22% YoY), Financial Services (19% YoY).
- Growth Laggards: Manufacturing and Consumer, Banking (7.6% growth, expected to recover).
- Geographic Growth: APAC (6.5%, accelerating), Europe, U.S. (strong growth continuing).

Strategic Announcements:
- No adjusted EBITDA will be reported going forward.
- Focus on consolidating partnerships with key clients.
- Active M&A program.
New Products, Services, or Markets:
- AI-based outsourcing of tech operations.
- AI solutions for eDiscovery.
- Legacy modernization using RapidX and GenAI.
Operational Changes:
- Improving operational efficiency (better pricing, SG&A leverage).
- Expansion in Tier 2 locations.
Ongoing/Completed Projects:
- ERP implementation costs through Q1 and Q2 of CY ‘25, then go to zero.
- Two major client consolidation efforts won, with ramps expected in Q2 and Q3.
- Two other significant deal opportunities in progress.

Industry Trends:
- “Secular headwinds” in the Manufacturing and Consumer sector.
- Macros have trended “marginally negative” recently.
- Uncertainty in the market.
Competitive Positioning:
- Among the top performers in the industry in terms of YoY growth.
- Attrition is “now, we think, the lowest or among the lowest in the industry at 10.8%.”
- Claimed to have the best DSO in the Industry.
- Preferred partner for client consolidation efforts.
Market Challenges/Opportunities:
- Challenge: Uncertainty in client budgets.
- Opportunity: Client consolidation efforts.
Market Share/Positioning:
- Recognised in brand finance, top 25 most IT brands globally.
- Ranked first in general satisfaction across a number of different countries.

Concerns/Challenges Acknowledged:
- “Macros have trended marginally negative” recently.
- Softness in Manufacturing and Consumer.
- Banking growth was lower than expected.
Regulatory Issues:
- Potential impacts of U.S. immigration policies.
Operational Constraints:
- Seasonality: Q1 and Q4 are typically low-growth quarters.
- Q3 is a wage hike quarter.
Market Uncertainties:
- Uncertainty in the broader market environment.

Outlook and Projections:
- Expect ‘25 performance to be “resilient”.
- Expect APAC growth to accelerate, Europe to improve, and U.S. to continue performing well.
- Banking growth is expected to recover “very smartly” in a couple of quarters.
- Travel and Transport will grow slightly above company average
Commitments/Targets:
- Goal to achieve reported EBITDA margins similar to ‘24 adjusted margins (around 17.3%).
- “Double-digit [growth] is like a solid baseline.”
Planned Investments/Priorities:
- Active pursuit of M&A opportunities.
Sentiment about Future Performance:
- Generally confident.
- Expect ‘25 Y-on-Y performance will see second half perform better than first half

Most Pressing Analyst Questions:
- Clarification on organic vs. inorganic growth.
- Details on the demand environment and budgeting cycles.
- Capital allocation plans, including M&A strategy.
- Impact of U.S. policies (immigration, “Made in America”).
- Plans for the bond.
- Margin drivers and expectations.
Management’s Responses to Challenging Questions:
- Provided specific numbers on inorganic growth impact.
- Acknowledged market uncertainty.
- Confirmed an active M&A program.
- Downplayed the impact of potential U.S. policy changes.
- Provided a breakdown of margin improvement drivers.
New Information Revealed:
- 2% of YoY growth for Q4 was due to acquisition impact.
- Subcontractor costs are around 17% of revenues.
- Pass-through revenue is sub-$10 million per quarter.

Overall Tone: Confident and cautiously optimistic.
Changes in Language: More straightforward in presenting only reported numbers.
Areas of Confidence: Strong financial performance, client relationships, operational efficiency, and M&A pipeline.
Areas of Concern: Acknowledged recent market uncertainties.

Strong 2024 Performance, but No Guidance: Solid growth and improved profitability in 2024, but no specific financial guidance for 2025.
Resilient Outlook: Expects 2025 performance to be resilient, driven by existing client wins and potential new deals.
Focus on Consolidation and Efficiency: Benefiting from client consolidation efforts and improving operational efficiency.
Active M&A: Actively pursuing M&A opportunities.
Transparency Commitment: The shift to reporting only reported EBITDA signals a commitment to greater transparency.
One-off ERP implementation costs These costs are to continue to negatively impact profitability until Q3 2025.