>Hexaware Technologies Ltd. (MERRILL LYNCH)

Dismal outlook; Underperform

# Dismal 1Q guidance, Retain Underperform
Though results were in line we were surprised by very sharp revenue decline
guided for 1Q at a negative 16% QoQ with outlook being the weakest announced
so far. This likely reflects high exposure to discretionary spends such as ERP
(~29% revs, -18% QoQ). We cut estimates by 5% to factor 17% cut in USD
revenues as reflected by weak 1Q revenue guidance and offset by higher margins
due to rupee depreciation. Cut PO by 5% to Rs21 at 5x CY09E, downside risk of
28%. Cash & equivalents of Rs19/share could provide support to the stock.

# Bleak outlook; 4Q margin expansion unsustainable
Management highlighted that macro environment has worsened in 4Q; with
clients across board rationalizing IT spends. Expects 1Q revenues to decline 14-
17% QoQ in constant currency terms. We expect margins to decline by at least
600bps during 1Q. Also MTM losses in balance sheet increased to Rs1.2bn from
Rs1bn QoQ and likely to impact CY09/10e profits if weak rupee persists.

Inline 4Q results ; Margin expands ~464bps
Revenues grew 4% QoQ to US$64.4mn in constant currency terms inline with its
guidance. EBITDA margins expanded by 464bps, partly driven by rupee
depreciation, SG&A efficiencies and targeted improvement in utilization levels.
Profit growth of 49% QoQ was lower than expected and was impacted by higher
forex loss during the quarter.

To see full report : Hexaware Technologies