Hexaware Technologies FY25 Q1 Results: Steady Growth and Strong Margins

Hexaware Technologies: Q1 FY25 Performance and Future Outlook

How Hexaware Technologies Performed in Q1 FY25

Hexaware Technologies had a stable performance in the first quarter of FY25. While the quarter was mostly flat compared to the last one (which is common due to seasonality), the company still showed year-over-year growth. In USD terms, revenue grew by about 2.5%, and in INR terms, the growth was 16.5%.

The leadership described this as a “normal” quarter, which is a good sign given the global economic uncertainties.

Some key numbers:

• EBITDA margin reached 16.7%, up by 0.4% from the last quarter.
• EBITDA grew by about 20% compared to last year.
• Earnings per share (EPS) rose by 16.7% YoY.
• Cash reserves stood at $225 million, and the company has no debt.

Workforce, Utilization, and Efficiency

The total number of employees is around 31,500. There was a small drop in headcount, mostly from the BPS (business process services) division. In contrast, IT staffing increased slightly.

Attrition (employee turnover) remains stable at 11.2%, only slightly higher than the previous quarter.

Utilization (how much staff is being used) improved after a tough last quarter and is expected to be around 82–83% for the full year.

However, the days sales outstanding (DSO) number was a bit high at 75 days. The target is 70–72 days, and management expects this to improve by year-end.

Operational cash flow to EBITDA ratio stood at 67%, just below the 70% target. A dividend of $5.75 per share was announced, amounting to a $40 million payout.

Margin Trends and Focus Areas

Hexaware Technologies saw a 40bps margin increase in Q1. This came from operational improvements but was slightly offset by currency challenges.

For the full year, EBITDA margin is expected to be between 17.1% and 17.4%. However, management clarified that the current focus is not on pushing profits but on investing in long-term growth.

There is room for improving margins by 1%–1.5% over the medium term. Also, the ERP costs currently affecting profits will be removed from Q2, which should help margins.

Business Shifts and Client Overview

Two major clients moved their work from onshore to offshore, which slightly reduced revenue (about 1%) but improved profit margins.

Offshore work increased by 2% due to this shift and due to new deals ramping up.

Client metrics:

• Net Promoter Score (NPS) stands at 67, which is 27 points above the industry average.
• Hexaware has three clients bringing over $75 million in revenue and one client crossing the $100 million mark.
• Over the past year, it added two new clients in the $20 million+ range and one in the $75 million+ category.

A large portion of revenue (around 61–62%) comes from clients with over $5 billion in revenue.

Growth Strategy and Key Focus Areas

Hexaware Technologies is focusing on four main areas to grow its business.

1. Modernizing Legacy Systems with RapidX and AI

The company has launched RapidX, a platform that uses AI to upgrade old systems. This tool is already generating interest. Around 40 clients are in discussions, with many in the testing phase. Some are expected to sign full-scale contracts soon.

Capabilities now also include support for older languages like COBOL and PL/SQL.

2. Private Equity Market

There’s some disruption in the private equity space, but Hexaware expects meaningful results in the second half of FY25.

3. HealthTech and Software Vendors

There was a leadership change in this division to sharpen the focus on independent software vendors (ISVs). High-tech is still a small segment, but management sees growth potential by targeting it more directly.

4. India and Middle East Markets

Hexaware sees strong growth opportunities in India and the Middle East. These regions are expected to be less affected by global economic swings.

The company has joint ventures in the Middle East and is building a solid deal pipeline. In India, Global Capability Centers (GCCs) are being seen as a big opportunity, even though they currently bring in low revenue.

Large Deals and New Wins

Q1 saw some big deal wins that could drive growth for the rest of the year. These include:

• A major transnational bank selected Hexaware as one of only seven vendors in a five-year contract refresh. This opens up access to a $200 million/year opportunity.
• A European bank chose Hexaware to lead a major SAP-based transformation.
• Another bank selected Hexaware for application modernization.
• A legal advisory firm partnered with Hexaware to build a GenAI platform for launch at a major legal industry event.
• An airline signed up for the first full implementation of Hexaware’s “OnOrder” platform.
• A top-10 global law firm engaged Hexaware for separation work in China.
• A healthcare firm, after a corporate split, hired Hexaware for app modernization.
• A pet insurance firm made Hexaware a strategic supplier, with more work expected.

Management believes these wins are the most important part of Q1 and will set up strong performance in the coming quarters.

Consolidation Deals and Strategic Clients

Hexaware has also made progress in large consolidation deals.

• Client 1: There was a delay in ramp-up, but execution has started. This deal is expected to bring in $20–30 million annually, beginning in Q2.
• Client 2: A sharp drop in work happened (around 1% of company revenue) due to budget cuts by the client’s new leadership. But the future outlook is strong. This deal could bring $25–35 million per year, starting partly in Q2.

There are two more big opportunities in the pipeline, each involving large clients with major outsourcing budgets. One of these deals alone could be worth around $500 million annually. Management says their focused approach is helping them win these kinds of opportunities consistently.

Company Outlook for 2025

Hexaware has not given formal full-year guidance but remains confident in its direction.

• Q2 is expected to show good underlying growth. However, two client-related issues (a consolidation ramp-down and a program end) will reduce the overall numbers.
• These issues should be resolved by Q3, which is expected to show stronger growth.
• Q4 might break the usual flat trend due to ongoing deal ramp-ups.
• The company plans to hire 1,800–2,000 IT professionals in Q2 to support growth in Q2 and Q3.

Outlook by Industry

• Banking and Finance: Expected to grow the fastest, with sharp quarter-on-quarter growth from Q2.
• Travel and Transport: Minor challenges, but growth will match the company’s average.
• High-Tech and Services: Expected to perform at the company average.
• Manufacturing and Logistics: This area remains weak and will continue to face challenges due to broader economic issues.

Client Behavior and Market Trends

Hexaware held its annual client event recently and gathered some useful insights:

• Manufacturing clients are cautious, with some pulling back.
• Insurance firms are more optimistic and see potential gains from market volatility.
• In general, most clients are not changing their spending plans but are waiting to see how things play out.

Apart from the two already-mentioned client challenges, there were no unusual cancellations or ramp-downs.

Hexaware’s ability to win new clients in vendor consolidation scenarios is a result of its consistent strategy. When the company performs well, it opens the door to bigger roles with the same clients.

Technology Platforms and Contracts

Hexaware is trying new approaches in how it charges for services on platforms like RapidX. While most contracts are still based on effort (billable hours), the company wants to move toward value-based or outcome-based pricing in the future.

Other platforms, such as Tenzai, continue to run under managed services without major changes.

Other Key Updates

• US Market and Policies: There’s no client concern so far about U.S. reshoring or political changes. In fact, Hexaware sees growth here due to its strong reputation as an employer.
• Bonds: There’s no direct impact on Hexaware, and the management says financing options look good.
• High-tech Division: This area is small now but is getting focused leadership and a similar strategy that worked in the banking segment.

Risks and Challenges

There are some risks ahead, but management believes they are manageable.

• The two client-specific issues in Q2 are already known and won’t bring surprises.
• Manufacturing and logistics will continue to struggle due to global economic pressure.
• The effective tax rate may rise to 26% as some tax benefits expire.

Management View

Hexaware’s management seems clear-headed and confident. They acknowledge the challenges but believe the worst is over for now. With a strong pipeline and a clear focus on big clients and AI-led modernization, they expect better performance starting Q3.

The current macro environment does not pose a major risk to the company’s plans, and leadership believes growth will pick up in the second half of the year.

Hexaware Technologies showed steady performance in Q1 FY25, improving margins despite a few client-specific challenges. The company is focused on strategic deals, AI-led modernization, and expanding in promising markets like India and the Middle East.

With new platforms like RapidX, several large wins, and a consistent approach to gaining large clients, Hexaware is positioning itself for solid growth through the rest of 2025. Management has a realistic view, with a long-term plan and confidence in the company’s direction.

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