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Softness in BFS segment drags IT firm Hexaware’s profits by 8.6 %

Indian mid-size IT services company Hexaware has reported an 8.6% decline in its profits sequentially or quarter-on-quarter at $2.3 million (INR 1.6 billion)  in the fourth quarter ending December 2019.  The decline in profit was below the street expectation and was impacted by extended furloughs and the ongoing ramp-downs in a top BFS (banking and financial services) client, according to analysts.

The consolidated revenue of the Mumbai-headquartered company was slightly up by 3 % at $21 million (INR 15 billion) sequentially.  On a year on year basis the company’s profit and revenue were up  9.9%  and 20.1 % respectively. Its revenue for the full year of 2019 stands at $79.7 million (INR 55.8 billion). The Indian company, founded by Atul Nishar in 1990,  follows the calendar year January-December and not the Indian fiscal year April-March.

While the full-year numbers are healthy, there are signs of stress on the sequential growth numbers of the company. It is important to mention the sequential numbers as the IT sector is ever-changing, evolving and dynamic and hence it is important to understand whether the company is growing or contracting quarter on quarter.

Indicating that there is some softness in the BFS segment in the US, which is likely to continue for a few more quarters, Hexaware Technologies’ CEO and Executive Director R. Srikrishna said, “This quarter, all verticals other than banking and financial services (BFS) have continued to show strong growth. In BFS we had one customer issue which is now behind us. There was some broader softness.”  About  80% of the company’s revenue comes from the US market,

However, he said that the deal pipeline has improved and a lot of new projects are coming in from healthcare, cloud migration and companies moving to platform-based businesses.

According to brokerage firm Emkay Global Financial Services, Hexaware’s results were below-par with 1.3% QoQ revenue growth. EBIT margins also declined sequentially to 13.4%. The net profit was also lower than street expectations and was adversely affected by lower operating performance.

Despite a lower-than-expected growth, Hexaware continued to add to its headcount and was very strong (as has been the case through the last several quarters). The company won new orders worth $30 million during the quarter compared to $28 million reported in the previous quarter.

The company’s attrition rate of 15.8% was lower than the previous quarter and the headcount increased by 937 during the quarter. The company’s stock price closed at INR 375, down 1.6% at 3 pm yesterday.

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