Hexaware Technologies? strong guidance of a 3.5-5.5% q-o-q revenue growth in 3QFY13F (vs our expectation of 3-4%) and similar growth in Q4 increases confidence in our revenue growth estimates. Guidance for the next two quarters is not dependent on large deal wins and is largely on the back of growth opportunities at the top client and 4-5 clients within the top 10 clients, with kicker from Peoplesoft 9.2 upgrade revenues starting 4QFY13.
Our FY13F revenue growth estimate of 7.1% is largely unchanged and we look for 4.3% and 3.7% q-o-q revenue growth for the next two quarters. We see comfort in our 13% revenue growth estimate for FY14F, given revenue growth of 5% even in a no-growth scenario from 4QFY13F also as HEXW is well positioned in two of the four large deals greater than USD25mn to be decided in 2HFY14. Revenue from Peoplesoft 9.2 upgrades will likely start from 4QFY13 and continue for around two years.
Our margin expectations have increased by ~200bps across FY13/14F on the margins beat in 2Q, a stable outlook and INR depreciation. This translates into an improved EPS growth profile with a CAGR of 10% over FY12-14F (up from 4% earlier). At ~8x FY14F EPS plus a dividend yield of 5%-plus we find the stock attractive. Reaffirm ?buy?. HEXW/IGTE are our top picks in Tier-2 IT.
We raise our target price to R130 from R110 on a 14%/12% increase in EPS estimates for FY13/14F, driven by marginally higher revenue growth and higher margin expectations; and upgrade valuation multiple to 10x one-year forward EPS (from 9x) .