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Hexaware Posts Strong Margins Amid Revenue Dip
Hexaware Technologies demonstrated operational strength in its first quarter of calendar year 2026, achieving an adjusted EBIT margin of 13.3%, which surpassed analyst expectations of 11.9%. This performance occurred even as the company reported a slight sequential revenue decline of 0.3% in constant currency terms, totaling USD 388.5 million for the quarter ending March 31, 2026. Despite this slight revenue decrease, year-on-year figures showed robust growth of 4.6% in USD and 12.6% in INR, reaching INR 36,130 million. Net profit saw a solid 7.5% year-on-year increase to INR 3,516 million, aligning with consensus estimates. Following the results on May 8, 2026, the stock price surged over 5%, trading intraday near ₹487 and outperforming the broader market during a mixed trading session. This suggests a positive market reaction to the margin outperformance and sustained profitability, though the stock remains significantly below its 52-week high of ₹900.
Varied Sector Performance Masks Overall Resilience
The company's results highlight mixed sector demand. While Healthcare & Insurance saw a notable 13.5% year-on-year increase and Professional Services also grew, sectors such as Travel & Tourism experienced a 9% decline, reflecting ongoing economic pressures. The Banking vertical also saw a quarterly decline of 7.9%. Despite these challenges, Hexaware's strategic focus on AI-led transformation and strong client relationships, highlighted by CEO R Srikrishna, are driving new deal momentum across consolidation, outsourcing, and transformation programs. The company added two clients in the USD 10 million+ category, bringing its total to 34, underscoring continued client acquisition. Hexaware reiterated its full-year revenue growth guidance of 7.6%, anticipating improved momentum from the ramp-up of large deals and the conversion of recent wins.
Challenges and Valuation
Despite the positive Q1 results and analyst sentiment, Hexaware faces challenges. The stock has declined significantly over the past year, down approximately 36.63% year-to-date and trading below key long-term moving averages, indicating a continued longer-term downtrend. While margins expanded sequentially, they contracted 133 basis points year-on-year, pointing to potential annual pressure on profitability. Reliance on specific verticals like Banking, which declined quarterly, and the continued weakness in Travel, could pose risks if these sectors do not recover. Hexaware's P/E ratio of around 20.5 is attractive compared to the sector average of 38.32, suggesting it may be undervalued. However, the IT services market is highly competitive, with major players like TCS and Infosys holding larger market shares and broader service portfolios. While Hexaware's AI focus is a growth driver, the overall Indian IT sector is projected for moderate growth of 4-6% in USD terms for FY2026, dampened by global economic uncertainty and possible US trade tariffs.
Analyst Views and Outlook
Motilal Oswal Securities has reiterated its 'Buy' rating for Hexaware Technologies, setting a target price of INR 570, implying a potential upside of approximately 24%. This aligns with broader analyst consensus: 11 out of 16 analysts recommend 'Buy', 3 suggest 'Hold', and 2 advise 'Sell'. The average 12-month price targets range from INR 555 to INR 636. The company's reiterated guidance for 7.6% revenue growth for the calendar year is supported by strong AI-led deal wins and the ramp-up of existing contracts. Investors will be watching how Hexaware leverages its AI capabilities and navigates challenging segments to achieve its growth targets.