Hexaware stops guidance, Q2 net down 12%

The rupee appreciation has foxed IT firms to such an extent this quarter
that it prompted Mumbai-based IT-BPO services provider Hexaware
Technologies "not to provide further guidance till the rupee reaches a
relatively stable level".

For its second quarter ended June 30, 2007, the company's net profit dropped 12.3% to Rs 26.12 crore when compared with Rs 29.78 crore in the corresponding quarter of the previous fiscal. Its revenue, however, increased 26.5% to Rs 261.64 crore from Rs 206.87 crore.

When compared with the figures of the trailing quarter, Hexaware's net
profit dropped 25.8%, and its gross revenue dropped 1%. The company's gross margins were down 3% to 36.4% "on account of salary increments and the impact of the foreign exchange".

While the rupee has appreciated across all major currencies - 7.1% against the US dollar, 4.8% against the euro, and 5.8% against the GB Pound - it has had an obvious impact on profitability ratios. Hexaware's operating margins took a hit of 2.8% and dropped to 10%.

"This has been a challenging quarter solely on account of the highest-ever
rupee appreciation in a single quarter - otherwise our revenues would have been higher by Rs 21.5 crore and PAT by Rs 8.4 crore. This on-going
volatility in the currency markets had placed a premium on delivering faster efficiency gains and tighter execution. The sharp improvement in utilisation
levels and significant enhancement in employee productivity bear a testimony to our ability to rise to this challenge," said Atul Nishar, executive chairman, Hexaware Technologies. "However, we reiterate our
earlier-mentioned intent of doubling revenue within 8-10 quarters
beginning January 2007."

Effective annual salary increment was about 17.5% for offshore and
approximately 5% for onsite employees. The drop at the operating
margin (OPM) level on account of salary increases is 3.8%. The
combined rupee appreciation against the dollar, pound and euro had an
adverse impact of 320 basis points at the OPM level. The company currently has forward cover in excess of $90 million (around Rs 370 crore) at an average rate of Rs 42.29.

Meanwhile, blended utilisation (including that of trainees) level surged to
73.7% in the second quarter ended June 30, 2007 from 70.7% in the previous quarter resulting in 1.1% improvement in the OPM level. Both onsite and offshore billing rates raised the OPM by 0.6%. Volume gains on account of higher revenue provided another 2.5% improvement in OPM.