Short-term contracts give mid-cap IT cos new lease of life

With the duration of outsourcing deals getting shorter, deals worth nearly USD 85 billion are up for renegotiations this year, reports CNBC-TV18’s Shreya Roy.

Midcap IT players may get a new lease of life. With the duration of outsourcing deals getting shorter, deals worth nearly USD 85 billion are up for renegotiations this year, reports CNBC-TV18’s Shreya Roy.

Over the last few years, uncertain times have forced IT companies to go in for more short-term contracts. For mid-cap IT companies, this may have been a blessing in disguise.

Data from outsourcing advisory firm TPI says that around 700 contracts will be up for renegotiations this fiscal year, compared to 530 last year.

“There is a significant reduction in the tenure of contracts as they were originally signed. Compared to 10 years ago, when 500 of these were being done, there are 1000 a year. The tenure has gone down to five years instead of seven, so a lot of deals are naturally coming back to the market as renewals. In itself, this is a very large opportunity,” said Siddharth Pai, partner and MD at TPI India.

For many IT players, this may be just what the doctor ordered. After all, renewals account for almost 65% of the outsourcing market. Advisory firm Everest estimates that by October 2013, deals worth nearly USD 85 billion will be up for renewal.

These include a contract between HP and Bank of America, a mega deal from Shell group which is currently with AT&T, HP, and T-Systems, a blue cross blue shield deal with Dell and Manu Life's deal with IBM.

Many of these contracts are expected to be broken up into smaller chunks, as outsourcers are looking increasingly towards multi-sourcing. Analysts say this could work in the favour of the smaller players, especially those like Mindtree and Hexaware, which have been focusing on developing niche capabilities to help differentiate from larger players.

 

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Hexaware Technologies :Riding High! --nirmal bang,

Riding High!
Hexaware Technologies Limited (HTL) is a mid-sized IT company mainly catering to the capital markets (BFSI) and the airline (transportation) sector. It also focuses on enterprise software provided by PeopleSoft and Oracle. Recent large client wins has bought back the focus on this company which has good expertise in the niche areas. 


Investment Rationale

 Improved Revenue visibility due to large wins in the past 5 quarters

The deal wins of over $ 625 mn which HTL has gained in the past 5 quarters is commendable. HTL’s efforts of mining the existing clients in the gloomy days are paying off now reflecting in the incremental revenue streams it has earned. These long term deals give enough revenue visibility for CY12. In addition, HTL is negotiating almost 4 deals above $25mn which are in the pipeline.

 Margins moving northwards – room for further heights
EBIDTA margins have improved 812 basis points in the past 5 quarters led by drastic control in the operating costs. The company has in addition utilized its offshorablity lever in its advantage by moving almost 14% of work offshore during the same period. Currently, onsite: offshore mix stands at 53:47, utilization in early 70’s and plans to hire freshers would further aid the margins going forward. We expect HTL to report EBIDTA margins of 20% + in CY12E and CY13E.

 Proficiency in niche segments paying off
HTL earns 60% of its revenues from the Capital Markets and Travels industries and almost 30% of revenues come from enterprise solutions in terms of its service lines. In enterprise solutions, 60-65% of its revenues are from PeopleSoft where other software vendor’s focus is less.

 Guidance Revision of 20% on USD revenues for CY12E

On the back of good deals won recently, the company has revised the revenue guidance in USD terms to 20%. We feel this is a little conservative and the company can easily beat the guidance for CY12E.
Valuation & Recommendation

We expect HTL’s revenues to grow at a CAGR of 25% and adjusted profits to grow at a CAGR of 21% over CY11-CY13E. Margin improvement would remain under focus and we expect HTL’s EBIDTA margins improving by 313bps to 21.2% in CY13E from 18.03% in CY11. At CMP, the stock is trading at 10.4x and 8.6x for CY12E and CY13E respectively. On the back of improved financials and good revenue visibility, we recommend a BUY on the stock, assigning a target multiple of 11x for CY13E EPS with a price target of Rs. 147 which is a potential 28% upside.

Risks to our Rationale:

 Concentration in Discretion spending Revenues
Hexaware derives more than 50% of its revenues from Enterprise solutions and Business Intelligence and Analytics which could get affected in economic downturn. However, the recent deal wins re-affirms the revenue visibility for the company for CY12E.

 Industry Risks of wage pressures, rupee appreciation and competition
Rupee depreciation has acted in favor of the company and Industry per say. Any severe reversal of the rupee trend would affect the prospects of the firm.

 Exposure in the European Region
The company has 28.4% exposure in the European region and few of the major deals have been signed with clients in this region. Looking at the current economic scenario prevailing in the Euro zone, any delay in commencement of these deals or cancellation may impact the margins severely.

Valuation & Recommendation
We expect HTL’s revenues to grow at a CAGR of 25% and adjusted profits to grow at a CAGR of 21% over CY11-CY13E. Margin improvement would remain under focus and we expect HTL’s EBIDTA margins improving by 313bps to 21.2% in CY13E from 18.03% in CY11. At CMP, the stock is trading at 10.4x and 8.6x for CY12E and CY13E respectively. On the back of improved financials and good revenue visibility, we recommend a BUY on the stock, assigning a target multiple of 11x for CY13E EPS with a price target of Rs. 147 which is a potential 28% upside.

Hexaware Q2 net rises 48% on higher revenues

Software service provider hexaware technologies has reported a 48 per cent increase in net profit at Rs 89.03 crore for the second-quarter ended june 2012 against the same period last year.

Click here to read more…

Hexaware bets on UK, new verticals to lead mid-tier IT growth

Infosys, TCS and Wipro may be getting cautious in their outlook, but not hexaware technologies

.

After nine quarters of positive growth, the mid-tier leader is confident of a 20% year-on-year (yoy) growth in dollar revenues for fiscal 2013.

 

 

 

PeopleSoft Fine Grained Auditing – Part II

Now, letlet’s test this policy. Log on to PeopleSoft environment using the browser and create a PRIVATE query referring to the above table. The query will not have any criteria and will fetch all rows (this table only had 1002 rows).
After executing the query, the audit data is populated in DBA_FGA_AUDIT_TRAIL.

select timestamp, db_user, client_id, object_name from dba_fga_audit_trail where object_name = ‘PS_ABC_COMPANY_TBL’

/

TIMESTAMP DB_USER CLIENT_I OBJECT_NAME

——— ——– ——– ———————

21-MAY-07 SYSADM NPAI PS_ABC_COMPANY_TBL

21-MAY-07 SYSADM NPAI PS_ABC_COMPANY_TBL

We can also, select the actual TEXT executed by the user by selecting the SQL_TEXT column in the above data dictionary view.

Summary:

I have shown a small example utilizing FGA for auditing the PeopleSoft database. FGA is a neat feature and allows us to audit specific rowset instead of auditing all the rows in the table. This is very useful when there exists a table which has sensitive + non-sensitive information, and you want to audit any un-authorized access to the sensitive column or rowset.

Note 1:

* As of 9i, FGA feature only allows auditing SELECT. 10g supports SELECT, DELETE, UPDATE and INSERT statements.

Note 2:

If you need to drop the policy then use the below SQL

begin

dbms_fga.drop_policy (

object_schema=>’SYSADM’,

object_name=>’PS_ABC_COMPANY_TBL’,

policy_name=>’ABC_COMPANY_TBL_ACCESS’

);

end;

Bug Note:

Do not forget to check out the bug related to FGA

http://www.red-database-security.com/advisory/oracle-fine-grained-auditing-issue.html

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