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.

 

Watch Video

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

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 HCM 9.1 Succession Planning

How important is it to an organization?

The recession storm seems to have settled down and IT companies are in a hiring spree, much to the trend seen in the Formula one racing, its Schumi’s re-entry and some good show by Force India team and Adrian. It all seems to be drilling down to the race line.. eagerly awaiting to jump on the gas pedals in this 2010 season.

Yes, the software industry too – is looking forward for a jump start and many IT organizations are preparing themselves for the race, the race which will win them new clients in new areas and the world economy seems to get back in its ‘once’ fruitful track.

As many of you are aware, Oracle has come up with the PeopleSoft 9.1 Version with some cool features, Lets see why one of the new features of Peoplesoft 9.1 seems to be interesting as it justifies the HR operations with its functionality. One of the reasons for Indian IT organizations to spend a lot of effort and cost in hiring new employees and especially high profile positions within an organization seems to be the lack of succession planning and career planning.

Succession planning enables an employer to organize its talent pools based on the employees person profile, job code, position and a plan that is unique to it. Initial and continous mapping of employees competency, performance and interests with the employer’s goals (position, jobcodes) makes it easier for the organization to plan and sustain its growth in the event of its new project wins. As stated in

Learning Management System drives a companies growth

Peoplesoft 9.1 brings in easier integration options with the Enterprise Learning Management (ELM) module thereby providing consistent career paths for the employees to pursue inorder to accomplish the succession planning. Both the HR Administrators and Managers are well equipped with the Visualization (user friendly reports) and Self Service  layer in accomplishing the tasks.

Features like tracking an employee’s successor in terms of number of years makes the job even easier for the HR to identify / probably mine through the talent pool of the organization.

Let’s see how IT organizations are quick in implementing the Succession planning feature of PeopleSoft 9.1 and Let’s assure them that its a vital part for a growing organization.

Know More: PeopleSoft HCM 9.1

PeopleSoft 9.1 HCM Compensation and Performance Appraisal Cycle

It’s Appraisal Season, Like the leaves which change color in fall and fall off their trees – IT Sector may witness a lot of attrition during and after the appraisal cycle. The reason being the outcome of the appraisal process .

 It is vital for a growing organization to streamline their appraisal process with planning their funding channels, organizing the pay components and administering it.

Existing PeopleSoft features of Tree Manager, Approval Workflow Engine (AWE), HCM Delegation Framework and pagelet wizards are inter woven with a streamlined process to accomplish what Oracle calls PeopleSoft 9.1 Compensation. Interestingly, the interoperability aspects with ePerformance, Core HR and variable compensation adds more value and increased ROI for the organizations which would implement PeopleSoft 9.1 HCM Compensation.

The first thing that an organization eyes is their budget/Funds for an appraisal / Compensation cycle, followed by the planning and allocation of collective Compensation aspects. Embedded analytics and user friendly interface enables Compensation Administrators or Managers to build what peoplesoft terms it as “Compensation Cycle”.Initial Setup would involve defining proration rules, rounding rules, salary plan, action reason,.. and Configuring compensation matrix.

Example Appraisal – Compensation Configurable matrix:
Rating             Funding Pct       Min Percent     Max Percentage
————-     —————       —————     ——————–

6                               42                       42                            42

5                               30                       30                            30

4                               19                       18                            19

3                                8                          8                             8

2                                2                          2                             2

1                                2                          1                             2

For a compensation cycle, the funding overview for salary plans  summarizes the total number of head count which would be involved in the appraisal cycle along with the calculated total salaries, calculated amount, calculated percent, qualified headcount, qualified salaries, funded amount, funded percent, proposed amount, proposed percent.

Once the compensation cycle (01JAN2009 to 31DEC2009) is defined, the appraisal team works with the variable compensation plans and compensation rules to manage the available funding for an appraisal cycle. The Pay out periods as well as the Pay out types are also defined using the cash or available stock options. It is one of the features in which many employers tend to provide stocks instead of a cash hike. Followed by the compensation team, the manager self service of PeopleSoft is used by the managers to update appraisal info of an employee or a group (direct reports / Indirect reports) along with their review ratings. The Approval process plays a vital role in approving the planned / updated compensation details using the delivered roles of “submitter” “reviewer” and “Confirmer”.

On the other hand, the administrator is equipped with the compensation dashboard which constitutes the Process flow Build->Open->Load->Close and status history which manages the manager’s access rules (notification period, default, review period, update period)

PeopleSoft 9.1 Compensation also allows employers to handle exceptional cases during an appraisal cycle by incorporating “Key Resource Bonuses” on the Award Plans present with the compensation module.

In total, PeopleSoft 9.1 HCM Compensation seems to be quiet promising in bring in transparency and streamlined appraisal cycle within a growing organization.

Know More About: Peoplesoft 9.1 HCM