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HCL Technologies
Strong pipeline; focus on margin ahead; maintain Hold
HCL Tech’s US dollar revenue grew 7.5% (of which 6.7% volume
growth in Core Software Services). Margin was flat qoq on
account of SG&A containment. Profit was higher owing to lower
forex loss, partly offset by higher tax expense. HCL Tech won 17
transformational deals, indicating a robust pipeline. We raise our
target price to `550 from `450 earlier, and maintain our Hold.
2QFY11 – Growth across verticals. Core Software Services grew
7.3% qoq, while IMS grew 9.4%. Positives: i) top-10 and top-20
clients showed traction, growing 6.8% qoq and 7.3% respectively in
constant currency terms; ii) HCL Tech saw growth across all
verticals, service lines and geographical areas in constant currency
terms.
Change in estimates. We maintain our EPS estimates for FY11
and raise our FY12e/FY13e EPS by 2%/4% respectively to
account for better revenue visibility and forex profits ahead.
Valuation and risks. Our target price of `550/share implies Mar
’12e PE of 19x (vs. 17x earlier), which is at ~22% discount to
Infosys’ target multiple; HCL Tech has traded at 26% discount to
Infosys over the past decade. Given its robust deal pipeline and
margin focus, we believe its valuation gap would narrow. Risks: i)
cross-currency movements; ii) large exposure to European markets.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL Technologies
Strong pipeline; focus on margin ahead; maintain Hold
HCL Tech’s US dollar revenue grew 7.5% (of which 6.7% volume
growth in Core Software Services). Margin was flat qoq on
account of SG&A containment. Profit was higher owing to lower
forex loss, partly offset by higher tax expense. HCL Tech won 17
transformational deals, indicating a robust pipeline. We raise our
target price to `550 from `450 earlier, and maintain our Hold.
2QFY11 – Growth across verticals. Core Software Services grew
7.3% qoq, while IMS grew 9.4%. Positives: i) top-10 and top-20
clients showed traction, growing 6.8% qoq and 7.3% respectively in
constant currency terms; ii) HCL Tech saw growth across all
verticals, service lines and geographical areas in constant currency
terms.
Change in estimates. We maintain our EPS estimates for FY11
and raise our FY12e/FY13e EPS by 2%/4% respectively to
account for better revenue visibility and forex profits ahead.
Valuation and risks. Our target price of `550/share implies Mar
’12e PE of 19x (vs. 17x earlier), which is at ~22% discount to
Infosys’ target multiple; HCL Tech has traded at 26% discount to
Infosys over the past decade. Given its robust deal pipeline and
margin focus, we believe its valuation gap would narrow. Risks: i)
cross-currency movements; ii) large exposure to European markets.
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