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HCL Technologies
Strong revenue outlook, margins should trend up
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Should benefit from strong demand
HCL Tech reiterated that the demand environment remained strong. They are
seeing continued traction in infrastructure management services and are also
seeing a pick-up in discretionary IT spend-related areas like Enterprise
Applications and Product Engineering.
Margins should improve
Margins should improve over the next couple of quarters as guided, helped by
increased utilization, leverage from sales investments and margin uptick in infra
deals post transition. We have built in 180bps sequential EBIT margin
improvement over 2Q to 4QFY11. The CEO was also optimistic on FY12 margins
given BPO investments should be completed by Dec 2011, the company is
working on building the engine such as training facility to broaden the employee
pyramid and is working on improving productivity in fixed price deals. Mediumterm EBIT margins should trend back towards its 18-20% erstwhile range.
Focus on differentiated offerings
The Vice Chairman and CEO, Vineet Nayar highlighted HCLT’s differentiated
offerings, prominent ones being Total Outsourcing, Enterprise Application
blueprinting and implementation and product engineering. Engineering work for
leading technology providers places HCLT in a strong position to ride demand
driven by new technology trends of mobility and cloud. HCLT hopes to continue to
beat industry revenue growth rates.
Price objective basis & risk
HCL (XHCLF)
Our Price Objective of Rs620 assumes a one-year forward FY13e P/E of nearly
15x as margins bottom. We believe this is justified as it implies a conservative
FY12 EV/EBITDA to 2yr EBITDA growth (EEG) of 0.5x, a discount of over 30% to
Wipro' s target EEG. Downside risks stem from higher than expected investments
delaying margin recovery, macro led delays in discretionary IT spending, higher
than expected wage hike pressures and Rupee appreciation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL Technologies
Strong revenue outlook, margins should trend up
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Should benefit from strong demand
HCL Tech reiterated that the demand environment remained strong. They are
seeing continued traction in infrastructure management services and are also
seeing a pick-up in discretionary IT spend-related areas like Enterprise
Applications and Product Engineering.
Margins should improve
Margins should improve over the next couple of quarters as guided, helped by
increased utilization, leverage from sales investments and margin uptick in infra
deals post transition. We have built in 180bps sequential EBIT margin
improvement over 2Q to 4QFY11. The CEO was also optimistic on FY12 margins
given BPO investments should be completed by Dec 2011, the company is
working on building the engine such as training facility to broaden the employee
pyramid and is working on improving productivity in fixed price deals. Mediumterm EBIT margins should trend back towards its 18-20% erstwhile range.
Focus on differentiated offerings
The Vice Chairman and CEO, Vineet Nayar highlighted HCLT’s differentiated
offerings, prominent ones being Total Outsourcing, Enterprise Application
blueprinting and implementation and product engineering. Engineering work for
leading technology providers places HCLT in a strong position to ride demand
driven by new technology trends of mobility and cloud. HCLT hopes to continue to
beat industry revenue growth rates.
Price objective basis & risk
HCL (XHCLF)
Our Price Objective of Rs620 assumes a one-year forward FY13e P/E of nearly
15x as margins bottom. We believe this is justified as it implies a conservative
FY12 EV/EBITDA to 2yr EBITDA growth (EEG) of 0.5x, a discount of over 30% to
Wipro' s target EEG. Downside risks stem from higher than expected investments
delaying margin recovery, macro led delays in discretionary IT spending, higher
than expected wage hike pressures and Rupee appreciation.
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