HCL TECH: BUY, TP-Rs615 (27% upside) :PINC Top Picks

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What’s the theme?
Uptick in discretionary IT spend and recovery in the European market will boost volume growth for HCL
Tech. Further, strengthening of EUR against USD will have positive near-term impact.

What will move the stock?
1)The strongest volume growth of 6.5% QoQ among peers in Q3FY11; 2) Outperformance in emerging
verticals such as energy and utilities and retail; 3) One of the highest bookings in terms of new deals won
in the recent quarter; 4) High growth in EAS and custom application segment driven by discretionary
spend; 5) Higher EBIDTA margins in the near term, supported by higher offshoring and utilisation;6)
Absence of forex losses (cash flow hedges) supporting the bottom line.
Where are we stacked versus consensus?
Our revenue estimates vary from Consensus by ~2% for FY13. Our EBITDA margin forecast for FY12 is in
line with consensus. Our FY12 EPS estimate is also in line with consensus.
What will challenge our target price?
1) Slower recovery in the US economy; 2) Appreciation of INR vs. USD; 3) Increase in tax rates after the
sunset clause; 4) Higher attrition and wage increments;