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Order pipeline at historical high, positive on margins medium to long term
Management very confident – current order pipeline at historical high, with continued strong conversion rates.
It expects margins to improve in 3Q and 4Q and reiterated its guidance that 4Q11 margins will be similar to 4Q10 in
constant currency.
Supply side pressures are easing and attrition is declining gradually every month.
Expect margins to improve in the long term, as the company gains more experience in managing mega deals.
Valuation and risks
We value HCL at 15x our CY12e EPS, giving a target price of INR545. This multiple is at a 30% discount to Infosys, in
line with the historical average. The stock currently trades at c15x our FY12e EPS, which is c10% above consensus.
Risks: Wage inflation is the primary risk to our estimates. INR appreciation and macro weakness remain the risks for topline
growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Order pipeline at historical high, positive on margins medium to long term
Management very confident – current order pipeline at historical high, with continued strong conversion rates.
It expects margins to improve in 3Q and 4Q and reiterated its guidance that 4Q11 margins will be similar to 4Q10 in
constant currency.
Supply side pressures are easing and attrition is declining gradually every month.
Expect margins to improve in the long term, as the company gains more experience in managing mega deals.
Valuation and risks
We value HCL at 15x our CY12e EPS, giving a target price of INR545. This multiple is at a 30% discount to Infosys, in
line with the historical average. The stock currently trades at c15x our FY12e EPS, which is c10% above consensus.
Risks: Wage inflation is the primary risk to our estimates. INR appreciation and macro weakness remain the risks for topline
growth.
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