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HCL Tech- Keep the faith…
HCL Tech continues to beat the Street and our estimates with a good
operational performance. The company reported strong volume growth
of 4.8% (our estimate: 3.5%) in a seasonally weak quarter. EBITDA
margins improved 98 bps vs. our 76 bps estimate. EBIT margin improved
~128 bps led by SG&A optimisation (45 bps) and currency benefit (36
bps) while utilisation improvements and high realisations gave 48 bps.
Noticeably, total receivables (including unbilled) increased 1.2% QoQ,
lower compared to US dollar revenue growth of 5.8%. HCL added 11
transformational deals on top of 17 added last quarter. Further, the
acquisition of Citi’s capital market platform for $26 million ($13 million
paid and the rest next year) should provide assured revenues of $135
million for the next 10 years. Finally, operating margins are likely to
improve another 100 bps QoQ led by SG&A benefits. We continue to
believe that consistent outperformance should yield multiple re-rating and
maintain our BUY rating on the stock with a | 570 price target.
�� Comprehensively beats estimates
HCL Technologies reported its Q3FY11 numbers, which beat our as
well as consensus estimates. HCL reported Q3FY11 revenues of |
4,077 crore (5.6% QoQ growth) vs. our | 4,009 crore estimate and
reported EBITDA of | 706 crore on an EBITDA margin of 17.3%
ahead of our | 685 crore estimate on an EBITDA margin of 17.1%.
Net income of | 460.8 crore was also ahead of our | 415.6 crore
estimate, aided by strong operational performance.
�� Raising FY11 estimates
We are raising our FY11E revenue/EPS estimates to | 15,701 crore/|
24.2 vs. | 15,152 crore/| 23.6 earlier. Our estimates assume a 90 bps
QoQ improvement in Q4FY11 EBITA margin to 18.2%.
Valuation
HCL Technologies reported another stellar quarter and is well positioned
to participate in incremental demand and improve its operational
performance with modest utilisation coupled with superior lateral gross
hires. We have valued HCL at | 570, i.e. at 18x our FY12E EPS of | 31.8
and maintain our BUY rating.
Operating metric highlights
Banking, financial services & insurance, 26.2% of revenue, grew
10.5% QoQ in constant currency (CC) vs. 3.3% in Q2FY11. Energyutilities
& manufacturing grew 6.3% and 6.1% QoQ, respectively, led
by continued demand. Telecom came in weak with 0.3% QoQ
decline in Q3. Europe grew 4.2% QoQ on the back of 5.8% QoQ
growth in Q2FY11 as it continues to spend on run-the-business
(RTB) metric. Asia saw a strong demand uptick and grew 20.5%
QoQ while Americas saw tepid demand and grew 0.7% QoQ. Active
client relationships increased by 19 to 453 vs. 434 in Q2FY11. HCL
signed 11 (17 previous quarter) multi-year, multi-million deals in
Q3FY11 coupled with 7,534 gross additions. IT services attrition
declined modestly to 17.0% vs. 17.2% in Q2FY11.
Valuation
HCL Technologies reported another stellar quarter and is well positioned
to participate in incremental demand and improve its operational
performance with modest utilisation coupled with superior lateral gross
hires. We have valued HCL at | 570, i.e. at 18x our FY12E EPS of | 31.8
and maintain our BUY rating
Risk & concerns
Though the pound, euro and Australian dollar created tailwinds in
Q3FY11, cross currency volatility remains a key concern. Noticeably,
significant volatility of average rates could impact the operating margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL Tech- Keep the faith…
HCL Tech continues to beat the Street and our estimates with a good
operational performance. The company reported strong volume growth
of 4.8% (our estimate: 3.5%) in a seasonally weak quarter. EBITDA
margins improved 98 bps vs. our 76 bps estimate. EBIT margin improved
~128 bps led by SG&A optimisation (45 bps) and currency benefit (36
bps) while utilisation improvements and high realisations gave 48 bps.
Noticeably, total receivables (including unbilled) increased 1.2% QoQ,
lower compared to US dollar revenue growth of 5.8%. HCL added 11
transformational deals on top of 17 added last quarter. Further, the
acquisition of Citi’s capital market platform for $26 million ($13 million
paid and the rest next year) should provide assured revenues of $135
million for the next 10 years. Finally, operating margins are likely to
improve another 100 bps QoQ led by SG&A benefits. We continue to
believe that consistent outperformance should yield multiple re-rating and
maintain our BUY rating on the stock with a | 570 price target.
�� Comprehensively beats estimates
HCL Technologies reported its Q3FY11 numbers, which beat our as
well as consensus estimates. HCL reported Q3FY11 revenues of |
4,077 crore (5.6% QoQ growth) vs. our | 4,009 crore estimate and
reported EBITDA of | 706 crore on an EBITDA margin of 17.3%
ahead of our | 685 crore estimate on an EBITDA margin of 17.1%.
Net income of | 460.8 crore was also ahead of our | 415.6 crore
estimate, aided by strong operational performance.
�� Raising FY11 estimates
We are raising our FY11E revenue/EPS estimates to | 15,701 crore/|
24.2 vs. | 15,152 crore/| 23.6 earlier. Our estimates assume a 90 bps
QoQ improvement in Q4FY11 EBITA margin to 18.2%.
Valuation
HCL Technologies reported another stellar quarter and is well positioned
to participate in incremental demand and improve its operational
performance with modest utilisation coupled with superior lateral gross
hires. We have valued HCL at | 570, i.e. at 18x our FY12E EPS of | 31.8
and maintain our BUY rating.
Operating metric highlights
Banking, financial services & insurance, 26.2% of revenue, grew
10.5% QoQ in constant currency (CC) vs. 3.3% in Q2FY11. Energyutilities
& manufacturing grew 6.3% and 6.1% QoQ, respectively, led
by continued demand. Telecom came in weak with 0.3% QoQ
decline in Q3. Europe grew 4.2% QoQ on the back of 5.8% QoQ
growth in Q2FY11 as it continues to spend on run-the-business
(RTB) metric. Asia saw a strong demand uptick and grew 20.5%
QoQ while Americas saw tepid demand and grew 0.7% QoQ. Active
client relationships increased by 19 to 453 vs. 434 in Q2FY11. HCL
signed 11 (17 previous quarter) multi-year, multi-million deals in
Q3FY11 coupled with 7,534 gross additions. IT services attrition
declined modestly to 17.0% vs. 17.2% in Q2FY11.
Valuation
HCL Technologies reported another stellar quarter and is well positioned
to participate in incremental demand and improve its operational
performance with modest utilisation coupled with superior lateral gross
hires. We have valued HCL at | 570, i.e. at 18x our FY12E EPS of | 31.8
and maintain our BUY rating
Risk & concerns
Though the pound, euro and Australian dollar created tailwinds in
Q3FY11, cross currency volatility remains a key concern. Noticeably,
significant volatility of average rates could impact the operating margins.
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