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News
HCL Technologies posted 3QFY11 revenues of Rs41.38 bn (up 6.4% qoq, 2%
above Bloomberg consensus) and net income of Rs4.68 bn (up 17.1% qoq,
10.4% above consensus), in line with our estimates. EBIT margins improved by
130 bps (vs. GSe +110 bps; Consensus +80 bps improvement). BFSI was the
fastest growing vertical with 13.3% qoq growth. Remote infrastructure
revenues (RIM) (+9.2% qoq) remained strong yet again. While US was modest
(+1.2% qoq), similar to Infosys (INFY.BO, Buy, Rs2886.7), Asia Pacific witnessed
robust 22% qoq growth. Blended pricing improved by 2.4% qoq; utilization
(incl. trainees) increased to 71.9%. BPO business continued to stabilize (+1.3%
qoq); its EBIT losses declined to US$4.5mn (vs. US$5.4mn in 2Q).
Analysis
(1) All the verticals of HCL posted 25% plus growth yoy, reaffirming our
view of a strong outlook for the IT services sector in 2011. (2) HCL signed
11 transformational deals this quarter, significantly strengthening its
pipeline, primarily driven by US, supporting our view of US-led revenue
momentum for the sector in FY12. (3) RIM services registered its 5th
successive quarter of 8%+ qoq revenue growth, reaffirming our forecast (in
Sep-09) of 7-8 quarters of 8%+ sequential and 36% yoy growth in FY11E. (4)
EU continued to grow more than US for the third quarter in a row, similar to
the trend witnessed by INFY, reaffirming our view that the EU crisis was not
a concern. (5) EBIT margin improvement was attributable to normalization of
wage costs, improved utilization (+190 bp qoq), SG&A optimization (-50 bp
qoq) and lower BPO losses. With this, HCL is on track to deliver mgmt
guidance of 15.3% EBIT margins by 4QFY11 and will further strengthen
investor confidence in the mgmt’s execution capability, in our view.
Implications
We reiterate Buy on the stock and expect street estimates to rise
significantly on the back of the results. HCL’s earnings call is scheduled for
1730 hrs IST today. We place our estimates under review pending greater
visibility on (1) sustainability of margin improvement (2) pipeline strength.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
News
HCL Technologies posted 3QFY11 revenues of Rs41.38 bn (up 6.4% qoq, 2%
above Bloomberg consensus) and net income of Rs4.68 bn (up 17.1% qoq,
10.4% above consensus), in line with our estimates. EBIT margins improved by
130 bps (vs. GSe +110 bps; Consensus +80 bps improvement). BFSI was the
fastest growing vertical with 13.3% qoq growth. Remote infrastructure
revenues (RIM) (+9.2% qoq) remained strong yet again. While US was modest
(+1.2% qoq), similar to Infosys (INFY.BO, Buy, Rs2886.7), Asia Pacific witnessed
robust 22% qoq growth. Blended pricing improved by 2.4% qoq; utilization
(incl. trainees) increased to 71.9%. BPO business continued to stabilize (+1.3%
qoq); its EBIT losses declined to US$4.5mn (vs. US$5.4mn in 2Q).
Analysis
(1) All the verticals of HCL posted 25% plus growth yoy, reaffirming our
view of a strong outlook for the IT services sector in 2011. (2) HCL signed
11 transformational deals this quarter, significantly strengthening its
pipeline, primarily driven by US, supporting our view of US-led revenue
momentum for the sector in FY12. (3) RIM services registered its 5th
successive quarter of 8%+ qoq revenue growth, reaffirming our forecast (in
Sep-09) of 7-8 quarters of 8%+ sequential and 36% yoy growth in FY11E. (4)
EU continued to grow more than US for the third quarter in a row, similar to
the trend witnessed by INFY, reaffirming our view that the EU crisis was not
a concern. (5) EBIT margin improvement was attributable to normalization of
wage costs, improved utilization (+190 bp qoq), SG&A optimization (-50 bp
qoq) and lower BPO losses. With this, HCL is on track to deliver mgmt
guidance of 15.3% EBIT margins by 4QFY11 and will further strengthen
investor confidence in the mgmt’s execution capability, in our view.
Implications
We reiterate Buy on the stock and expect street estimates to rise
significantly on the back of the results. HCL’s earnings call is scheduled for
1730 hrs IST today. We place our estimates under review pending greater
visibility on (1) sustainability of margin improvement (2) pipeline strength.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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