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HCL-Technologies Overweight
HCLT.BO, HCLT IN
Impressive revenue growth accompanied by good
margin expansion; consensus upgrades likely;
reiterate OW
• HCLT reported a strong 3QFY11 with 5.8% US$ revenue growth and 130 bps
increase in EBIT margins. We are impressed by the margin expansion without
compromising top-line growth, and we believe the company is on track to
achieve margin target of 15.3% in 4QFY11. EPS of Rs.6.4 was slightly above
our expectation of Rs. 6.2, but it was primarily driven by below the line items.
We expect mild consensus upgrades (FY12/FY13) on the back of this result.
• HCL Technologies reported 3QFY11 revenues of US$915 mn, slightly above
our expectation of $912 mn. Revenue growth of 5.8% Q/Q was impressive
given that CQGR for the last four quarters has been 7.5%, which exhibits
the revenue traction HCLT has witnessed.
• EBIT margins of 14.4% (before ESOP costs) are up 130 bps Q/Q, which is in
line with our expectation. The company had committed to increase 4QFY11
margins to 15.3% (4QFY11 level), and 130 bps margin expansion this quarter
leaves 90 bps gap for the next quarter to fill, which we believe is achievable. We
are particularly pleased with the fact that the company was able to expand
margins while still showing revenue growth. Street’s primary concern on HCLT
was weakness on margins and 3QFY11 should alleviate some of these concerns.
• Industry-wise, revenue growth was driven by BFSI, which reported revenue
growth of 12.6% Q/Q, Energy, Utilities and public sector (+7.1% Q/Q),
Manufacturing (+6.3% Q/Q) also registered healthy growth, while other
verticals witnessed modest growth. Telecom (+0.9%) is the only soft spot for the
quarter, which we believe is indicative of spending pressures in the industry.
• Revenue growth was driven by Infrastructure Services, Custom Application
Services and Enterprise Application Services and, which grew 8.5%. 6.7% and
6.7%, respectively, from 2QFY11. BPO revenues were flat.
• Another positive coming out of the quarter was decrease in attrition (quarterly
annualized attrition decreased to 17.7% for IT Services from 18.1% in 2QFY11
and 21.9% in 1QFY11). We believe the decline across the board (Infosys and
Persistent also reported decline in attrition) should reduce supply-side related
pressures for the industry. Wage hikes are likely to be more moderate in FY12
versus FY11 – a beneficial outcome for the industry.
• We reiterate our OW rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL-Technologies Overweight
HCLT.BO, HCLT IN
Impressive revenue growth accompanied by good
margin expansion; consensus upgrades likely;
reiterate OW
• HCLT reported a strong 3QFY11 with 5.8% US$ revenue growth and 130 bps
increase in EBIT margins. We are impressed by the margin expansion without
compromising top-line growth, and we believe the company is on track to
achieve margin target of 15.3% in 4QFY11. EPS of Rs.6.4 was slightly above
our expectation of Rs. 6.2, but it was primarily driven by below the line items.
We expect mild consensus upgrades (FY12/FY13) on the back of this result.
• HCL Technologies reported 3QFY11 revenues of US$915 mn, slightly above
our expectation of $912 mn. Revenue growth of 5.8% Q/Q was impressive
given that CQGR for the last four quarters has been 7.5%, which exhibits
the revenue traction HCLT has witnessed.
• EBIT margins of 14.4% (before ESOP costs) are up 130 bps Q/Q, which is in
line with our expectation. The company had committed to increase 4QFY11
margins to 15.3% (4QFY11 level), and 130 bps margin expansion this quarter
leaves 90 bps gap for the next quarter to fill, which we believe is achievable. We
are particularly pleased with the fact that the company was able to expand
margins while still showing revenue growth. Street’s primary concern on HCLT
was weakness on margins and 3QFY11 should alleviate some of these concerns.
• Industry-wise, revenue growth was driven by BFSI, which reported revenue
growth of 12.6% Q/Q, Energy, Utilities and public sector (+7.1% Q/Q),
Manufacturing (+6.3% Q/Q) also registered healthy growth, while other
verticals witnessed modest growth. Telecom (+0.9%) is the only soft spot for the
quarter, which we believe is indicative of spending pressures in the industry.
• Revenue growth was driven by Infrastructure Services, Custom Application
Services and Enterprise Application Services and, which grew 8.5%. 6.7% and
6.7%, respectively, from 2QFY11. BPO revenues were flat.
• Another positive coming out of the quarter was decrease in attrition (quarterly
annualized attrition decreased to 17.7% for IT Services from 18.1% in 2QFY11
and 21.9% in 1QFY11). We believe the decline across the board (Infosys and
Persistent also reported decline in attrition) should reduce supply-side related
pressures for the industry. Wage hikes are likely to be more moderate in FY12
versus FY11 – a beneficial outcome for the industry.
• We reiterate our OW rating on the stock.
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