Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL Tech reported largely in line US$-revenue growth (5.3% QoQ
vs CS estimate of 6% growth) and EBIT margin improvement (110
bp QoQ vs CS estimate of 90 bp). Higher non-operating income
led to its PAT beat of 2%.
● While management is not very bullish on the overall global IT
spending scenario, it expects robust top-line growth, driven by
increasing market share against incumbent vendors. We note that
the company reported 20 large transformational deal wins in the
quarter, of which 19 were won against incumbent vendors.
● Management stated that it would focus on gaining market share
going forward. Hence, it aims to achieve FY12 EBIT margin of
14% and would reinvest any surplus back into the business.
● In line with management’s prioritisation of growth over margins in
FY12, we increase our revenue growth estimate and reduce our
EBIT margin estimate. This leads to 4%/2% reduction in our
FY12/FY13 EPS estimates. We note that HCL Tech is expected to
post FY12 EPS growth of 35% YoY vs 9-16% for its largest peers.
We reiterate our OUTPERFORM rating and target price of Rs600.
In-line results
HCL Tech reported US$-revenue growth of 5.3% QoQ vs CS estimate
of 6% QoQ. EBIT margin improved 110 bp QoQ, slightly higher than
our expectation of a 90 bp improvement. Thus, EBIT was largely in
line with our estimate. Higher non-operating income led to its PAT
beat of 2%.
Management expects top-line growth even in an
environment of stagnant global IT spending
HCL Tech’s management indicated that a number of macroeconomic
headwinds would prevent an uptick in global IT spending. However, it
indicated that vendors such as HCL Tech would continue to benefit
from restructuring of contracts, i.e., gaining market share from
incumbents.
Specifically, management mentioned that it expects a large number of
deals to come up for renewal in the Dec-11 quarter and that it was
well-positioned to grab share. It reported that a few years ago, only
5% of new deals were won by non-incumbent vendors; but currently
this proportion had increased to 30%. Management explained that
clients increasingly require: (1) new capabilities/delivery from specific
geographies and (2) more flexibility and lower costs from vendors; and
that top-tier vendors such as HCL Tech are well-positioned to win
these deals in this context.
We note that the company reported 20 multi-year, multi-million dollar
transformational deal wins in the quarter, of which 19 were won
against incumbent vendors. Management also indicated that the
average deal size was among the highest ever for the company.
Guidance of flat margins for FY12
Management stated that it would focus on gaining market share going
forward. Hence, it aims to achieve FY12 EBIT margin of 14% and
would reinvest any surplus back into the business.
We expect the next quarter to see a drop due to wage hikes (offshore:
12-14%, onsite: 2-4%) and subsequent quarters could see increase
largely driven by improving: (1) age pyramid, (2) realisations driven by
change in service mix, (3) utilisation and (4) losses at BPO.
Reiterate our OUTPERFORM
In line with management’s prioritisation of growth over margins in
FY12, we increase our revenue growth estimate and reduced our
EBIT margin estimate. This leads to 4%/2% reduction in our
FY12/FY13 EPS estimates. We expect HCL Tech to post an FY12
EPS growth of 35% YoY, which compares favourably with that of
larger peers (Infosys: 15%, TCS: 16%, Wipro: 9%). We reiterate our
OUTPERFORM rating and target price of Rs600
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL Tech reported largely in line US$-revenue growth (5.3% QoQ
vs CS estimate of 6% growth) and EBIT margin improvement (110
bp QoQ vs CS estimate of 90 bp). Higher non-operating income
led to its PAT beat of 2%.
● While management is not very bullish on the overall global IT
spending scenario, it expects robust top-line growth, driven by
increasing market share against incumbent vendors. We note that
the company reported 20 large transformational deal wins in the
quarter, of which 19 were won against incumbent vendors.
● Management stated that it would focus on gaining market share
going forward. Hence, it aims to achieve FY12 EBIT margin of
14% and would reinvest any surplus back into the business.
● In line with management’s prioritisation of growth over margins in
FY12, we increase our revenue growth estimate and reduce our
EBIT margin estimate. This leads to 4%/2% reduction in our
FY12/FY13 EPS estimates. We note that HCL Tech is expected to
post FY12 EPS growth of 35% YoY vs 9-16% for its largest peers.
We reiterate our OUTPERFORM rating and target price of Rs600.
In-line results
HCL Tech reported US$-revenue growth of 5.3% QoQ vs CS estimate
of 6% QoQ. EBIT margin improved 110 bp QoQ, slightly higher than
our expectation of a 90 bp improvement. Thus, EBIT was largely in
line with our estimate. Higher non-operating income led to its PAT
beat of 2%.
Management expects top-line growth even in an
environment of stagnant global IT spending
HCL Tech’s management indicated that a number of macroeconomic
headwinds would prevent an uptick in global IT spending. However, it
indicated that vendors such as HCL Tech would continue to benefit
from restructuring of contracts, i.e., gaining market share from
incumbents.
Specifically, management mentioned that it expects a large number of
deals to come up for renewal in the Dec-11 quarter and that it was
well-positioned to grab share. It reported that a few years ago, only
5% of new deals were won by non-incumbent vendors; but currently
this proportion had increased to 30%. Management explained that
clients increasingly require: (1) new capabilities/delivery from specific
geographies and (2) more flexibility and lower costs from vendors; and
that top-tier vendors such as HCL Tech are well-positioned to win
these deals in this context.
We note that the company reported 20 multi-year, multi-million dollar
transformational deal wins in the quarter, of which 19 were won
against incumbent vendors. Management also indicated that the
average deal size was among the highest ever for the company.
Guidance of flat margins for FY12
Management stated that it would focus on gaining market share going
forward. Hence, it aims to achieve FY12 EBIT margin of 14% and
would reinvest any surplus back into the business.
We expect the next quarter to see a drop due to wage hikes (offshore:
12-14%, onsite: 2-4%) and subsequent quarters could see increase
largely driven by improving: (1) age pyramid, (2) realisations driven by
change in service mix, (3) utilisation and (4) losses at BPO.
Reiterate our OUTPERFORM
In line with management’s prioritisation of growth over margins in
FY12, we increase our revenue growth estimate and reduced our
EBIT margin estimate. This leads to 4%/2% reduction in our
FY12/FY13 EPS estimates. We expect HCL Tech to post an FY12
EPS growth of 35% YoY, which compares favourably with that of
larger peers (Infosys: 15%, TCS: 16%, Wipro: 9%). We reiterate our
OUTPERFORM rating and target price of Rs600
No comments:
Post a Comment