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HCL TECHNOLOGIES
1Q FY12 results: just acceptable
Tweaking FY12-13 forecasts: HCL Tech’s in line numbers failed to enthuse the
market today, which has come to expect superlative performance from this company
every quarter. However, HCL Tech still remains on target to achieve revenue growth
of approximately 20% in FY12 (June year-end), which is we view as excellent in the
current environment. Performance in terms of margins, human resources and
business mix all indicate a change in business strategy focused on reducing risk.
This, coupled with cheap valuations (13x one-year forward P/E) underpin our
1-OVERWEIGHT rating on the stock and our Rs485 PT.
Good top-line, margins impacted by wage hikes: HCL Tech’s revenue growth of 5.1%
q/q was similar to its larger peers such as Infosys and TCS. Margins declined 120bps
q/q, on the back of wage hikes, although the level of the decline was lower than our
expectations (165bps).
In line with our key metrics: The BPO business continues to turn around, with losses
for the quarter reduced by US$0.6mn. Hiring in the IT Services segment (a 6% q/q
increase in manpower) indicates good business visibility. Attrition rates declined by
0.6%, implying better employee satisfaction.
Valuations support; still the cheapest among the top-4 Indian companies: HCL Tech
trades at a 12-month forward P/E of 13x, (a 25% discount to Infosys) and is expected
to deliver a three-year EPS CAGR of 22%. We find the stock cheap and hence maintain
our 1-OW rating and 12-month PT of Rs485. The company has the lowest forex
hedging (35% of revenues) among its peers, potentially leading to maximum Rupeedenominated
EPS upside in a depreciating local-currency scenario.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL TECHNOLOGIES
1Q FY12 results: just acceptable
Tweaking FY12-13 forecasts: HCL Tech’s in line numbers failed to enthuse the
market today, which has come to expect superlative performance from this company
every quarter. However, HCL Tech still remains on target to achieve revenue growth
of approximately 20% in FY12 (June year-end), which is we view as excellent in the
current environment. Performance in terms of margins, human resources and
business mix all indicate a change in business strategy focused on reducing risk.
This, coupled with cheap valuations (13x one-year forward P/E) underpin our
1-OVERWEIGHT rating on the stock and our Rs485 PT.
Good top-line, margins impacted by wage hikes: HCL Tech’s revenue growth of 5.1%
q/q was similar to its larger peers such as Infosys and TCS. Margins declined 120bps
q/q, on the back of wage hikes, although the level of the decline was lower than our
expectations (165bps).
In line with our key metrics: The BPO business continues to turn around, with losses
for the quarter reduced by US$0.6mn. Hiring in the IT Services segment (a 6% q/q
increase in manpower) indicates good business visibility. Attrition rates declined by
0.6%, implying better employee satisfaction.
Valuations support; still the cheapest among the top-4 Indian companies: HCL Tech
trades at a 12-month forward P/E of 13x, (a 25% discount to Infosys) and is expected
to deliver a three-year EPS CAGR of 22%. We find the stock cheap and hence maintain
our 1-OW rating and 12-month PT of Rs485. The company has the lowest forex
hedging (35% of revenues) among its peers, potentially leading to maximum Rupeedenominated
EPS upside in a depreciating local-currency scenario.
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