HCL Technologies (HCLT.BO, Buy, On Conviction List) :: Goldman Sachs:: Second Annual IT Services Trip

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HCL Technologies (HCLT.BO, Buy, On Conviction List)
1) First time outsourcers are increasing outsourcing – HCL is witnessing increasing
traction among the first time outsourcers as they are willing to increase outsourcing,
especially in the European region, which is relatively less exposed to outsourcing.
2) Total IT outsourcing deals are defensive and growing – This space is a growing
space now and has a smoothened revenue profile as it is mostly annuity revenues.
HCL can easily squeeze 14% operating margins on these types of deals after leveraging
the India cost advantage.
3) Deal wins by Xerox (from HP) and Nokia (from IBM) could put HCL in the growth
phase – Landmark deal wins like Xerox and Nokia over the past few years have
propelled HCL in to the leading IT companies in this space. Deal pipeline is much
bigger now than ever before and 4QCY11 could be a very important quarter for
vendors.
4) EBIT margins should stay at current levels – Management reiterated its guidance of
maintaining EBIT margins at 14% in 2011 levels and reinvesting any incremental profits
back into the business to enhance its capabilities, strengthen client partners and chase
total outsourcing deals.

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Goldman Sachs:: Second Annual IT Services Trip: LT drivers exist, 2012 outlook hazy