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HCL Technologies
Volume growth soft, realisation and FX led EPS beat
v Q1FY12 – Volume growth soft: HCL Technologies (HCLT) reported revenue of
US$1,002mn marginally below expectations (RCMLe US$1013mn) and up 4.1%
QoQ (5.1% CC). Volume growth at 4% QoQ was below estimates. EBIT margins
declined by 110bps (largely due to wage hikes) to 13.9% against our expectations of
150bps QoQ decrease helped by improvement in pricing. Net profits for the quarter
came in at Rs4.8bn ahead of our expectations by 5% on account of better margins
performance and lower FX loss. Infrastructure services segment saw some
moderation in growth momentum up 5.8% CC QoQ, while engineering and R&D
reported growth of 8.6% CC. BPO revenues declined and came in at US$46.5mn,
down 1.3% CC QoQ.
v Growth driven by Americas and Europe: From a region perspective, growth was
good in Americas (up 6.8% CC QoQ) while Europe grew 4.5% CC QoQ. However
ROW growth was muted at 0.7%CC QoQ. Among verticals Retail and
Manufacturing led the growth, up 12%/8.2% CC QoQ respectively. BFSI grew by
2.1% CC QoQ, while Telecom declined by 2%CC QoQ. Both Software services and
Infrastructure services saw EBIT margin decline by 140bps to 15.4%/15.1%
respectively. Losses in the BPO division were lower QoQ to US$3.3mn (US$3.9mn
in last quarter).
v Metrics inline: The Company added 3,053 employees during quarter in the Software
services segment, 783 in Infrastructure but BPO headcount reduced by 362 QoQ.
Utilisation (Incl. trainees) was down QoQ to 69.7% (72.5% in 3QFY11), while
utilisation excluding trainees was flat 76.5%. Attrition inched down marginally to
15.9% (LTM) in IT services. DSOs (ex- unbilled revenues) were flat at 53 days (v/s
54 days in Jun-11) while operating cash flow for the quarter was lower at US$26mn.
v Valuations and View: Overall a soft quarter on volumes from HCLT with a good
margin performance, helped by FX and pricing. However we note that, growth
among the top-tier players is beginning to converge. As such valuations in HCLT
remain reasonable; beating expectations remains the key share price driver. While we
wait for more clarity on volume trajectory on the conference call, we do not
anticipate material change to our EPS estimates. HCLT is currently trading at 13x
FY12 and we have a BUY recommendation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HCL Technologies
Volume growth soft, realisation and FX led EPS beat
v Q1FY12 – Volume growth soft: HCL Technologies (HCLT) reported revenue of
US$1,002mn marginally below expectations (RCMLe US$1013mn) and up 4.1%
QoQ (5.1% CC). Volume growth at 4% QoQ was below estimates. EBIT margins
declined by 110bps (largely due to wage hikes) to 13.9% against our expectations of
150bps QoQ decrease helped by improvement in pricing. Net profits for the quarter
came in at Rs4.8bn ahead of our expectations by 5% on account of better margins
performance and lower FX loss. Infrastructure services segment saw some
moderation in growth momentum up 5.8% CC QoQ, while engineering and R&D
reported growth of 8.6% CC. BPO revenues declined and came in at US$46.5mn,
down 1.3% CC QoQ.
v Growth driven by Americas and Europe: From a region perspective, growth was
good in Americas (up 6.8% CC QoQ) while Europe grew 4.5% CC QoQ. However
ROW growth was muted at 0.7%CC QoQ. Among verticals Retail and
Manufacturing led the growth, up 12%/8.2% CC QoQ respectively. BFSI grew by
2.1% CC QoQ, while Telecom declined by 2%CC QoQ. Both Software services and
Infrastructure services saw EBIT margin decline by 140bps to 15.4%/15.1%
respectively. Losses in the BPO division were lower QoQ to US$3.3mn (US$3.9mn
in last quarter).
v Metrics inline: The Company added 3,053 employees during quarter in the Software
services segment, 783 in Infrastructure but BPO headcount reduced by 362 QoQ.
Utilisation (Incl. trainees) was down QoQ to 69.7% (72.5% in 3QFY11), while
utilisation excluding trainees was flat 76.5%. Attrition inched down marginally to
15.9% (LTM) in IT services. DSOs (ex- unbilled revenues) were flat at 53 days (v/s
54 days in Jun-11) while operating cash flow for the quarter was lower at US$26mn.
v Valuations and View: Overall a soft quarter on volumes from HCLT with a good
margin performance, helped by FX and pricing. However we note that, growth
among the top-tier players is beginning to converge. As such valuations in HCLT
remain reasonable; beating expectations remains the key share price driver. While we
wait for more clarity on volume trajectory on the conference call, we do not
anticipate material change to our EPS estimates. HCLT is currently trading at 13x
FY12 and we have a BUY recommendation.
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