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V a l u a t i o n s O K r e l a t i v e t o r e v e n u e /ma r g i n t r a d e - o f f…
HCL Tech reported Q1FY12 numbers that did not beat our modest
estimates. US$ revenue growth moderated to 4.1% - slowest since
Q1FY11 - & was below our 4.4% estimate while rupee revenue grew 8.2%
QoQ ahead of 7% estimate. Software services volumes continue to be
tepid & grew 4% QoQ. Despite a top quartile constant currency revenue
growth performance, at current operating margin levels of 14.3%, the
trade-off appears nominal and revokes the cheap valuation & PE multiple
expansion argument. Consequently, we maintain our HOLD rating.
ƒ Earnings summary
Q1FY12 US$ revenues grew 4.1% QoQ (4.4% estimate) to $1 billion
while those in rupees grew 8.2% QoQ (7% estimate) to | 4,651 crore
helped by 5.1% overall volume growth. EBIT margins declined 112
bps QoQ to 14.3%, modestly above our 13.7% estimate. EBIT
margins were impacted by salary increments (-200 bps), SG&A
investments (-53 bps) and utilisation (-45 bps) while f/x (+102 bps)
and operating efficiencies (+84 bps) created tailwinds. Reported
PAT of | 496.7 crore was in line with our | 496.8 crore estimate.
ƒ BFSI, enterprise application (-); engineering & R&D, Americas (+)
The operational performance was not superlative either. BFSI
(25.1% of revenues) continues to be weak with 2% QoQ- constant
currency (CC) growth vs. 2% growth in Q1. Healthcare, energy
utilities & media were largely flat QoQ-CC while telecom declined
2% QoQ-CC. Manufacturing (29%) stood out with 8.2% QoQ-CC
growth. Enterprise application (20.8%) & BPO (5.2%) declined 0.6%
& 1.3% QoQ-CC, respectively. Engineering & R&D, custom
application & infrastructure services grew 8.6%, 7.3% and 5.8%
QoQ-CC, respectively.
V a l u a t i o n
We expect rupee revenue/EPS to grow at 19%/21% CAGR during FY10-
FY13E. Further, we are modelling 21% CAGR growth in US$ revenues
during the same period. We continue to value HCL Tech at 13.2x our
FY13E EPS estimate of | 34, i.e. at | 450 and maintain our HOLD rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
V a l u a t i o n s O K r e l a t i v e t o r e v e n u e /ma r g i n t r a d e - o f f…
HCL Tech reported Q1FY12 numbers that did not beat our modest
estimates. US$ revenue growth moderated to 4.1% - slowest since
Q1FY11 - & was below our 4.4% estimate while rupee revenue grew 8.2%
QoQ ahead of 7% estimate. Software services volumes continue to be
tepid & grew 4% QoQ. Despite a top quartile constant currency revenue
growth performance, at current operating margin levels of 14.3%, the
trade-off appears nominal and revokes the cheap valuation & PE multiple
expansion argument. Consequently, we maintain our HOLD rating.
ƒ Earnings summary
Q1FY12 US$ revenues grew 4.1% QoQ (4.4% estimate) to $1 billion
while those in rupees grew 8.2% QoQ (7% estimate) to | 4,651 crore
helped by 5.1% overall volume growth. EBIT margins declined 112
bps QoQ to 14.3%, modestly above our 13.7% estimate. EBIT
margins were impacted by salary increments (-200 bps), SG&A
investments (-53 bps) and utilisation (-45 bps) while f/x (+102 bps)
and operating efficiencies (+84 bps) created tailwinds. Reported
PAT of | 496.7 crore was in line with our | 496.8 crore estimate.
ƒ BFSI, enterprise application (-); engineering & R&D, Americas (+)
The operational performance was not superlative either. BFSI
(25.1% of revenues) continues to be weak with 2% QoQ- constant
currency (CC) growth vs. 2% growth in Q1. Healthcare, energy
utilities & media were largely flat QoQ-CC while telecom declined
2% QoQ-CC. Manufacturing (29%) stood out with 8.2% QoQ-CC
growth. Enterprise application (20.8%) & BPO (5.2%) declined 0.6%
& 1.3% QoQ-CC, respectively. Engineering & R&D, custom
application & infrastructure services grew 8.6%, 7.3% and 5.8%
QoQ-CC, respectively.
V a l u a t i o n
We expect rupee revenue/EPS to grow at 19%/21% CAGR during FY10-
FY13E. Further, we are modelling 21% CAGR growth in US$ revenues
during the same period. We continue to value HCL Tech at 13.2x our
FY13E EPS estimate of | 34, i.e. at | 450 and maintain our HOLD rating.
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