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UBS Investment Research
First Read: HCL Technologies
R evenue in-line, volumes lower than est
Event: 1Q FY12 revenue, margins in line
HCL Tech reported 1Q revenue of US$1bn, up 4.1% QoQ, in line with estimates.
Infrastructure services slowed down to 4.3% QoQ growth (US$246m) after over
11% average QoQ growth for the last 10 quarters. Software services grew 4.5%
QoQ to US$709mn and BPO declined 2.4% QoQ to US$46.5bn. EBITDA margins
down 140bps at 17.1%, in line. Net profit was down 2.4% to Rs4.8bn.
Impact: revenue growth lower than Infosys, TCS
Dollar revenue growth at 4.1% was lower than 4.5% reported by Infosys and 4.7%
for TCS. We note that HCL Tech’ revenue outperformance to Infosys and TCS has
slowed over the last few quarters. We also note that revenue momentum for HCL
Tech has followed a tightening in sales & marketing expenditure over the last few
quarters – 14.4% in 1Q FY12 from 15.4% in 1Q FY11 and 13.9% in 4Q FY11.
This makes us wonder if HCL Tech needs to continuously invest in client facing
activities in order to achieve faster revenue growth.
Action: see no reason to prefer HCL Tech to Infosys, TCS
We believe faster revenue growth has been the primary reason behind stock price
upsides for HCL Tech in the past, given that margin performance in FY11 has been
lacklustre. With revenue growth slowing down, we see no reason to prefer HCL
Tech over Infosys or TCS.
Valuation: maintain Sell
Maintain sell with DCF based PT of Rs380.
HCL Technologies
HCL Tech is a leading Indian IT Services company with US$2.2bn revenue and
around 55,000 employees in FY09. The company focuses on technology and
R&D outsourcing and provides technology development services (development,
redevelopment and maintenance of software); enterprise application services;
infrastructure services; and BPO.
Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: HCL Technologies
R evenue in-line, volumes lower than est
Event: 1Q FY12 revenue, margins in line
HCL Tech reported 1Q revenue of US$1bn, up 4.1% QoQ, in line with estimates.
Infrastructure services slowed down to 4.3% QoQ growth (US$246m) after over
11% average QoQ growth for the last 10 quarters. Software services grew 4.5%
QoQ to US$709mn and BPO declined 2.4% QoQ to US$46.5bn. EBITDA margins
down 140bps at 17.1%, in line. Net profit was down 2.4% to Rs4.8bn.
Impact: revenue growth lower than Infosys, TCS
Dollar revenue growth at 4.1% was lower than 4.5% reported by Infosys and 4.7%
for TCS. We note that HCL Tech’ revenue outperformance to Infosys and TCS has
slowed over the last few quarters. We also note that revenue momentum for HCL
Tech has followed a tightening in sales & marketing expenditure over the last few
quarters – 14.4% in 1Q FY12 from 15.4% in 1Q FY11 and 13.9% in 4Q FY11.
This makes us wonder if HCL Tech needs to continuously invest in client facing
activities in order to achieve faster revenue growth.
Action: see no reason to prefer HCL Tech to Infosys, TCS
We believe faster revenue growth has been the primary reason behind stock price
upsides for HCL Tech in the past, given that margin performance in FY11 has been
lacklustre. With revenue growth slowing down, we see no reason to prefer HCL
Tech over Infosys or TCS.
Valuation: maintain Sell
Maintain sell with DCF based PT of Rs380.
HCL Technologies
HCL Tech is a leading Indian IT Services company with US$2.2bn revenue and
around 55,000 employees in FY09. The company focuses on technology and
R&D outsourcing and provides technology development services (development,
redevelopment and maintenance of software); enterprise application services;
infrastructure services; and BPO.
Statement of Risk
A sharp decline in IT Services spending could result in downward revision of
our earnings estimates.
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