Earnings Update - HCL Technologies :: CSEC Research

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Earnings Update - HCL Technologies

Dear All,

Lower than expected top line growth…

HCL Technologies revenue growth was below our estimates. Revenue sequentially grew by 2% in dollar terms to US$1,022mn against our expectation of US$1,050mn. Though the revenue from IT services and BPO services were inline with our estimates, subdued performance of Infrastructure Management services in Indian public sector space due to rupee depreciation was the cause for variance in revenue estimate.

Demand Environment

Despite having a challenging global macro economic condition, the deal pipeline continues to remain robust, with 18 large deal wins during the quarter (total TCV of US$1bn), which spread across all verticals. Management expects vendor consolidation to fuel momentum and it has indicated that vendor consolidation will provide business opportunity of ~US$47bn in CY12 of which 30% is likely to be bid by HCL Technologies.

Hedge Position

HCL Tech has outstanding hedge of US$1.2bn (US$980mn cash flow hedge & US$171mn balance sheet hedge). The cash flow hedge consists of US$545mn @ Rs.49.5 and remaining at Rs.54.4.

Dividend

HCL Tech declared a dividend of Rs.2 per share; 36^th consecutive quarter of dividend payout

Outlook & Valuation

At CMP of Rs.418.9, stock trades at 12.6X and 11.2X to FY12 and FY13 earnings estimate of Rs. 33.2 and Rs. 37.5 respectively. We maintain an Outperformer rating on HCL Tech with a target price of Rs. 487. We assign a multiple of 13X FY13 EPS based on a 30% discount to Infosys target PER.

Regards,

CSEC Research