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India Equity Research Reports, IPO and Stock News
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http://www.kotaksecurities.com/pdf/dmb/MorningInsight19042012.pdf
HCL TECHNOLOGIES LTD (HCLT)
PRICE: RS.494 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.516 FY13E P/E: 13.1X
HCLT's operating results were almost in line with expectations. The 2.9%
(4.9% in 2Q) volume growth in Software Services was in line with
expectations and was better than the 1.9% de-growth reported by Infosys.
HCLT has achieved consistency in revenues, especially in Software Services,
over the past few quarters. However, de-growth in BFSI (4.1%) and US
geography (1.1%), in CC terms, is of some concern. Average realizations
were stable on a CC basis. EBIDTA margins were flat QoQ and in line with
estimates. There was a reduction in employee strength on a QoQ basis,
though.
Management has indicated continuing headwinds for the industry in the
form of an uncertain macro which is affecting decision-making. The
structural change in the US BFSI sector is leading to vendor churn and
squeeze on margins for incumbents, according to the management. HCLT's
focus on the churn market has yielded results with record wins of $1.5bn in
3Q and $2.5bn in past 6 months, mostly from F500 / G2000 companies. The
company intends to focus on execution over the next 1-2 quarters. It added
52 new clients, which is also encouraging.
The employee strength has reduced QoQ and this is of some concern. We
understand that, the company will be looking at more laterals to support
future growth. The potential reduction in utilization rates may restrict
margin expansion in the near future even as the company focuses on cost
optimization and higher off-shore content.
We have tweaked our earnings estimates for FY12 and FY13. Rupee is
expected to average 50 / USD in FY13. EPS is expected to be Rs.32.2 in FY12
(Rs.32.3 earlier) and Rs.37.8 in FY13 post ESOP-related charges. We value the
stock on FY13 earnings and accord valuations at a slight discount to those
of Infosys, due to the relatively lower margins. Consequently, we arrive at a
PT of Rs.516 (Rs.499). The stock has run up post our previous BUY rating and
we thus, downgrade the stock to ACCUMULATE. A sharp appreciation in the
rupee against various currencies and a delay in recovery in major user
economies remain the key concerns.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
http://www.kotaksecurities.com/pdf/dmb/MorningInsight19042012.pdf
HCL TECHNOLOGIES LTD (HCLT)
PRICE: RS.494 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.516 FY13E P/E: 13.1X
HCLT's operating results were almost in line with expectations. The 2.9%
(4.9% in 2Q) volume growth in Software Services was in line with
expectations and was better than the 1.9% de-growth reported by Infosys.
HCLT has achieved consistency in revenues, especially in Software Services,
over the past few quarters. However, de-growth in BFSI (4.1%) and US
geography (1.1%), in CC terms, is of some concern. Average realizations
were stable on a CC basis. EBIDTA margins were flat QoQ and in line with
estimates. There was a reduction in employee strength on a QoQ basis,
though.
Management has indicated continuing headwinds for the industry in the
form of an uncertain macro which is affecting decision-making. The
structural change in the US BFSI sector is leading to vendor churn and
squeeze on margins for incumbents, according to the management. HCLT's
focus on the churn market has yielded results with record wins of $1.5bn in
3Q and $2.5bn in past 6 months, mostly from F500 / G2000 companies. The
company intends to focus on execution over the next 1-2 quarters. It added
52 new clients, which is also encouraging.
The employee strength has reduced QoQ and this is of some concern. We
understand that, the company will be looking at more laterals to support
future growth. The potential reduction in utilization rates may restrict
margin expansion in the near future even as the company focuses on cost
optimization and higher off-shore content.
We have tweaked our earnings estimates for FY12 and FY13. Rupee is
expected to average 50 / USD in FY13. EPS is expected to be Rs.32.2 in FY12
(Rs.32.3 earlier) and Rs.37.8 in FY13 post ESOP-related charges. We value the
stock on FY13 earnings and accord valuations at a slight discount to those
of Infosys, due to the relatively lower margins. Consequently, we arrive at a
PT of Rs.516 (Rs.499). The stock has run up post our previous BUY rating and
we thus, downgrade the stock to ACCUMULATE. A sharp appreciation in the
rupee against various currencies and a delay in recovery in major user
economies remain the key concerns.
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