HCL Technologies: IT’s a steal :: Business Line

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HCL Tech: Solid revenue; margin disappointment, but this seems temporary ■ Credit Suisse

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After a strong Q2JY15, HCLT disappointed the street with below par numbers in Q3JY15 :: HDFC Securities

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HCL Technologies: Remains our top pick High degree of growth comfort and attractive valuations; Buy: Nomura Research

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Buy HCL at Rs 1955 and add on dips to Rs 1730 - Rs 1788 for Target of Rs 2111 in 1 quarter ::HDFC Sec, report

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HCL Technologies: Excellent quarter; sustainability is key :: Kotak Securities

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Excellent quarter; sustainability is key. HCLT reported outstanding 6.2% qoq revenue growth in constant currency. Growth was powered by engineering and R&D services that grew 12.6% qoq. EBIT margin was broadly in line with our estimate. The quarter belied our fears regarding the impact of underinvestment, though we retain our broad hypothesis. We raise FY2015-17E EPS estimates by 3-5% to account for the quarter bucking estimates. We retain our REDUCE rating with a 12-month target price of `1,700 (`1,575 earlier).

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HCL Technologies Ltd. | Q2FY15 Result Update | Strong Performance: $-revenue growth significantly above our estimates | Maintain HOLD | TP Rs.1,954 ::IndiaNivesh

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HCL Technologies - Stellar Show in Seasonally Weak Quarter ::Edelweiss

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Sharp beat on all fronts HCL Tech :: HDFC Securities

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Blowout!!! • HCL Tech :: ICICI Securities, report

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HCL Technologies Ltd (HCTL)…Q2FY15 Pre-quarter earnings update; Maintain HOLD with target price to Rs.1,697 :: IndiaNivesh

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Annual Report Analysis - HCL Technologies Ltd ::Edelweiss, link

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Revival in core software encouraging… • HCL Tech :: ICICI Securities, PDF link

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HCL Technologies Ltd. (HCLT)|Q1FY15 Result Update | Below Expectation Performance: $-revenue growth significantly below our estimates | Maintain HOLD | TP Rs.1,697:: IndiaNivesh

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J.P. Morgan -HCL-Technologies -Hypothetically asking ..

Hypothetically asking - who could be credible suitors for Mr. Shiv Nadar's stake in HCLT?		Overweight Price: Rs1,530.20 24 February 2014 Price Target: Rs1,500.00 PT End Date: Dec-14

There is talk among some sections of the media (click here) that Mr. Shiv Nadar, the promoter of HCLT (OW) is seeking to sell his 62% stake, currently valued at just over US$ 10 billion. This would represent a significant transaction for any buyer not to mention the additional outgo associated with the mandatory open offer, which might well make it a transaction exceeding US$ 13 billion (all-in at the current stock price). We are not ascribing any opinion as to the credibility of these reports (the company has denied this) but only trying to respond to a hypothetical question: which company(ies)/entities could be interested in such a big-ticket transaction and more important, possess the financial clout to be able to process it?

· For starters, let’s look at it from the digestion standpoint: HCLT is well beyond what we characterize as the sweet spot of a target. We characterize the sweet spot as between 10,000 and 40,000 employees. At over 85,000 employees, HCLT, in our view, is too large a target that can be smoothly incorporated into the operations of the acquirer. Take the instances of notable offshore-based acquisitions over the past decade (IBM’s acquisition of BPO player Daksh, Oracle’s acquisition of i-Flex, TCS’s acquisition of eServe, Cap Gemini’s acquisition of Kanbay, HP’s acquisition of EDS/majority stake in Mphasis following on from the EDS acquisition). All these targets had less than 35,000 employees at the time of acquisition. The one exception was Satyam, which had 52,000 employees when Tech Mahindra acquired a controlling stake in April 2009. But it was in Tech Mahindra’s interest to phase out Satyam employees in a calibrated fashion in addition to normal attrition (so, within 12 months or so of the acquisition, the employee base of 52,000 sharply shrunk to just over 30,000). The business opportunity cost of employee downsizing was minimal for Tech Mahindra as Satyam had already started losing a substantial amount of business from clients that ejected Satyam from the vendor list following the scandal. In addition, at the time of this transaction, Satyam had many more employees than its true business (actual revenues, not stated revenues) warranted. HCLT, if anything, is in a diametrically opposite situation with little slack in its operating model. It is difficult to optimize further in HCLT without hurting the cause of revenue  growth.

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HCL Technologies - Infrastructure Svcs led-growth not at cost of balance sheet -Centrum

Rating: Buy; Target Price: Rs1,540; CMP: Rs1,246; Upside: 24%



Infrastructure Svcs led-growth not at cost of balance sheet

In response to investor concerns about HCLT’s balance sheet
deterioration as revenue share of Infra. Svcs increases, we note that
though 67.3% of FY13 incremental revenue came from Infra. Svcs, this
has not affected the balance sheet as HCLT’s deals are not based on
the now-obsolete asset-takeover models that the erstwhile EDS (now
part of HP) was known for. We believe that HCLT’s current P/E discount
to its Tier-1 peers is undeserved and maintain Buy with an unchanged
Dec’14 TP of Rs1,540 (noting that possible re-rating can provide
further upside)..

$ Fixed asset turnover improvement despite Infra Svcs led growth =>
asset light deals: Fixed Assets turnover has actually improved for
HCLT from FY09 to FY13 (see table on page 1 in the report and Exhibit
1) even as Infra. Svs proportion of revenue has nearly doubled. While
it still lags industry leaders like TCS and Infosys in terms of Fixed
Asset turnover due to the Axon acquisition that had added INR33.5Bn to
Goodwill in FY09, it leads these peers when excluding Goodwill.
Translation exchange differences relating to the goodwill added a
further INR8.4Bn to HCLT’s goodwill over FY12.

$ DSOs incl. Unbilled Rev. similar to TCS and Infosys; part of FP
contract models: At 90.4 days, HCLT’s FY13 DSOs including unbilled
revenues is comparable to Infosys’ 86.6 days and TCS’ 99.9 days for
their respective FY13 (see Exhibit 1). We think that an increase in
DSOs is bound to happen with a shift to fixed price execution that is
milestone-based as milestones for large programs may not be easy to
invoice monthly and an increase in unbilled revenue becomes
unavoidable under these circumstances.

$ EBITDA to OCF conversion ex-working capital similar across HCLT,
Infosys, TCS: We’ve heard concerns about vendor credit helping boost
OCF for HCLT. We note that working capital contribution to OCF has
been negative every year across FY09-FY13. While vendor credit has
helped HCLT reduce the gap between OCF before and after working
capital changes to a level not matched by Infosys and TCS, we point
out that even excluding working capital changes, HCLT edges out
Infosys and TCS narrowly in EBITDA-to-OCF conversion.

$ Maintaining estimates; maintain Buy: HCLT is currently trading at a
steep discount of 18% to Infosys and 27% to TCS in P/E terms. We
maintain our estimates and maintain our Buy recommendation with an
unchanged Dec’14 TP of Rs1,540 (14x 1-Year Fwd EPS at Dec’14 Our
target PE still factors an 18% discount to our target multiple of 17x
for TCS and if investor perception regarding Infra. Svcs improves, a
rerating can provide further upside. The recent resumption in
outperformance could thus continue. Key risks to our call are 1) a dip
in win-rates for large Infrastructure Svcs deals and 2) sharp INR
appreciation.

Thanks & Regards

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Religare Research | HCL Technologies: Mixed rev. growth but margins surprise again; HOLD

Mixed rev. growth but margins surprise again; HOLD
HCLT reported in-line US$ revenues (+3% QoQ) but a positive margin surprise
(+140bps QoQ). Infrastructure services continued to drive growth (+8.6% QoQ)
while Software services was sluggish (+0.6% QoQ). Software volume growth of
1.4% QoQ was below peers (Infy/TCS). We raise FY14 earnings estimates by
11% to factor in better margins and INR depreciation. While HCLT’s earnings
performance remains ahead of expectations, further re-rating hinges on more
broad-based growth and recovery in Software Services. Maintain HOLD.

HCL Technologies Focus list stock Revenue momentum and margin improvement continues ::Credit Suisse

● The revenue momentum continues…: HCLT reported another
strong quarter of 3.1% USD (3.9% cc), once again driven by
infrastructure management services (+9% QoQ). Software
services have been muted for a year now but may pick up with
some uptick in discretionary spending. Full report.
● … and so does margin improvement: EBIT margins were up 140
bp QoQ driven by the INR depreciation and some operational
improvements. Margins for FY13 were up 380 bp YoY and
management expects stability in margins going ahead.
● Based on these results, we are revising up our FY14/FY15
estimates again by 5%/6% and our target price from Rs950 to
Rs1,100 (24-month forward P/E of 15x).
● Some upward earnings revisions and multiple re-rating can be stock
price drivers: While the stock is up 25%+ over the past three
months and 80%+ over the past year, we believe there is possibility
of some more earnings upgrades. Additionally, with such consistent
performance and the recent INR weakness, there is a case for
some multiple expansion. HCLT is a CS NJA Focus List stock.

CLSA HCL tech

Business as usual
Solid confidence on margin performance (ex-currency) was the key
positive takeaway from our interaction with HCL. Company margin
guidance of 18-19% for FY14 at Rs55/$ could well be beaten in our view.
Revenue growth should likely continue the trend seen in recent times –
strong infra services and modest growth elsewhere. Overhang from
immigration bill & a soft overall market sentiment implies stock re-rating
is unlikely but earnings should be good enough to support the stock.

DB - Indian IT Services - Currency tailwind for the sector_ HCL Tech and TCS key beneficiaries

In our view, HCL Tech and TCS will be the main beneficiaries of the recent
rupee depreciation. Our sensitivity analysis suggests that, ceteris paribus, for
every 1% depreciation of the INR vs. the USD, earnings of the top-tier Indian IT
service companies are likely to increase by 1.5-1.9%, while EBIT margins will
be up 20-25bps in FY14E. We believe HCL Tech and Infosys are the most likely
to post better-than-expected margin performance if the rupee weakness
persists, while TCS will reinvest the gains from the weaker rupee to improve its
top line. We reiterate our positive view on the sector, with TCS and Tech
Mahindra our top picks.
Prolonged rupee weakness could accelerate turnaround at Infosys
Rupee depreciation further improves the competitiveness of the Indian IT
service companies. In particular, it will enable vendors to enhance win rates in
IMS (infrastructure management services) based deals. Margin pressure
exerted by these deals (which, in some cases, involve transfer of assets and
employees) can be offset by gains from a weaker rupee. In keeping with recent
trends, we believe TCS will use the current rupee weakness to win more
transformational engagements (involving IMS) and improve its top line, while
maintaining operating margins. With regard to Infosys, a weaker rupee can
help accelerate the ‘course correction’ undertaken by the company. In the
short term, however, we expect it to partially offset the impact of (a) pricing
pressure, (b) wage increases, (c) the deferred cost of the Lodestone acquisition
and (d) heightened investment in sales.
Weak rupee to improve operating margins by 100-150bps in the June-Q
In the June-Q, the rupee has depreciated 5% (average for the quarter) vs. the
USD. We believe this will likely improve operating margins (EBIT) positively by
100-150bps. For TCS, wage hikes offered during the quarter will affect
operating margins by 200-250bps qoq. Overall, we expect TCS to deliver a
25.5% (-100bps qoq) EBIT margin during the Jun-Q.
Valuing Indian IT service stocks at PE of 13-20x FY14E earnings; risks
We continue to value the stocks at 13-20x one-year forward earnings (relative
to their historical trading range, comparing with peers, as well as growth rates)
and will revisit our earnings estimates and target PE multiples once there is
more clarity on the nature and size of IT budgets and the sustainability of the
demand pick-up. The key sector risks relate to cross-currency headwinds.