Visit http://indiaer.blogspot.com/ for complete details Inexpensive Tier-I valuation…
HCL Technologies reported its Q1FY10 numbers, which beat our as well
as consensus estimates. HCL reported Q2FY11 revenues of Rs 3611.5
crore (5.4% QoQ growth vs. our 4.7% QoQ estimate) and reported
EBITDA of Rs 588 crore on an EBITDA margin of 16.3% (in line with our
estimate). The net income of Rs 322.6 crore was marginally ahead of our
Rs 290.3 crore estimate, aided by revenue growth.
Operating metric trends: Telecom and Europe bounce back
Banking financial services & insurance (25% of revenues) grew 7.2%
QoQ (in constant currency) vs. 8.3% in Q4FY10. Retail &
manufacturing grew 11.2% and 7.9% QoQ, respectively, led by
demand from consumer electronics. Telecom, the weak link in the
past four quarters, grew 7.2% QoQ. Europe bounced back with
13.4% QoQ growth as it continues to spend on run-the-business
(RTB) metric while Asia saw strong demand uptick and grew 17%
QoQ. The US came in weak with 3% QoQ growth. Noticeably, the
company saw demand traction in South Africa, Middle East, Japan
and China. Active client relationships increased by 18 to 426 vs. 408
in Q4FY10.
Weigh up gross additions, BPO & utilisation
HCL signed 14 multi-year, multi-million deals in Q1FY10 coupled
with 11,785 gross additions in Q2FY11, among its highest.
Noticeably, at 10.3%, BPO had one of its best quarterly attrition
since Q1FY05. Finally, Q1FY11 utilisation of 70.1% is its lowest since
March 2007.
Valuation
HCL Technology is well positioned to participate in incremental demand
with its historically low utilisation levels, superior lateral gross hires
coupled with operating levers that could help sustain operating margins.
Though we maintain our FY12E estimate, we have raised our target
multiple to 15x vs. 14x earlier to account for better revenue visibility in the
core software and infrastructure management business. Consequently,
we have raised our price target to Rs 477 and maintain our BUY rating.
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