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Despite slightly lower-than-expected revenue growth in 4Q11, 20 deal signings in the quarter and
management commentary of a strong deal pipeline give us confidence for strong growth in FY12.
However, we do not see FY12 margins improving due to the resultant S&M and transition costs.
We reiterate Buy.
Large deal landscape underpins strong medium-term growth prospects; reiterate Buy
4Q11 revenues were slightly lower than our estimates (up 3.9% qoq in constant currency), but we
see continued deal flow driving a robust 26% revenue growth in FY12F. HCLT announced 20
deal signings in 4Q11 across verticals and service lines. Management also expects large deal
flow to pick up strongly towards the later part of CY11. Given HCLT’s track record, we expect it to
win a fair share, which should provide a strong medium-term growth platform. On the other hand,
management’s somewhat subdued stance on margins indicates that S&M and transition costs
should pick up visibly, leaving margins unlikely to improve in FY12. Hence we marginally reduce
our FY12F EPS by 2%. We reiterate that HCLT should grow near the upper end of the large-cap
peer group in FY12. Buy.
4Q11 revenues: Infrastructure services leads growth, BPO transition continues
HCLT’s revenues grew 5.3% to US$963m, slightly lower than our estimate of 5.8%. Growth was
led by Infrastructure services (up 10.5% qoq). Software services grew 4.3%, driven by 3% qoq
volume growth and 1.3% currency benefit. BPO revenues were under pressure (down 4.2% qoq),
as HCLT continued to reposition it towards higher-value services. Excluding BPO, IT services
revenue growth was higher at 5.8% qoq than TCS reporting 6.9% qoq growth in international
revenues and Infosys’s 4.6% qoq growth in IT services.
4Q11 margin guidance met; significant below-the-line accounting adjustments
4Q11 EBIT margin rose 106bp qoq to 15.5%, ahead of HCLT’s target of reaching the 4Q10 level
of 15.3%. This was driven by SG&A (up 67bp), operating efficiencies (up 50bp) and currency
(down 12bp). HCLT took Rs188m of net accounting charges in other income on reversal of
provisions for pre-acquisition claims (up Rs1,006m) and lower valuation of intangibles (down
Rs1,193m). FX gain of Rs83m (Rs110m loss in 3Q11) helped recurring PAT grow 15.2% qoq to
Rs5.06bn (RBSe: Rs4.83bn). HCLT generated healthy free cash flow of US$124m (FY11 free
cash flow: US$208m) and days sales outstanding (DSO) (including unbilled) was lower by 10
days yoy to 78.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Despite slightly lower-than-expected revenue growth in 4Q11, 20 deal signings in the quarter and
management commentary of a strong deal pipeline give us confidence for strong growth in FY12.
However, we do not see FY12 margins improving due to the resultant S&M and transition costs.
We reiterate Buy.
Large deal landscape underpins strong medium-term growth prospects; reiterate Buy
4Q11 revenues were slightly lower than our estimates (up 3.9% qoq in constant currency), but we
see continued deal flow driving a robust 26% revenue growth in FY12F. HCLT announced 20
deal signings in 4Q11 across verticals and service lines. Management also expects large deal
flow to pick up strongly towards the later part of CY11. Given HCLT’s track record, we expect it to
win a fair share, which should provide a strong medium-term growth platform. On the other hand,
management’s somewhat subdued stance on margins indicates that S&M and transition costs
should pick up visibly, leaving margins unlikely to improve in FY12. Hence we marginally reduce
our FY12F EPS by 2%. We reiterate that HCLT should grow near the upper end of the large-cap
peer group in FY12. Buy.
4Q11 revenues: Infrastructure services leads growth, BPO transition continues
HCLT’s revenues grew 5.3% to US$963m, slightly lower than our estimate of 5.8%. Growth was
led by Infrastructure services (up 10.5% qoq). Software services grew 4.3%, driven by 3% qoq
volume growth and 1.3% currency benefit. BPO revenues were under pressure (down 4.2% qoq),
as HCLT continued to reposition it towards higher-value services. Excluding BPO, IT services
revenue growth was higher at 5.8% qoq than TCS reporting 6.9% qoq growth in international
revenues and Infosys’s 4.6% qoq growth in IT services.
4Q11 margin guidance met; significant below-the-line accounting adjustments
4Q11 EBIT margin rose 106bp qoq to 15.5%, ahead of HCLT’s target of reaching the 4Q10 level
of 15.3%. This was driven by SG&A (up 67bp), operating efficiencies (up 50bp) and currency
(down 12bp). HCLT took Rs188m of net accounting charges in other income on reversal of
provisions for pre-acquisition claims (up Rs1,006m) and lower valuation of intangibles (down
Rs1,193m). FX gain of Rs83m (Rs110m loss in 3Q11) helped recurring PAT grow 15.2% qoq to
Rs5.06bn (RBSe: Rs4.83bn). HCLT generated healthy free cash flow of US$124m (FY11 free
cash flow: US$208m) and days sales outstanding (DSO) (including unbilled) was lower by 10
days yoy to 78.
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