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Top pick in IT services
Revenue surety, best-in-class
earnings growth and
inexpensive valuations; Buy
Action: Reiterate Buy and top-pick status within Tier-1 IT
HCL Tech remains our top pick among tier-1 IT as: 1) it straddles both
market share gains in run-the-business (RTB) spend on strength in
infrastructure management and upside from a revival in change-thebusiness
(CTB) spend given its large engineering services practice and
strong SAP consulting capabilities; 2) its market share gain focus against
MNC players and historically high deal pipeline in the Dec-11 quarter
provide comfort on near-term growth; and 3) we find greater comfort in its
stability of margins, coupled with inexpensive valuations on its best-inclass
earnings growth across the tier-1 IT universe. Reaffirm Buy and TP
of INR530.
Catalyst: Strong deal signings and margin stability
Margin comfort from operations scope and improving pyramid mix
We expect flattish margin levels of ~14% over FY12-13F and see HCL
benefitting more from any likely wage moderation in FY13F, on account of
a higher lateral proportion relative to peers. Utilisation scope of ~300bps
from the recent peak and upsides from rupee depreciation (highest EPS
sensitivity to rupee depreciation among tier-1 peers), provide us with
confidence in our margin expectations.
Best-in-class earnings growth and attractive valuations, in our view
We expect HCL Tech to post higher-than-peer group earnings growth at
~26% over FY11-13F (vs 8-19% at peers). The stock trades at 10.7x
FY13F P/E and we believe a further re-rating is possible on improving
predictability of margins, combined with industry-leading revenue growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Top pick in IT services
Revenue surety, best-in-class
earnings growth and
inexpensive valuations; Buy
Action: Reiterate Buy and top-pick status within Tier-1 IT
HCL Tech remains our top pick among tier-1 IT as: 1) it straddles both
market share gains in run-the-business (RTB) spend on strength in
infrastructure management and upside from a revival in change-thebusiness
(CTB) spend given its large engineering services practice and
strong SAP consulting capabilities; 2) its market share gain focus against
MNC players and historically high deal pipeline in the Dec-11 quarter
provide comfort on near-term growth; and 3) we find greater comfort in its
stability of margins, coupled with inexpensive valuations on its best-inclass
earnings growth across the tier-1 IT universe. Reaffirm Buy and TP
of INR530.
Catalyst: Strong deal signings and margin stability
Margin comfort from operations scope and improving pyramid mix
We expect flattish margin levels of ~14% over FY12-13F and see HCL
benefitting more from any likely wage moderation in FY13F, on account of
a higher lateral proportion relative to peers. Utilisation scope of ~300bps
from the recent peak and upsides from rupee depreciation (highest EPS
sensitivity to rupee depreciation among tier-1 peers), provide us with
confidence in our margin expectations.
Best-in-class earnings growth and attractive valuations, in our view
We expect HCL Tech to post higher-than-peer group earnings growth at
~26% over FY11-13F (vs 8-19% at peers). The stock trades at 10.7x
FY13F P/E and we believe a further re-rating is possible on improving
predictability of margins, combined with industry-leading revenue growth.
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