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D i s c r e t i o n a r y s p e n d s l i k e l y d e c e l e r a t i n g …
HCL Tech’s Q2FY12 numbers were a mixed bag. While volume growth of
4.9% QoQ was ahead of our 3.5% estimate, US$ revenues grew a modest
2% QoQ below our 2.8% QoQ growth estimate. Rupee revenues grew in
line with our estimate while net income was marginally higher.
Infrastructure management services declined in constant and reported
currency, led by weakness in the India business. Onsite pricing declined
1.4% QoQ while offsite declined 1.2%, a second consecutive quarter of
pricing decline. Though it is too early to comment, we believe the pricing
decline is reminiscent of 2008-09 macro uncertainties when strong
volumes were offset by weak pricing (refer exhibit 2).
ƒ Earnings Summary
Q2FY12 US$ revenues grew 2% QoQ (2.8% estimate) to $1022
million while those in rupees terms grew 12.8% QoQ (12.8%
estimate) to | 5,245 crore. EBIT margins improved 156 bps QoQ to
15.8%, modestly above our 15.3% estimate. EBIT margins were
positively impacted by a depreciating rupee (260 bps) and partially
offset by reinvestments (-104 bps). Reported PAT of | 573 crore was
ahead of our | 526 crore estimate aided by higher operating margin
expansion (156 bps vs. our 100 bps) and other income (| -67 crore)
relative to our (| -70 crore) estimate.
ƒ Operating metric highlights
Sequentially, volumes grew 4.9% above our 3.5% estimate while
the company added 57 clients. The company signed 18 large deals
with deal value exceeding US$1 billion total contract value (TCV).
Top 5 client revenues grew 7.7% QoQ while Top 10 and Top 20
grew 4.9% and 3.5%, respectively. The company added 7,804 gross
heads (2,555 net). IT service attrition declined 20 bps to 15.7% vs.
15.9% in Q1.
V a l u a t i o n
We expect rupee revenue/EPS to grow at 21.6%/23.5% CAGR during
FY10-FY13E. We have valued the stock at 13x {modestly below its
historical (since July 2007) one-year forward PE average of 14x to account
for the uncertain macro} our FY13E EPS estimate of | 35 and maintained
our HOLD rating with a price target of | 450.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
D i s c r e t i o n a r y s p e n d s l i k e l y d e c e l e r a t i n g …
HCL Tech’s Q2FY12 numbers were a mixed bag. While volume growth of
4.9% QoQ was ahead of our 3.5% estimate, US$ revenues grew a modest
2% QoQ below our 2.8% QoQ growth estimate. Rupee revenues grew in
line with our estimate while net income was marginally higher.
Infrastructure management services declined in constant and reported
currency, led by weakness in the India business. Onsite pricing declined
1.4% QoQ while offsite declined 1.2%, a second consecutive quarter of
pricing decline. Though it is too early to comment, we believe the pricing
decline is reminiscent of 2008-09 macro uncertainties when strong
volumes were offset by weak pricing (refer exhibit 2).
ƒ Earnings Summary
Q2FY12 US$ revenues grew 2% QoQ (2.8% estimate) to $1022
million while those in rupees terms grew 12.8% QoQ (12.8%
estimate) to | 5,245 crore. EBIT margins improved 156 bps QoQ to
15.8%, modestly above our 15.3% estimate. EBIT margins were
positively impacted by a depreciating rupee (260 bps) and partially
offset by reinvestments (-104 bps). Reported PAT of | 573 crore was
ahead of our | 526 crore estimate aided by higher operating margin
expansion (156 bps vs. our 100 bps) and other income (| -67 crore)
relative to our (| -70 crore) estimate.
ƒ Operating metric highlights
Sequentially, volumes grew 4.9% above our 3.5% estimate while
the company added 57 clients. The company signed 18 large deals
with deal value exceeding US$1 billion total contract value (TCV).
Top 5 client revenues grew 7.7% QoQ while Top 10 and Top 20
grew 4.9% and 3.5%, respectively. The company added 7,804 gross
heads (2,555 net). IT service attrition declined 20 bps to 15.7% vs.
15.9% in Q1.
V a l u a t i o n
We expect rupee revenue/EPS to grow at 21.6%/23.5% CAGR during
FY10-FY13E. We have valued the stock at 13x {modestly below its
historical (since July 2007) one-year forward PE average of 14x to account
for the uncertain macro} our FY13E EPS estimate of | 35 and maintained
our HOLD rating with a price target of | 450.
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