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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).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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2QFY15—good show; revenue growth impresses HCLT reported strong revenue growth of 4% qoq in US$ terms and 6.2% qoq in constant currency (c/c). Revenue growth was led by engineering and R&D services (+11.3% qoq), while IMS chipped in with 3.7% growth. Revenue came in better than estimated even as growth from Top 5 and Top 10 clients was muted. EBITDA margin at 25% was down 10 bps, considerably better than our estimated 50 bps, thanks in some part to a higher Re/USD rate for the quarter. US$3.5 mn from cancelled stock options also lifted earnings and contributed to the upside surprise. Net profit at `19.2 bn beat our estimates owing to higher revenue and lowerthan-expected depreciation expense (+4.7% qoq, -41% yoy). Broad-based growth is encouraging; consistency is the key Our caution regarding the stock has come from rising competition in IMS, underinvestment in business and insufficient avenues for growth and unsustainable margins. These fears have not played out this quarter. Points to note (1) conversations with industry participants suggest a decline in HCLT’s wins rate in IMS (+3.7% qoq). Strong growth suggests either incremental deals from existing clients outside the purview of rebid markets, the expansion of overall market, or quarterly spikes; (2) growth has accrued from engineering and R&D services; HCLT management detailed significant growth plans from this offering. It does have long-term growth potential, but we remain wary of two factors in this service line—lumpiness and the non-annuity nature of a large portion of revenues; and (3) margin headwinds in the form of increased SG&A spends, currency pressures, and continued investment to create/support new avenues of growth. Maintain REDUCE rating HCLT’s earnings upgrades in the past few quarters have been led by (1) margin surprise, (2) smart treasury management, (3) tax optimization and (4) more recently, lower depreciation charge. Some of these drivers of earnings upgrades in the past will drag earnings over the next few years. We raise our FY2015-17E EPS by 3-5% to factor in the quarter’s outperformance. We increase our TP to `1,700 (`1,575 earlier) valuing the stock at about 14X September 2016 EPS. We maintain our REDUCE rating.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
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).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
2QFY15—good show; revenue growth impresses HCLT reported strong revenue growth of 4% qoq in US$ terms and 6.2% qoq in constant currency (c/c). Revenue growth was led by engineering and R&D services (+11.3% qoq), while IMS chipped in with 3.7% growth. Revenue came in better than estimated even as growth from Top 5 and Top 10 clients was muted. EBITDA margin at 25% was down 10 bps, considerably better than our estimated 50 bps, thanks in some part to a higher Re/USD rate for the quarter. US$3.5 mn from cancelled stock options also lifted earnings and contributed to the upside surprise. Net profit at `19.2 bn beat our estimates owing to higher revenue and lowerthan-expected depreciation expense (+4.7% qoq, -41% yoy). Broad-based growth is encouraging; consistency is the key Our caution regarding the stock has come from rising competition in IMS, underinvestment in business and insufficient avenues for growth and unsustainable margins. These fears have not played out this quarter. Points to note (1) conversations with industry participants suggest a decline in HCLT’s wins rate in IMS (+3.7% qoq). Strong growth suggests either incremental deals from existing clients outside the purview of rebid markets, the expansion of overall market, or quarterly spikes; (2) growth has accrued from engineering and R&D services; HCLT management detailed significant growth plans from this offering. It does have long-term growth potential, but we remain wary of two factors in this service line—lumpiness and the non-annuity nature of a large portion of revenues; and (3) margin headwinds in the form of increased SG&A spends, currency pressures, and continued investment to create/support new avenues of growth. Maintain REDUCE rating HCLT’s earnings upgrades in the past few quarters have been led by (1) margin surprise, (2) smart treasury management, (3) tax optimization and (4) more recently, lower depreciation charge. Some of these drivers of earnings upgrades in the past will drag earnings over the next few years. We raise our FY2015-17E EPS by 3-5% to factor in the quarter’s outperformance. We increase our TP to `1,700 (`1,575 earlier) valuing the stock at about 14X September 2016 EPS. We maintain our REDUCE rating.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
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