“HCL Technologies’ revenue and margins in 3QFY12 were in line with expectations, while net profit was nearly 5% more than consensus estimates aided by higher other income and lower forex losses. Deal wins of US$1.5bn ensure decent revenue visibility for FY13, a key concern for the street and rightly so after the subdued outlook from Infosys. HCL Tech’s earnings report is a vote in favour of the “company-specific issues (read Infosys-specific)” camp. However, its stock price has risen 28% since we upgraded it to Buy in January and valuation at 12.5x FY13E EPS does not leave much room for upside. We maintain our Hold rating on the stock with a revised TP of Rs515 (Rs504), as we raise our target PE multiple to 13x (12.5x).”
“HCL Technologies reported a 2.5% QoQ growth in dollar revenues to US$1,048mn (our estimate US$1,052mn), while rupee revenues fell slightly by 0.6% QoQ (Rs52.2bn versus our and consensus estimates of Rs52.9bn). Software services volume growth was slightly ahead of expectation at 3% QoQ (our estimate 2.7%); blended pricing declined 1.5% QoQ (more than our estimate of 0.8% QoQ decline). Software services revenue grew 1.5% QoQ to US$747mn (our estimate US$750mn). BPO revenues surged 6.5% QoQ to US$49mn, the fastest growth rate since 2QFY09, while infrastructure management services (IMS) grew 5.1% QoQ to US$251mn, a strong bounce-back after a sequential revenue decline in 2QFY12. HCL Tech reported an 11bps QoQ fall in EBITDA margin to 18.4%, in line with our estimate (40bps ahead of consensus). The BPO segment turned EBITDA-positive for the first time since 2QFY10 and, we believe, this could be a margin lever for FY13. Higher other income and lower forex losses aided a 5.2% QoQ rise in net profit to Rs6.03bn, ahead of our estimate by 2.1% and ahead of consensus estimates by 4.6%.”
“HCL Tech’s earnings report is a vote in favour of the “company-specific issues (read Infosys-specific)” camp. However, after a 28% rise in the stock over the past three months, valuation at 12.5x FY13E EPS is on the higher side. We retain our Hold rating on the stock with a revised TP of Rs515 (Rs504), as we raise our target PE multiple to 13x (12.5x),” says Nirmal Bang research report
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