Reduce HCL Technologies – TPRs.360 - Geojit BNP Paribas Financial Services Limited

Maintain 'reduce' rating on HCL Tech with a one year target price of Rs.360.

For the 2QFY12, HCL Tech's USD Revenue growth of 2% qoq missed street estimate of above 3%. However, the company could report better EBIT and PAT due to currency gains from a depreciating rupee and higher other income.

Domestic revenue growth was dragged down by infrastructure services' revenue fall of 2.9% because of soft India revenue and rupee weakness.

The company seemed to have done well in its bigger segments during the quarter. Software revenue contributing 72% of total revenue grew 5.3% qoq with volume growth of 4.9%.

Fears of price cuts did not come through and the US & Europe business grew 7.3% and 6.3% qoq respectively.

There is a contraction of 11.7% in other segments, probably due to weak infra revenue in India.

The company has announced 18 multi-year order wins worth over USD1billion, largely in the financial and healthcare area.

The management sees over USD15 billion worth opportunities in 2012 from renewals and vendor churns. However, this seems to be at odds. It is not sure whether 2QFY12 positives like margin gain from favorable exchange rate would continue. New deal ramp ups are also in doubt.

The stock is recommended to 'reduce' with a target price of Rs.360 over one year.

Source : Equity Bulls

Keywords