Reduce HCL Technologies - Geojit BNP Paribas

Maintain 'reduce' on HCL Tech – TP Rs.380

- 'Reduce' rating is maintained on HCL Tech with a target price of Rs.380 over one year. The stock is currently traded in the price range of Rs.495.

- USD revenue growth in 3QFY12 (year end in June) at 2.5% qoq is in line with expectations.

- EBIT margin is 40 bps ahead of analysts' estimates, helped by a drop in headcount (600 qoq), higher utilization, higher offshore revenue and lower than expected SG&A (sales, general & administrative) costs.

- Better growth in infrastructure services revenue at 4.55 qoq and BPO revenue growth at 5.5% qoq have offset muted revenue growth (0.9%qoq) in software.

- Two third of the qoq growth came from outside the US/ Europe. It seems that some of the infra business in India booked in 2Q may have flowed in and has been added to revenue in 3Q.

- Weak financial services revenue at (-) 4.1% qoq appears to be in line with the industry trends.

- The company has won deals worth USD 2.5billion in 2Q and 3Q FY12. Though this is positive, it seems hard to quantify the incremental revenue and margin impact from them because of their multi year duration.

- At the current market valuation, the stock appears expensive and hence, the 'reduce' rating is maintained with an upward revised target price of Rs.380 against the earlier target price of Rs.360.

Source : Equity Bulls

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