Kotak Maintains 'Buy' rating on HCL Technologies

The improvement in margins was the highlight of the quarter for HCL Technologies (HCLT). Volume growth of 4.5% was also encouraging. The management has reiterated traction in 'Run-the-business' spends by clients, which bodes well for IMS revenues. Discretionary spends in BFSI remain a concern. Company's strategy of investing in large deals and improving margins later is yielding results, we believe.

While profitability may be lower in the next two quarters as the company invests in new project renewal deals, it should ensure sustained growth in medium term. Our FY13E earnings stand revised to 45.6 (Rs.42.8 earlier), largely due to assumption of better margins. Consequently, our PT stands revised to Rs.640 (Rs.570). We maintain BUY. The company has consistently grown revenues and sustained margins over the past few quarters.

Our major concers are delayed recovery in major user economies may impact our projections and a sharp acceleration in the rupee from our assumed levels may impact our earnings estimates for the company.

Source : Equity Bulls

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