HCL Technologies - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, HCL Technologies (HCL Tech) reported yet another strong set of results. Volume growth was robust at 4.5% qoq. HCL Tech, with end-to-end IT capabilities and a strong client mining ability, is clearly emerging as a frontrunner and outperforming many of its peer companies. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 1QFY2013, HCL Tech reported revenue of US$1,114mn, up 3.2% qoq, on the back of a 2.5% qoq volume growth in its core software services business and a whopping 10.3% qoq USD revenue growth in constant currency (CC) terms in its infrastructure services business. The EBITDA and EBIT margins remained almost flat qoq despite of having a negative wage hike impact, aided by operational efficiencies and improvement in utilization level.

Outlook and valuation: The company is witnessing a healthy demand environment and has signed 12 multi-year, multi-million deals during 1QFY2013. The management sounded confident of sustaining revenue growth within the top-tier league along with maintaining operating margins (excluding currency) through operational levers such as utilization and higher off-shoring of revenues. The company has been focusing a lot of effort in the US and Europe geographies to chase the rebid opportunity with its recent win ratios of ~50%, driving confidence on sustaining revenue growth momentum ahead. We expect HCL Tech to be the outperformer among tier-I IT companies, with USD and INR revenue CAGR of 12.4% and 12.8%, respectively, over FY2012–14E, on the back of its higher-value services portfolio, which is set to address the current demand landscape. We expect EBITDA and PAT to post a 9.6% and 10.5% CAGR respectively over FY2012-14E. At the current market price of Rs.580, the stock is trading at 11.9x FY2014E EPS of Rs.48.6. We value the company at 13.5x FY2014E EPS and give it a target price of Rs.648. We maintain our Accumulate rating on the stock.

Source : Equity Bulls

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