Buy HCL Technologies - TP Rs.900.00 - Geojit BNP Paribas Financial Services

- HCL Tech is rated to 'buy' with a target price of Rs.900. The stock is currently traded in the range of Rs.760.

- The company reported 3QFY13 USD revenue growth at 3.2% qoq, which was in line with analysts' expectations.

- EBIT margin was flat qoq as against analysts' expectation of a minor dip. Stable EBIT margin was on higher utilizations and efficiencies in infrastructure services projects.

- This along with higher other income led to an EPS beat of 4%.

- Infra services providing 30% of revenue increased 9% qoq on constant currency (CC) basis after a 10% qoq increase in 1Q and 2Q. Better than expected growth in this segment drove growth.

- But the Core Software growth (this segment contributes 66% of revenue) was again modest.

- With a likely demand recovery ahead and another USD1 billion plus of order win in 3Q, the company seems well placed to sustain its current growth rate of over 3.6% (qoq average since 1QFY12) and may meet analysts' estimates.

- The company has leveraged its strength in infra services to drive growth in its core markets including Europe and America.

- The 3Q EBIT margin of 19.9% is above the company target of 18-19% and may fall. EBIT margin expected for FY14 is 18.1%.

- Among the major negatives, fall in Core Software headcount is number one. It declined 3100 in 9MFY13. This would need to pick up to support growth.

Source : Equity Bulls

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