Buy HCL Technologies - Motilal Oswal

HCL Technologies (HCLT IN; Mkt Cap USD6.6b, CMP Rs426, Buy)

- US dollar revenue of US$803.8m was up 9% QoQ (v/s our estimate of 4.2%).

- There was broad-based demand traction as HCL Tech posted positive sequential growth in every geography, vertical and horizontal, a first for it in 10 quarters.

- EBITDA margin fell 230bp QoQ to 15.6% (v/s our estimate of 15.8%) due to increased SGA costs (15.4% v/s our estimate of 14%).

- The company guided EBITDA margin recovery of 18% by 4QFY11 - a key negative (v/s our estimate of 18.2% for FY11).

- Lower operating margins YoY were driven by wage hikes in 1QFY11, increased lateral hiring, higher SGA and continued operating losses in BPO.

We have revised downwards our FY11 EPS estimates by 3.2% (Rs24.5) on margin headwinds due to higher investments, despite increasing our FY11 US dollar guidance to 30.6% from 22.8% earlier, due to strong broad based growth. Our FY12 EPS estimate is largely unchanged at Rs29.4. Maintain Buy.

Source : Equity Bulls

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