Maintain Buy on HCL Technologies - PINC Result Review

HCL Tech recorded revenues of USD804mn which is 9%QoQ growth led by volume growth of 7.4%QoQ and cross currency positive impact of 1.6%QoQ. EPS was Rs4.64 (PINCe – Rs4.62) lower 6%QoQ on the back of dip in EBITDA and lower forex loss.

* Strong volumes and marginal uptick in pricing; salary hike and forex loss play spoilsport
* Europe and APAC outperforms; BFSI demonstrates strength, telecom and retail surprised positively
* IMS and custom applications lead the pack; BPO segment bottomed out and back in growth trajectory

Outlook- large deals, lower margins and higher profitability: HCL Tech had the highest ever gross addition of 11,785 employees. This shows improved visibility for demand going forward. HCL Tech has won 14 large deals in Q1FY11 and has a large deal pipeline. The management plans to increase SG&A to capture growth. We expect the margins to dip in FY11 due to higher SG&A and investments in BPO. Net profit will improve due to the end of cash flow hedge losses after this quarter.

We maintain 'BUY' rating with a price target of Rs488 based on 16xFY12E earnings.

Source : Equity Bulls

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