Recommendations » India

HCL Technologies 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, HCL Technologies (HCL Tech) reported yet another set of healthy results, beating our as well as market expectations on all fronts. Volume growth was ahead of its larger peers at 3.0% qoq. HCL Tech won 12 multi-year, multi-million dollar deals this quarter with total contract value (TCV) of deals won aggregating to US$1bn. The management sounded confident of sustaining revenue growth within the top-tier league. We maintain our Accumulate rating on the stock.

Quarterly highlights: For 2QFY2013, HCL Tech reported revenue of US$1,154mn, up 3.6% qoq, on the back of a whopping 10.0% qoq USD revenue growth in constant currency (CC) terms in its infrastructure services business, though volume growth in core software services stood muted at 0.4% qoq. Despite having a negative wage hike impact, the EBITDA and EBIT margin of the company increased by 40bp and 43bp qoq to 22.6% and 19.8%, respectively, aided by operational efficiencies and improvement in utilization level.

Outlook and valuation: The company announced appointment of Mr Anant Gupta as the Chief Executive Officer of the company with effect from January 17, 2013. The company is witnessing a healthy demand environment and has signed 12 multi-year, multi-million dollar deals during 2QFY2013 on top of 12 deals signed in 1QFY2013. The management maintained its stance that the deals are out of vendor-churn exercises rather than any incremental spending. However, we believe, in such a competitive scenario where all the companies are eyeing the existing pool of deals, an aggressive company like HCL Tech with end-to-end IT capabilities and a strong client mining ability, will emerge as a front runner. We expect HCL Tech to be the outperformer among tier-I IT companies, with USD and INR revenue CAGR of 12.7% and 16.4%, respectively, over FY2012–14E. We expect EBITDA and PAT to post a 20.9% and 21.0% CAGR over FY2012-14E. We value the company at 14.5x FY2014E EPS and give it a target price of Rs.765. We maintain our Accumulate rating on the stock.