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HCL Technologies Ltd. (HCLT) | Q2FY13 Result




IndiaNivesh Securities Pvt Ltd


17 Jan 2013





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 Result Update HCL Technologies Ltd. (HCLT) | Q2FY13 Result Update | Above expectation performance; Poor show from software services continues.... | HCL Technologies Ltd (HCLT) Q2FY13 performance was above our expectations on all fronts. USD revenues grew by 3.6% qoq to $1,154mn (INSPL est: $1150mn). The revenue growth was led by Infrastructure (+10.9% qoq), BPO (+1.8% qoq) and Software (+0.9% qoq) services. During the quarter, the company reported volume growth of 3.0% qoq (v/s Infosys +2.7% qoq, TCS +1.23% qoq) at company level. However, volume/pricing growth in IT services was only 0.4%/0.5% during the quarter. The muted performance in IT-services segment during 1HFY13 remains a concern. Rupee revenue grew 3.0% qoq to Rs62.7bn (INSPL est: Rs62.2bn). Despite wage hike (90 bps impact) and increased SG&A spend, EBITDA margin expanded 39.9bps qoq (to 22.6%) due to uptake in employee utilization and shift in contract mix. HCLT reported forex loss (net) of Rs125mn (v/s Rs609 mn in Q1FY13 and Rs760mn in Q2FY12). As a result, net profit grew by 8.6% qoq to Rs9.6bn (also led by higher EBITDA). During the quarter, other income went down 21.6% qoq to Rs.279 mn (v/s Rs.356 mn in Q1FY13 and Rs.87 mn in Q2FY12). Adjusting forex loss and other income, net profit was Rs9.5 bn (v/s Rs9.1 bn in Q1FY13 and Rs6.4 bn in Q2FY12). During the quarter, HCLT won 12 multi-year, multi-million dollar contracts which are large integrated engagements (TCV USD 1 bn). Valuations: At CMP of Rs. 703, the stock is trading at 14.7x FY13E (June YE) and 13.5x FY14E (June YE) EPS estimates, which is at 29%/26% discount relative to TCS valuation. The continued muted performance in software services segment remains a concern going-ahead. Higher dependence on Infrastructure & BPO for future revenue and margin expansion increase risk. Any deceleration in the deal wins/demand-environment from key performing segment could significantly affect the performance. As a result, we maintain our NEUTRAL rating on the stock.

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