Apr 24, 2012 12:09 PM IST | Source:

Buy HCL Tech on dips; target of Rs 570: Way2Wealth

Way2Wealth is bullish on HCL Tech and has recommended buy rating on the stock with a target of Rs 570 in its April 23, 2012 research report.

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Way2Wealth is bullish on HCL Tech and has recommended buy rating on the stock with a target of Rs 570 in its April 23, 2012 research report.

“HCL Technologies reported impressive sequential topline growth of 2.5% at a time when the entire industry is bogged down by decision delays, project scale downs and slow down in spending. In USD terms, the company reported revenue of $1048mn in Q3FY12 against our expectation of $1037mn. Growth is visible across business segments. Software services recorded a sequential growth of 1.45% backed by 2.86% of volume growth. Infrastructure management, the main growth driver of HCL, bounced back after a couple of quarters of sluggish performance with a 5 % growth sequentially. The BPO business, as committed by the management, revived with a 6.47% growth QoQ and recorded breakeven.”

“HCL is not facing any client and vertical specific scale downs and the very strong order book position gives us confidence of sustained growth in the near to medium term. This is very much different from the commentary coming from the Infosys management about project specific scale downs and decision delays. But management indicated huge uncertainty in the system and lower deals in the market, especially in the BFSI space. Our estimates for FY12 and FY13 more or less remain unchanged for HCL Technologies. We expect the company’s topline to grow by 14.44% in dollar terms against the average industry growth of 11-14%. We are confident the company will outperform given the big deals it has won and the high order book position. But we don’t expect improvement in margins for FY12 and FY13 as HCL clearly targets topline growth instead of margins. The company is expected to continue its aggressive pricing strategy to tap higher market share in existing and new markets.”

“We remain positive on HCL Tech in spite of the recent run up in the stock mainly driven by consistent quarterly performance and better revenue visibility. At the current market price of Rs505, HCL Technologies is trading at 15x of FY12E EPS of Rs32.74 and 13x of FY13E EPS of Rs38.62. We reiterate our “Accumulate” rating on the stock with a target price of Rs570 after discounting FY13E EPS by 15x,” says Way2Wealth research report.

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