Accumulate HCL Tech; target of Rs 470: PINC Research

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Accumulate HCL Tech; target of Rs 470: PINC Research

PINC Research is bullish on HCL Tech and has recommended accumulate rating on the stock with a target of Rs 470 in its January 17, 2012 research report.

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PINC Research is bullish on HCL Tech and has recommended accumulate rating on the stock with a target of Rs 470 in its January 17, 2012 research report.

"HCL Tech, revenue in constant currency grew 3.7%QoQ to USD1,038.9mn. Cross currency movement had negative impact of 1.7% and hence reported revenue grew 2%QoQ to 1,021.9mn. EBITDA margin improved 140bpsQoQ with positive impact of ~260bpsQoQ due to rupee depreciation. PAT grew 15.2%QoQ to Rs5,727mn. Software Services' revenue (with 72% contribution) grew 3.8%QoQ, IMS' revenue (with 23.4% contribution) declined 3%QoQ and BPO revenue (with 4.5% contribution) was flattish with 0.2%QoQ decline."

"India with ~3.3% revenue contribution dipped significantly in this quarter due to execution issues among large clients due to steep INR depreciation. IMS revenues have fallen 3%QoQ. These contracts have been renegotiated and revenue trajectory should be on track. Outside India, IMS revenues had healthy growth. HCL Tech's strategy is to pass on the tailwinds of rupee depreciation to higher S&M expenses to gain an entry into big clients. However, the strategy will succeed if the market revives and possibility of cross selling of services opens up."

"The stock has outperformed expectations in terms of sustaining margins but it will be difficult to maintain as sales and marketing costs increase to grab further market share. The outlook on discretionary spending has been deteriorated from the last quarter's earning commentary. However, relatively inexpensive valuation and lowered expectation makes stock attractive. We maintain our target price of Rs 470 based on 13x FY13E EPS and downgrade the recommendation to 'Accumulate'," says PINC Research report.

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To read the full report click on the attachment