Buy HCL Tech; target of Rs 465: FIFL

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Buy HCL Tech; target of Rs 465: FIFL

Fortune Interfinance (FIFL) is bullish on HCL Tech and has recommended buy rating on the stock with a target of Rs 465 in its January 19, 2012 research report.

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Fortune Interfinance (FIFL) is bullish on HCL Tech and has recommended buy rating on the stock with a target of Rs 465 in its January 19, 2012 research report.

"HCLT reported strong growth across US and Europe, up 7.3% and 6.3% q-o-q, respectively (in constant currency). However, rest of the world business declined by 11.7% sequentially; which we believe was led by the abrupt discontinuation of a large system integration project in India in the Public services business. Importantly, enterprise applications business (EAS) did reasonably well with growth of 6.5% q-o-q in cc, post rising concerns on the SAP business in the past few quarters. Headcount addition was strong at 2,556, up 3.2% q-o-q. The company has currently 6% of the offshore staff (3,158) in training which should be the key margin lever in the medium to long term. Management alluded to strong market share gains as they closed USD1bn of TCV during the quarter. They expect USD47bn of deals to be restructured in 2012, of which 30% to change hands and HCL to be the key beneficiary of this trend."

"HCL Tech Q2FY12 US $ revenue grew by 2% QoQ, in line with our expectation. In constant currency, US $ revenue grew by 3.7% QoQ. Rupee revenue grew at Rs52.5bn grew by 12.8% QoQ. BIT margins were held by rupee depreciation of 260 bp. PAT at Rs 5.7b, up 15% QoQ.   HCL Tech bagged large deals from 18 clients worth TCV more than 1 bn indicated that it continues to pursue aggressive entry into Fortune 500 clients as clients continue to look for more cost efficient vendors. Co note that it has been able to gain entry into 4 financial services clients in Europe in the recent past. The management said that the deal wins are majorly due to vendor churn at the client end. Deals worth US$47b are expected to be going for re-bid in CY12. Considering that even 30% of this is deals in which existing clients can be displaced, this is a potential opportunity worth US $15bn."

"We at FFIL believe that HCL Tech's deal win in Dec'11 quarter could help the company report industry leading revenue growth in FY13. While INR appreciation and macro headwinds remain a concern, we believe the stock should prove to be more resilient than rest of the sector in the near term. At the CMP of Rs 417, the stock is trading at 10.7x FY13E EPS. 'BUY' recommendation on the stock with a target price of Rs 465 based on 13.5x FY13E EPS," says Fortune Interfinance research report.    

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To read the full report click on the attachment