Buy HCL Tech; target of Rs 530: Prabhudas Lilladher

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Buy HCL Tech; target of Rs 530: Prabhudas Lilladher

Prabhudas Lilladher is bullish on HCL Tech and has recommended buy rating on the stock with a target of Rs 530 in its January 17, 2012 research report.

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Prabhudas Lilladher is bullish on HCL Tech and has recommended buy rating on the stock with a target of Rs 530 in its January 17, 2012 research report.

"HCL Technologies' (HCLT's) performance was largely in-line with expectation. However, margin performance, which was better than consensus (lower than PLe), was driven by higher currency depreciation. Moreover, strong client addition, TCV in excess of US$1bn (Infosys-US$300m) and onsite volume growth was ahead of consensus expectation."

"HCLT reported volume growth of 4.9% QoQ (PLe: 4.2%), but better than peers (INFO: 3.1%, TCS: 3.2%). EBITDA margin expanded by 141bps (PLe: 211bps, Cons: 81bps) QoQ to 18.5% and was better than the consensus driven by currency depreciation. Moreover, onsite volume growth was 5.7% QoQ, with 36 net new client additions (highest since Q3FY09), hinting at better-than-expected H2FY12. We expect performance to get stronger in H2FY12. According to the management, in CY12, ~US$48bn (249 deals) are up for renewal. With 30% churn in vendors, ~US$15bn (with 20-30% discount ~US$10bn of TCV) worth of contracts is up for grabs (50% of that is from Europe). We expect cost-conscious clients to opt for value players. We expect pricing discount compared to peers to swing deals in HCLT's favour."

"The management indicated no cuts in the IT budget from the clients. Moreover, the deal signing is likely to be weak in the JFM quarter because of the seasonality. But the deal pipeline is likely to swell towards the end of CY12. Also, the increased focus on G1000/F500 clients is likely to help weather some negative surprises. The increased offshoring from the flat IT budget is likely to drive the growth. We expect HCLT to deliver stronger-than-peer performance in FY12. We reiterate 'BUY' rating, with a TP of Rs 530, 13x Mar-12e earnings estimates," says Prabhudas Lilladher research report.   

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