Jan 25, 2013, 03.17 PM | Source: Moneycontrol.com
KRChoksey has maintained hold rating on HCL Technologies with a target of Rs 728 in its January 23, 2013 research report.
, KRChoksey |
“HCL Technologies continued to report stellar performance at EBITDA margin front i.e. improved by 39 bps QoQ in Q2 FY13 against our expectation of decline by 116 bps QoQ; inspite headwind of wage hike adversely impacting margin by 91 bps QoQ. However, despite revenue growth being in-line with our expectation in Q2 FY13, we are concerned with the fact that revenue growth is highly reliant on IMS having 28% share in total revenue but contributing about 3/4th of total incremental revenue in H1 FY13. Whereas, software services (contributing about 2/3rd of total revenue) continues to register modest growth i.e. 0.5% and 1% QoQ growth (in USD terms) in Q1 FY13 and Q2 FY13, respectively.”
“Revenue in constant currency (CC) terms grew by 3.1% QoQ in Q2 FY13 in-line with our estimates. It continues to register strong traction in IMS which registered double digit for the second consecutive quarter. Whereas software services registered modest growth rate pressurized by decline in ERP segment for the second consecutive quarter, as the company is dependent on implementation and transformation projects for 75% of ERP revenue and the management did not registered any pick up in green field projects in this space so far.”
“Taking into account dent in its story of industry leader in terms of growth rate and likely pressure on margin front in coming quarters we downgrade our recommendation on the stock to “hold” from “accumulate” with a price target of Rs. 728 by assigning multiple of 13.5 times (i.e. around 25% discount to TCSs target P/E multiple) to its FY14E EPS of Rs 53.9,” says KRChoksey research report.
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