Information technology company HCL Tech today announced its Q2 numbers with a net profit of Rs 1915 crore (up 2.3 percent quarter-on-quarter). The company’s rupee revenue stood at Rs 9283 crore versus an expectation of Rs 8950 crore. The company’s numbers have outperformed experts’ polls significantly.
Ankit Pande of Quant Broking believes the company has posted a stellar set of numbers but that won’t lead to a target price revision just yet.
Below is the transcript of Ankit Pande's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: How do the HCL Technologies’ numbers look to you? They seem to have beaten all parameters at least vis-à-vis our polls?
A: Yes, numbers are well ahead of expectation. We were expecting a constant currency growth of close to 3.5 percent but they delivered well in excess of 5 percent; at least 4 percent in reported terms compared to our 1 percent in report term growth and that is a significant pickup. They had hinted some ramp up in growth. Last quarter we did ask them on the infrastructure side. Last quarter the growth was 3.6 percent in constant currency in infrastructure side and we specifically asked whether the growth would pick up and he, for the first time said in unqualified terms that it would. The numbers are well ahead of expectation and margins are inline.
Latha: How much may you upgrade the price?
A: Price wise I would not move too much at this point in time. This is a year in which constant currency growth will be inline but reported growth would still be little bit lower. Having said that we can still manage about 12 percent growth which will be inline with our expectation, so I do not think we will move that much in target price based on FY16 at this point in time. There is some upside to the stock and the stock is trading at 14 times one year forward and we would rate it at 15 times one year forward, so there is a bit of 15 percent upside in the stock.
Sonia: 14 times one year forward is still a discount to what many of the larger peers like Tata Consultancy Services (TCS) are trading at. Do you think this gap between HCL Tech and TCS will narrow going ahead and what are your earnings per share (EPS) estimates now?
A: At this point of time HCL Tech is trading at a bit of a discount, bear in mind that maybe we would like to compare with Wipro a bit more closely. TCS is a much larger entity, performing far more consistently and operating margin at a different band. We would assume that if our growth estimates do not change so much keeping in mind the management commentary, but if our EPS estimates do not change, we currently have an estimate of Rs 125 in FY16, we have a multiple of 15 times, so we have a target price of close to Rs 1880.
Disclosure: We do have trading desk of our own so we do hold stocks and we recommend our clients but all our recommendations are inline with what we recommend on the television. Quant has a large trading desk of its own, so we do have certain stocks that are common to the trading book as well.
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