Accumulate HCL Tech; target of Rs 780: Dolat Capital

Dolat Capital is bullish on HCL Technologies and has recommended accumulate rating on the stock with a target of Rs 780 in its January 17, 2013 research report.
 
“HCL Technologies, we believe the strong volume growth of about 3% QoQ and 6 multi million USD deals won (added TCV of over Bn USD) during the quarter indicates sustained business traction. Also further gains on OPM at 19.8% indicate improved efficiency and productivity gains. The company has been delivering strong revenue growth compared to its peers but the growth rate is coming off a bit in last few quarters (YoY growth currently at just 13%) and is largely been driven by IMS segment (10% QoQ growth versus 1% growth for rest of the business). We maintain our Marketperformer rating on the stock based on its OPM over Sales growth tradeoff.”
 
“The management is targeting on strong opportunity in the non traditional IT services (XaaS, Social, Analytics and Mobility) that is likely to grow by over 18% over next 3years versus Traditional areas (WAS, ADM, IMS, BPO) with a likely growth of over 4% CAGR. Discretionary revenues were soft during the quarter, owing to holiday impact and slower offtake; but are expected to take momentum in CY13. It has seen strong 400bps+ gains on OPM over LTM despite wage hikes through utilization gains and recovery in the BPO segment (fourth quarter of positive EBIT). The employee additions has been very soft at just 2118 on LTM basis and thus indicate soft growth expectancy in CY13 and also likely OPM decline as hiring picks up. We believe the sustenance of OPM could be decisive factor in further re-rating on the stock.”
 
“We expect revenue growth rate to moderate as it incrementally move toward OPM gains versus reinvestment in S&M efforts. We have build in a Revenue/EPS CAGR of 14/18% over FY12-15E (FY13/14 EPS revised up by 5%/3.5%), driven by sustained deal win momentum and renewed focus on margin maintenance. We maintain our positive view on the stock based with an Accumulate rating with a target price of ` 780 (valued at 13x of its FY15E – 30% discount to TCS target multiple),” says Dolat Capital research report.

Public holding more than 90% in Indian cos

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