Buy HCL Technologies; target of Rs 825: AnandRathi

AnandRathi is bullish on HCL Technologies and has recommended buy rating on the stock with a target of Rs 825 in its April 18, 2013 research report.
 
“HCL Tech reported its 3QFY13 revenue grew 3.2 percent qoq, to US USD1,191m (4.4 percent in constant currency terms). Of this, core software service volumes grew 0.4 percent. IMS revenue came in at US USD356m, up 8.6 percent qoq, while BPO revenues were US USD51m, up 1.3 percent. PAT, at Rs 10.39bn (up 72.5 percent yoy; 7.8 percent qoq), was led by other income of Rs 888m (compared with Rs 154m in 2QFY13). The EBIT margin, at 19.9 percent, was flat qoq, 40bps above our expectations. While the BPO margin was flat qoq, the core IT services margin was down 20bps and the IMS side of the business was up 50bps.”
 
“Energy and utilities (up 13.1 percent qoq), telecoms (up 1.8 percent qoq) and hi-tech (up 6.8 percent qoq) lead industry verticals. Life sciences were down 2.8 percent qoq, Media publishing & entertainment was down 2 percent qoq and Financial services was down 0.9 percent qoq. Europe (3.8 percent qoq) and US (2.8 percent qoq) grew, while Asia Pacific fell 1.8 percent qoq. The top-five clients and clients No.6-10 exhibited traction, growing respectively 1.3 percent and 4.5 percent qoq. The company recorded a net reduction of 791 employees. We raise our FY13, FY14 and FY15 EPS estimates, 5.3 percent, 3.2 percent and 5.5 percent respectively, to take into account the improved deal pipeline and margin outlook.”

“We retain our price target of Rs 825 and our Buy rating on the stock. At our target price the stock would trade at PE of 13.5x FY14e earnings of Rs 60.7 and 12x FY15e earnings of Rs 69.1. This is a ~40 percent discount to TCS’ target multiple. Given the company’s robust deal pipeline and margin focus, we believe the valuation is justified,” says AnandRathi research report.

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