Accumulate HCL Technologies; target of Rs 790: PLilladher

Prabhudas Lilladher is bullish on HCL Technologies and has recommended accumulate rating on the stock with a target of Rs 790 in its April 17, 2013 research report.
 
"HCL Technologies (HCLT) reported in-line revenue and operating margin performance. The management highlighted non-linearity in the revenue driving the performance. We stay cautious on HCLT as we see weak client addition and stretched margin levers (utilization). We continue to stay on the sideline and reiterate our .Accumulate. rating, with a target price of Rs790."

"HCLT reported constant currency growth of 3.8 percent QoQ (PLe: 3.5 percent). EBIT margin expanded by 2bps (Cons.: ~30bps erosion) at 19.9 percent, due to higher SG&A (-33bp) and exchange (-11bp), but offsetted by utilization (+39bp), and efficiencies (+7bp). HCLT has beaten consensus margin expectation for eight quarters in succession. The company has been pushing the utilization (incl trainees: 79 percent) higher to retain margin. Moreover, there is strict control on SG&A. We believe weak client addition (Net Client: 3), high utilization and peaking out productivity gain from IMS, are yet to get reflected in revenue growth and margin profile of the company. We believe high utilization with high attrition (21.1 percent annualized) could be deterrent to growth if demand picks-up. We expect margin headwinds in FY14; hence we are factoring margin erosion of ~190bps for FY14." 
 
"We expect HCLT to moderate in CY13 along with margin pressure due to investment in the business. We retain our cautious stance with an .Accumulate. rating, with a TP of Rs 790, 13x FY14e earnings estimates,” says Prabhudas Lilladher research report.

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