Dolat Capital is bullish on HCL Technologies and has recommended accumulate rating on the stock with a target of Rs 800 in its April 17, 2013 research report.
“HCL Tech- management commentary for CY13 has been toned down with comments like revival of demand in H2CY13 and low off-take in the discretionary spends. Even the employees add data (1937 employee add on LTM basis) and weak hiring outlook does not support any strong volume traction in CY13. We believe the recovery in demand on the traditional IT business to be crucial for volume growth momentum to recover and till that point it would ensure profitability sustenance through efficient utilization matrix (onsite/offshore utilization at 97 percent/80 percent).”
“We believe the growth momentum is largely driven by IMS segment which has accounted for about 75 percent of incremental revenues on LTM basis and does expose it to concentrated risk. However; momentum would continue in the segment (segment rev up 32 percent on LTM basis) as indicated by the large addressable opportunity USD 50bn till CY15. 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 12/9 percent over FY13-15E, driven by sustained deal win momentum and challenges on margin maintenance. We maintain our Accumulate rating with a target price of Rs 800 (valued at 12x of its FY15E – 33 percent discount to TCS target multiple),” says Dolat Capital research report.
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