Buy HCL Tech; target of Rs 650: SPA Research

SPA Research is bullish on HCL Tech and has recommended buy rating on the stock with a target of Rs 650 in its October 18, 2012 research report.

“HCL Technologies reported a strong Q1FY13 revenue growth at 3.2% at $ 1,114mn (SPAe: $ 1,116mn) on the back of 4.5% increase in volume and 0.7% pricing growth in S/w services. Operating margins also improved by 20bps to 22.2% exercising various margin levers, offsetting wage hikes undertaken in this quarter. The company won 12 multimillion, multiyear deals in Q1FY13 across manufacturing, BFSI and Consumer services. We expect HCL to be able to repeat its feat of winning large restructured deals in Q2FY13 as it did in Q2FY12. Thus, we continue to recommend BUY with an 18-month TP of INR 650.”

“HCL Tech Q1FY13 revenue grew at 3.2% to $1,114mn on the back of 4.5% volume growth. Pricing in software services also grew by 0.7% (Offshore 0.5%, Onsite -0.8%). Infrastructure services (10.7%) and BPO (5.5%) showed significant growth. The company recorded a 51% deal win ratio winning 12 major deals in Q1FY13 across various verticals. In Q1 revenues from US grew by 3.9%, Europe by 2.8% with flat RoW. In IT services Healthcare registered a strong Q1 growth of 14.7% followed by Retail (10.4%), Media (7.8%) and BFSI (4.5%). Telecom (-3.3%) and E&Y (-1.1%) degrew.”

“With strong deal pipeline we expect the company to register a 14.3% USD revenue growth in FY13 and 19% CAGR over FY12-14E on the back of even stronger rebid offers coming in FY14. On the margin front we expect some retraction to 18.7%/18.2% in FY13E/14E due to (i) Currency headwinds (ii) Sales Investments and (iii) Higher just-in-time lateral additions to cater to rebid contracts. Factoring in all this we estimate a 16.7% EPS CAGR over FY12-14E. We continue to recommend BUY on the stock with an 18-month TP of INR 650 at 13x FY14E earnings,” says SPA Research report.

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