Emkay's reserach report on HCL TechHCL Tech has corrected by ~16% over the past five trading sessions after the Sep’15 quarter revenue warning. A tepid growth outlook for Sep’15 quarter on account of transition delays in some large Infrastructure deals along with revenue reversals in a Public Services client have led to concerns on the moderating revenue growth trajectory for the company and a likely risk to management’s outlook of 21-22% EBIT margin for FY16. While we do acknowledge the moderation in revenue growth trajectory, we highlight that this is true across the sector with the YoY revenue growth trajectory for the Tier I players moderating through last several quarters with Sep’15 quarter expected to be the 7th quarter in a row of moderation. Further HCL Tech’s investments in onsite hiring, global delivery presence is expected to drive better positioning to address énd to end’ deals in areas like Engineering Services and ‘integrated Applications and Infra’ opportunity. We note that this has also helped bring more stability to ‘lop sided’ IMS led growth for HCL Tech through FY12-14 (IMS accounted for 40% of incremental revenue addition in FY15 as compared to accounting for nearly 2/3rd of incremental revenue addition over FY12-14). We find valuations attractive after the recent corrections and advocate adding positions given ‘relative margin of safety in valuations’ at ~13x FY17E P/E. Upgrade to BUY, TP Rs 1,000. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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