Buy HCL Tech; target of Rs 1968: Angel Broking

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Angel Broking`s research report on HCL Technologies“For 1QFY2015, HCL Technologies (HCL Tech) posted revenue marginally below our expectations, while the EBIT and net profit came in higher than our expectation. Sales came in at US$1,433mn (V/s an expected US$1,469mn), ie a qoq growth of 1.9%. In Constant Currency (CC) terms, sales grew by 3.2% qoq. In rupee terms, the revenue came in at Rs8735cr (V/s an expected Rs8,945cr), up 3.7% qoq. On the operating front, the EBIT margin came in at 23.9% (V/s an expected 22.0%), a decline of ~29bp qoq. The utilization levels dipped to 82.7% (including trainees) V/s 84.5% in 4QFY2014. Consequently, the PAT came in at Rs1,873cr (V/s an expected Rs1,591cr), a growth of 2.1% qoq. We maintain our Buy rating on the stock with a price target of Rs1,968.” “Sales for the quarter came in at US$1,433mn (V/s an expected US$1,469mn), a qoq growth of 1.9%. In Constant Currency (CC) terms, sales grew by 3.2% qoq. In terms of geographies, the USA posted a growth of 5.7% qoq on CC basis, Europe grew by 2.7% qoq on CC basis, while the ROW de-grew by 6.4% qoq on CC basis. On the operating front, the EBIT margin came in at 23.9% (V/s an expected 22.0%), a decline of ~29bp qoq. The utilization level dipped to 82.7% (including trainees) V/s 84.5% in 4QFY2014. Consequently, the PAT came in at Rs1,873cr (V/s an expected Rs1,591cr), a growth of 2.1% qoq.” “We expect HCL Tech to post a USD and INR revenue CAGR of 13.7% and 12.3%, respectively, over FY2014–16E. We remain watchful of the company’s performance in the core software services segment. On the operating front, we remain skeptic on the company’s ability to sustain operating margins at current levels. This is on account of the ongoing hiring in the company to align staff strength to service the growing business and on account of the company estimated to hike wages going forward to restrain attrition. We recommend a Buy rating on the stock,” says Angel Broking research report.   

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