Buy HCL Technologies; target Rs 1353: KRChoksey
KRChoksey is bullish on HCL Technologies and has recommended buy rating on the stock with a target price of Rs 1353 in its October 21, 2013 research report.
October 28, 2013 / 13:05 IST
KRChoksey's report on HCL Technologies
HCL Technologies, revenue grew by 3.6 percent QoQ in constant currency terms as compared to our expectation of 4 percent QoQ growth in Q1 FY14. The overall revenue growth continues to be led by Infrastructure Management Services (IMS), which contributed about 80 percent of the incremental revenue for the fifth consecutive quarter; however it constitute only 1/3rd of the total revenue.The management's relentless focus on cost has resulted in improvement in EBTIDA margin by 304 bps QoQ to 26.3 percent; inspite adverse impact of partial wage hike by 50 bps in Q1 FY14. However, going forward, we expect EBITDA margin to come under pressure led by full impact of wage hike by 120 bps QoQ in Q2 FY14E. Moreover, the company has conceded that the current high utilization rate is unsustainable and might decline by atleast 100 bps, going forward.Valuation and view: We believe the concerns of high dependence on IMS for incremental revenue growth and improvement in EBITDA margin driven by aggressive cost management is more than adequately reflected in conservative consensus revenue and earning estimates. Moreover, the valuation discount of ~40 percent to TCS forward P/E is on higher side. Taking the same into account, we maintain our "BUY" recommendation on the stock with a price target of Rs. 1,353 by assigning multiple of 13.5 times (i.e. around 30 percent discount to TCS's target P/E multiple) to its FY15E EPS of Rs 100.2Disclaimer: 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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