HCL Tech : Twin play on growth

BSE Index Analysis, Securties , Standard Experts

TGPJ9A4UJ4VP

HCL Tech : Twin play on growth and multiple re-rating ......

Reco : Buy    

Cmp : 496   

Target : 585 

Revenue growth at 18% vs. 16% average for Top 3 over FY12-14E led by

Deal wins (TCV signings: USD 1.5 bn in Q3 and USD 1 bn in Q2) and market share gains in large clients like Cisco, Deustche Bank, Astra Zeneca, UPM, Statoil, State Street Bank, Great American Insurance Group etc

Improved revenue quality through client mining and growth in large size clients (USD 5 mn+ accounts up 28% YoY in Q3)

Key beneficiary of vendor consolidation in core BFSI (24% of revenue; 46% of Q3 deal wins)

Aggressive leveraging of its Service Line leadership in Enterprise Services (21% of revenue; USD 0.9 bn annualized revenue run-rate) and Infrastructure Management (24% of revenue; USD 1 bn annualized revenue run-rate) to penetrate large accounts 

Announcements

Company

News

Statistics

Trend

Analysis

Results

Market analysis

Stable EBIT margin vs. margin decline for peers (ex. Wipro)

- We expect stable EBIT margin for HCL Tech vs. decline of 50-100 bps for the Top 2 over next 2 years

- Margin cushion from declining employee costs (led by higher campus hiring), increasing focus on high margin non-voice BPO services, and rationalization of sub-contracting expenses. Q3 saw BPO turning EBIT positive, one quarter ahead of expectations

-Upside trigger --- Rising offshore revenue share in Software Services. Q3 saw a 170 bps increase in offshore share of revenue. Read detailed report