HCL Technologies Ltd. share price target

As expected, HCL Technologies (HCLT) reported a tepid quarter. The IT majors USD revenue went up by 0.5% QoQ (1.2% CC) to US$ 1,545mn (vs. our estimate of US$ 1,559mn). While application services and IMS revenue were subdued, healthy growth was seen in engineering and R&D; (3.1% QoQ USD, 3.6% QoQ CC).

to deliver robust results over the next two years driven by growth in IMS and cross sellingservicestootherservicelines.However,concernshavecroppeduponitsability to sustain growth, on the back of change in nature of IMS deals and tepid growth in...

Background: HCL Tech is the 4th largest IT services exporter offering offshore IT Services with revenues of INR 370.61bn (FY15). In 1QFY16, Revenue split: US: 58.7%, Europe: 31.7% & ROW: 9.6%. Service Mix: App Services: 40.4%, Infrastructure Services: 35.1%, Engineering and R&D;: 19.2%, BPO: 5.3%. Fixed Price Contracts account for 56.2%. Major verticals are Manufacturing: 32.5%, Financial Services: 26.1%, Healthcare: 12.4%, Retail: 8.8%, Telecom: 9.6%, Public Services: 10% & others: 0.6%. Company has 7 clients in USD 100mn+ and 18 clients in USD 50mn+. 95.7% of business is repeat business, reflects effective mining of existing clients....

HCLT maintained its target EBIT% band at 21% to 22% which leaves significant room for margin expansion. EBIT% in 1Q stood at 19.4% (20.6%, +40bp qoq adjusting for one-time provision) with currency headwind of +70bp, -85bp wage impact and -120bp impact of provision (US$18.2mn). Margins have come off from the high on account of onsite-led growth (3,000 re-badging in FY15), onsite delivery center expansion and hiring of senior resources; the investments are likely to recoup margins ahead with...

Shaken but not stirred

While we are enthused with HCLT?s rev growth in 4QFY15, the lower-than-expected margin was a negative surprise. Nonetheless, we remain confident of the IT major delivering good rev growth going forward (15% CC for FY15) led by continued deal wins (US$ 5bn in FY15) and strong positioning in IMS (over 18% CC growth in FY15, the fastest QoQ growth in 6 quarters). We expect IMS to be a key growth driver

Dollar revenues at US$ 1.5bn grew 3.2% qoq in line with our and consensus estimatesof3.1%growth.Revenuesgrewby2.9%qoqinconstantcurrencyterms. RupeerevenuesatRs97.7bngrew5.5%qoq....

Background: HCL Tech is the 4th largest IT services exporter offering offshore IT Services with revenues of INR 329.2bn (FY14), 91,691 employees. Revenue split: US - 56%, Europe - 32% & ROW - 12%. Service Mix: Custom App Serv - 28%, Infrastructure Services - 34%, Enterprise App Serv - 17%, Engg and R&D; - 16.4%, BPO - 4.6%. Fixed Price Contracts account for 56.5%. Major verticals are Manufacturing - 33.0%, Fin Serv - 26.8%, Healthcare - 10.7%, Retail - 8.5%, Telecom - 8.8%, Media-8.8%, Public Serv-9.3% & Others - 2.9%. Has 5 clients in USD 100mn+.Ttop 10 clients account for 23.7%. 96% of business is repeat business, reflects effective...

HCL Technologies' (HCLT) 3QFY15 revenue stood at US$1,491mn, flat QoQ and by 2.7% in constant currency (CC) terms. EBITDA margin fell 242bps QoQ on low revenue growth, wage hike impact and higher SG&A costs, driving net profit lower by 12.1% QoQ to Rs16.8bn (10.5%/7.7% below our/consensus estimates, respectively.

(decline of 5.4% QoQ in CC terms) primarily on account of two large projects getting completed.Telecomreportedgrowthof7%,Public Services9.4%onthe otherhand,Retaildeclinedby13.4%andBFSIby2%QOQ....