17 October 2013
1QFY14 Results Update | Sector:
Technology
HCL Technologies
BSE SENSEX
20,416
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,046
HCLT IN
705.8
1,177/578
1/40/77
CMP: INR1,083
TP: INR1,275
Buy
M.Cap. (INR b)/(USD b) 764.5/12.5
Financials & Valuation (INR b)
Y/E JUN
Sales
EBITDA
PAT
EPS (INR)
2013
257.3
57.5
40.3
57.0
2014E 2015E
328.8
82.5
56.8
80.0
40.2
275.8
38.5
32.8
16.3
13.5
3.9
8.4
1.2
363.7
85.3
65.1
91.0
13.8
349.2
33.7
29.3
18.2
11.9
3.1
7.7
1.2
EPS Gr. (%) 62.6
BV/Sh.
205.9
(INR)
RoE (%)
32.2
RoCE (%)
Valuation
P/E (x)
19.0
P/BV (x)
5.3
EV/EBITDA 12.3
( )
Div yld (%) 1.1
29.1
Payout (%) 21.1
HCLT’s 1QFY14 constant currency revenue growth of 3.6% QoQ was in line with
our estimate. USD revenue grew 3.5% QoQ (v/s estimate of 3%) on 10bp impact
from cross currency v/s our estimate of 60bp. HCLT continued its trend of
surprising positively on the profitability front. EBITDA margin (post ESOP charge)
increased by 320bp QoQ to 26.3% (v/s estimate of 24.9%). The impact below
EBITDA of higher forex losses was offset by lower tax rate. Thus, PAT was
INR14.16b, +18.7% QoQ, above our estimate of INR13.3b, +16.9% QoQ, due to
operating margin beat.
IMS continued to be the biggest growth driver during the quarter, +8.7% QoQ,
while other services grew 1%. Among verticals, growth drivers were BFSI,
Manufacturing and Life Sciences.
Deal traction remained robust with the company announcing USD1b+ deals for the
fourth consecutive quarter. It also announced 9 large transformational
engagements during the quarter.
Management expects traction in IMS to continue unperturbed considering the low
penetration, and ramp-ups in deals to provide continued momentum in BFSI.
Despite multiple trends pulling growth in both directions, growth in software
services will improve going forward. More than 50% of the deals signed in the last
three quarters have been integrated contracts with multiple services.
Our EBIT margin estimates are revised upwards by 141bp/92bp following yet
another beat on profitability. On the back of margin upgrade, our EPS estimates
are revised upwards by 4.3%/6.8% for FY14E/FY15E. We expect HCLT to grow its
USD revenue at a CAGR of 13.7% over FY13-15E and EPS at a CAGR of 26.6%
during this period. The stock trades at 13.5x FY14E and 11.9x FY15E EPS. Our
target price of INR1,275 discounts FY15E EPS by 14x. Maintain
Buy.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora
(Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585
Investors are advised to refer through disclosures made at the end of the Research Report.