17 April 2014
3QFY14 Results Update | Sector:
Technology
HCL Technologies
BSE SENSEX
22,629
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,779
HCLT IN
699.5
1,589/674
-3/21/69
CMP: INR1,424
TP: INR1,700
Buy
M.Cap. (INR b) / (USD b) 985.9/16.3
Financials & Valuation (INR Billion)
Y/E June
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
2014E 2015E 2016E
330.1
86.6
61.2
86.4
51.6
371.4
91.4
71.0
99.7
15.3
360.9
36.1
30.8
14.3
9.5
426.8
102.0
80.1
111.7
12.0
446.6
30.8
27.7
12.8
9.8
BV/Sh.(INR) 279.1
41.2
RoE (%)
RoCE (%)
P/E (x)
EV/EBITDA
( )
34.7
16.5
10.5
Higher OPM, lower forex loss results in higher than expected PAT:
HCLT’s USD
revenue for 3QFY14 grew 3% QoQ to USD1,361m, in line with our estimate of
USD1,362m. EBITDA margin expanded 70bp QoQ to 26.7%, higher than our
estimate of 25.6%. PAT grew 8.5% QoQ to INR16.2b, well above our estimate of
INR14.5b, led by higher operating income and lower forex losses (INR1.42b v/s our
estimate of INR2.4b).
Software Services gaining traction:
Software Services revenue grew 2% QoQ to
USD831m v/s our estimate of USD826m. IMS grew 5% QoQ v/s our estimate of
6.3% QoQ growth. BPO business declined 1.3% QoQ v/s our estimate of 2.2% QoQ
growth.
Deal wins remain healthy:
For the sixth quarter in a row, HCLT signed deals with a
TCV of over USD1b, taking total 9MFY14 TCV to USD3b+. HCLT has already signed
as many deals as it had announced in the full year FY13. It remains on track to sign
USD4b+ deals in FY14, which would translate into more than 30% growth
compared to the TCV announcements in FY13.
Efficiencies driving margin surprise:
Margin expansion was aided by 30bp QoQ
decline in SGA to 12.15% (our estimate: 12.6%). The company has been on course
for G&A rationalization for some time now, and had extracted 130bp from G&A
efficiencies over 2QFY13-2QFY14.
Visibility of growth acceleration; Buy:
Continued order closures keep revenue
growth prospects sanguine. While profitability may cool off, HCLT could continue
to surprise positively on efficiency gains. We expect HCLT to grow its USD revenue
at a CAGR of 15% and EPS at a CAGR of 14% over FY14-16. Improvement in
Software Services growth makes a case for stock re-rating. Our target price of
INR1,700 discounts FY16E EPS by 15x.
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.