HCL Tech-2QFY11-190111

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					                                                                                                               2QFY2011 Result Update | IT
                                                                                                                              January 19, 2011



 HCL Technologies (HCL Tech)                                                                       BUY
                                                                                                   CMP                                     `508
 Performance Highlights                                                                            Target Price                            `590
 (` cr)                     2QFY11        1QFY11 % chg (qoq)            2QFY10      % chg (yoy)    Investment Period                12 Months
 Net revenue                   3,888        3,708              4.9          3,032         28.2
 EBITDA                          635          603              5.2           638          (0.6)
 EBITDA margin (%)              16.3          16.3            5bp            21.1      (473)bp    Stock Info

 PAT*                            400          331             20.7           297          34.8    Sector                                        IT
 Source: Company, Angel Research; Note: After ESOP charges                                        Market Cap (` cr)                        34,740
 For 2QFY2011, HCL Tech reported strong set of numbers, outperforming the                         Beta                                        0.9
 titans, Infosys and TCS, at the volume front. The company is expected to                         52 Week High / Low                      517/318
 outperform the Tier-I IT pack, with revenue (USD terms) and PAT CAGR of 28.6%                    Avg. Daily Volume                       224,875
 and 38.1%, respectively over FY2010–12E. Valuing the company at 17x FY2012E                      Face Value (`)                                2
 EPS of `34.7, we recommend a Buy rating.                                                         BSE Sensex                               18,978

 Broad-based growth momentum continues: For 2QFY2011, HCL Tech reported                           Nifty                                     5,691

 revenue of US $864.1mn (v/s our estimate of US $869.2mn), up 7.5% qoq.                           Reuters Code                            HCLT.BO
 Growth was backed by volume growth of 6.8% in IT services.                                       Bloomberg Code                      HCLT@IN

 EBIT margin inches up: During the quarter, EBIT margin increased by 24bp qoq
 to 13.1% on the back of operational efficiencies, such as a) lower SG&A                          Shareholding Pattern (%)
 investments, b) higher productivity and c) slight improvement in utilisation, aiding             Promoters                                  64.8
 margins by 82bp, negating the 58bp effect of stronger INR against USD.                           MF / Banks / Indian Fls                     5.8
 Outlook and valuation: Management is witnessing a strong demand environment                      FII / NRIs / OCBs                          21.6
 and has signed 17 transformational deals in 2QFY2011 itself, ranging from US                     Indian Public / Others                      7.8
 $20mn–100mn. Management has also indicated positive budgets for CY2011.
 We expect HCL Tech to be the outperformer amongst Tier-I IT companies, with
 revenue (INR terms) CAGR of 25.6% over FY2010–12E, on the back of its higher                     Abs. (%)                  3m      1yr       3yr
 value services portfolio. At the operating front, levers such as normalising                     Sensex                   (5.0)    8.5      (0.2)
 employee pyramid, lowering SG&A, expanding utilisations and turn around in the                   HCL Tech                 15.7    35.3      90.9
 BPO segment will help improve margins. Thus, we expect EBITDA to grow at a
 20.3% CAGR over FY2010–12. PAT, on the other hand, is expected to post a
 much higher CAGR of 38.1%, with nil forex losses, higher other income and
 improving profitability. We recommend Buy with a Target Price of `590.
 Key financials (Consolidated, US GAAP)
 Y/E June (` cr)                                     FY2009     FY2010 FY2011E FY2012E
 Net sales                                           10,630       12,564     16,103    19,832
 % chg                                                 39.2          18.2      28.2       23.2
 Net profit                                           1,277        1,302      1,728      2,408
 % chg                                                 13.6           2.0      32.7       39.4
 EBITDA margin (%)                                     22.1          20.5      17.4       18.8
 EPS (`)                                               18.8          18.9      24.9       34.7    Srishti Anand
 P/E (x)                                               26.9          26.9      20.4       14.6    +91 22 3935 7800 Ext: 6820
 P/BV (x)                                               6.1           5.0       4.6        3.9    srishti.anand@angelbroking.com
 RoE (%)                                               22.5          18.5      22.4       26.5
 RoCE (%)                                              14.9          15.3      14.9       17.4
                                                                                                  Ankita Somani
 EV/Sales (x)                                           3.4           2.8       2.1        1.6
                                                                                                  +91 22 3935 7800 Ext: 6832
 EV/EBITDA (x)                                         15.5          13.8      12.4        8.8    ankita.somani@angelbroking.com
 Source: Company, Angel Research
Please refer to important disclosures at the end of this report                                                                                1
                                                                                    HCL Technologies | 2QFY2011 Result Update



Exhibit 1: 2QFY2011 performance (Consolidated, US GAAP)
 (` cr)                     2QFY2011       1QFY2011       % chg (qoq)   2QFY2010      % chg (yoy)    1HFY2011     1HFY2010         % chg(yoy)
 Net revenue                       3,888      3,708              4.9       3,032            28.2        7,596            6,064           25.3
 Cost of revenue                   2,661      2,535              5.0       1,951            36.4        5,196            3,866           34.4
 Gross profit                      1,227      1,173              4.6       1,082            13.5        2,400            2,198            9.2
 SG&A expense                       592         570              3.9         443            33.7        1,162             871            33.5
 EBITDA                             635         603              5.2         638            (0.6)       1,238            1,327           (6.7)
 Dep. and amortisation              124         125             (1.0)        136            (9.0)         249             278          (10.5)
 EBIT                               511         478              6.8         502             1.7          989            1,049           (5.7)
 Other income                         5           1                          (13)                           6             (20)
 PBT                                516         479              7.8         489             5.6          995            1,030           (3.4)
 Income tax                         103          82             25.1          67            54.6          186             137            35.5
 PAT                                413         396              4.2         422            (2.2)         810             893            (9.3)
 Forex loss                         (13)        (66)           (79.5)       (126)          (89.3)         (79)           (276)         (71.4)
 Adjusted PAT                       400         331             20.7         297            34.8          731             617            18.5
 Diluted EPS                         5.8        4.8             20.7         4.3            33.8         10.5              9.0           17.2
 Gross margin (%)                   31.6       31.6             (9)bp       35.7         (411)bp         31.6             36.3       (465)bp
 EBITDA margin (%)                  16.3       16.3              5bp        21.1         (473)bp         16.3             21.9       (559)bp
 EBIT margin (%)                    13.1       12.9              24p        16.6         (343)bp         13.0             17.3       (428)bp
 PAT margin (%)                     10.3        8.9           131bp          9.8           55bp           9.6             10.2         (54)bp
 Source: Company, Angel Research



                                                 Exhibit 2: 2QFY2011 – Actual v/s Angel estimates
                                                 (` cr)                                     Actual           Estimate            Variation (%)
                                                 Net revenue                                3,888                3,898                   (0.3)
                                                 EBITDA margin (%)                            17.9                17.9                  63bp
                                                 PAT                                          400                 385                     3.8
                                                 Source: Company, Angel Research

                                                 Broad-based growth
                                                 For 2QFY2011, HCL Tech reported strong revenue of US $864.1mn v/s our
                                                 expectation of US $869.2mn, up 7.5% qoq. Growth was on the back of 6.5% qoq
                                                 volume growth and 1.0% qoq benefit due to cross-currency movement derived due
                                                 to USD depreciation of 1.9%, 5.1% and 9.1% qoq as against the GBP, Euro and
                                                 AUD, respectively. In constant currency (CC) terms, revenue grew by 6.5% qoq to
                                                 US $856.5mn. Growth again proved to be broad-based, spanning across
                                                 verticals, geographies and service lines.

                                                 HCL Tech’s growth was led by robust volume growth of 6.7% in core software
                                                 services and 8.5% qoq (CC terms) revenue growth in infrastructure services. IT
                                                 services (core software plus infrastructure services) continued to demonstrate robust
                                                 volume growth, reporting 6.8% qoq volume growth in 2QFY2011. Volume growth
                                                 of 6.7% qoq in core software services was on account of strong volume growth of
                                                 7.1% and 5.6% qoq in offshore as well as onsite, respectively.




January 19, 2011                                                                                                                            2
                                                        HCL Technologies | 2QFY2011 Result Update



                   Exhibit 3: Volume growth trend (effort wise)

                          12                                          10.9
                                                                    10.3 10.5
                          10
                                                  8.2                               7.9         7.9
                           8                                  7.2                         7.7         7.1         6.7
                           6                                                                                5.6




                    (%)
                                                        4.6
                           4          2.8
                           2                1.3
                                0.7
                           0
                                2QFY10            3QFY10             4QFY10             1QFY11        2QFY11

                                                         Offshore     Onsite    Total

                   Source: Company, Angel Research



                   In INR terms, revenue came in at `3,888cr (v/s our expectation of `3,898cr), up
                   4.9% qoq, reporting lower growth as compared to USD revenue due to the 3.5%
                   qoq appreciation in INR appreciated against USD in 2QFY2011.

                   Core software led growth: During the quarter, core software services posted robust
                   7.3% qoq revenue growth (USD terms) to US $617.7mn on the back of strong
                   growth of 7.6% in custom application services (contributing 31.8% to revenue).

                   Amongst other core software services, growth of 4.7% and 5.9% qoq (CC terms)
                   was witnessed in enterprise application services (EAS), contributing 21.3% to
                   revenues; and engineering and R&D services (ERD), contributing 18.5% to revenue,
                   respectively. Demand for ERD across industries was driven by increased demand
                   for electronics to enhance device intelligence and processing as well as to address
                   the customisation needs of emerging markets. Primarily, the spend in product
                   engineering is going strong on the back of ’hope-based investments’ in the US i.e.,
                   to tap the future consumer spending opportunity and cost savings drive initiated by
                   clients in Japan. Growth in consumer electronics is driving growth in sectors such
                   as semi conductors.

                   Infrastructure services segment continues its growth momentum: The infrastructure
                   services segment reported whopping 9.4% qoq growth in revenue (USD terms) to
                   US $196.9mn on the back of strong 8.5% qoq growth (CC terms) in infrastructure
                   management services (IMS), contributing 22.8% to revenue; and cross-currency
                   benefit of 0.9%. Currently, the segment is witnessing demand from
                   transformational outsourcing and system integration/life cycle management.
                   US and Europe continue to accelerate traction for reducing operations cost, which
                   is driving transformational outsourcing. A large part of the deal flow is due to
                   contract renewals.

                   BPO grows yet again: The BPO segment has returned to its growth path, with
                   revenue of US $49.5mn, up 2.9% qoq. In CC terms, the segment grew by 2.4%
                   qoq. The demand environment is heating up as clients are looking at globalisation
                   of delivery capabilities, which is driving transformation and enterprise-wide cost
                   efficiency. The company is continuously investing in building platforms for non
                   voice-based business in this segment.

January 19, 2011                                                                                                        3
                                                     HCL Technologies | 2QFY2011 Result Update



                   Exhibit 4: 2QFY2011 performance (segment wise)
                   (US $mn)                        2QFY11      1QFY11 % chg qoq        2QFY10       % chg yoy
                   SOFTWARE SERVICES
                     Revenue                          618          576           7.3        462            33.7
                     Gross profit                     210          199           5.5        178            18.1
                     Gross margin (%)                 34.0         34.5     (57)bp         38.5       (450)bp
                     EBITDA                           108          103           4.7        109            (1.3)
                     EBITDA margin (%)                17.5         17.9     (44)bp         23.7       (618)bp
                     EBIT                               90           85          6.0         88             2.8
                     EBIT margin (%)                  14.6         14.8     (18)bp         19.0       (438)bp


                   INFRASTRUCTURE SERVICES
                     Revenue                          197          180           9.4        132            49.2
                     Gross profit                       53           47      13.5            39            37.6
                     Gross margin (%)                 27.0         26.0      97bp          29.2       (227)bp
                     EBITDA                             36           32      10.9            23            51.7
                     EBITDA margin (%)                18.0         17.8      25bp          17.7            30bp
                     EBIT                               29           26      11.7            19            53.8
                     EBIT margin (%)                  14.5         14.2      30bp          14.1            43bp


                   BPO SERVICES
                     Revenue                            50           48          2.9         58        (14.1)
                     Gross profit                       10            9      11.5            16        (39.4)
                     Gross margin (%)                 19.6         18.1     151bp          27.8       (818)bp
                     EBITDA                             (2)          (4)    (42.9)            5       (152.2)
                     EBITDA margin (%)                (4.8)        (8.7)    388bp           8.0      (1283)bp
                     EBIT                               (5)          (7)    (23.9)            2       (437.5)
                     EBIT margin (%)                 (10.9)      (14.8)     385bp           2.8      (1369)bp
                   Source: Company, Angel Research



                   Exhibit 5: Revenue growth trend (service wise in CC terms)

                            20

                            15

                            10

                              5
                      (%)




                              0

                             (5)
                                    2QFY10           3QFY10       4QFY10         1QFY11           2QFY11
                            (10)

                            (15)

                                       EAS   ERD      Custom application   IMS     BPO services


                   Source: Company, Angel Research




January 19, 2011                                                                                              4
                                                     HCL Technologies | 2QFY2011 Result Update



                   The anchor verticals, including financial services (contributing 24.6% to revenue)
                   and manufacturing (contributing 27.1% to revenue) continued their growth
                   momentum, up 3.3% and 6.7% qoq (CC terms), respectively. In the financial
                   services space, sectors such as banking in Asia and Europe; capital markets in the
                   US; and insurance in Europe emerged as IT spenders. In addition, the telecom
                   vertical (contributing 10.8% to revenue), which has been the troubled vertical in the
                   past, posted growth of 5.0% qoq (CC terms), where HCL Tech outperformed its
                   peers that posted a decline in this vertical during the quarter. The retail and
                   consumer product group (CPG) vertical (contributing 9.1% to revenue) and energy,
                   utilities and public sector (EPU) vertical (contributing 7.2% to revenue) came as the
                   primary growth drivers with double-digit revenue growth of 14.2% and 12.3% qoq
                   (CC terms). Other verticals such as, healthcare and media, publishing and
                   entertainment (MPE) also posted decent growth of 7.1% and 6.0% qoq (CC terms),
                   respectively.


                   Exhibit 6: Revenue growth trend (industry wise in CC terms)
                   Growth by vertical (%)     2QFY10         3QFY10   4QFY10       1QFY11        2QFY11
                   Financial services                 0.4       5.5        8.3          7.2           3.3
                   Manufacturing                     (4.1)     10.5      10.4           7.9           6.7
                   Telecom                           (0.9)      0.4        2.9          7.2           5.0
                   Retail and CPG                16.5           1.0      19.6          11.2         14.2
                   MPE                           10.1          16.3        1.5          1.3           6.0
                   Healthcare                    16.2          10.2      19.3          10.5           7.1
                   EPU                           10.0           1.8        6.8          6.5         12.3
                   Others                            (0.1)     10.3        5.7          4.5           4.8
                   Source: Company, Angel Research


                   Since 4QFY2009, US has been the primary growth driver for HCL Tech, while
                   Europe remained a soft spender. However, with business for manufacturing as well
                   as energy and utilities clients in Europe returning to normalcy, clients in these
                   industries are back to spending on higher value-added services such as EAS and
                   ERD. The business motive of European clients to spend on IT is primarily related to
                   drive cost efficiencies by outsourcing run-the-business (RTB) type of work and
                   through rationalisation of existing multiple applications and systems. US has been
                   the frontrunner in awarding transformational deals to the company, as industries
                   such as retail are focusing on digital consumer behavior and industry verticals such
                   as energy and utilities, infrastructure, healthcare, public sector work-transportation,
                   logistics and travel are gaining good traction. On the other hand, rest of the world
                   is witnessing more of greenfield projects, relating to clients looking out for global
                   expansion. Amongst emerging geographies, Japan, South America and Brazil are
                   coming up in a big way.

                   During the quarter, HCL Tech reported modest growth across all geographies.
                   Geographies such as North America and Europe grew by 5.8% qoq each (CC
                   terms), while rest of the world reported whopping 10.8% qoq growth (CC terms).




January 19, 2011                                                                                        5
                                                     HCL Technologies | 2QFY2011 Result Update



                   Exhibit 7: Revenue growth trend (geography wise in CC terms)

                           18                                                                16.7

                           14                                                                    13.4
                                                                         11.3
                                       9.0           9.6                                                            10.8
                           10




                     (%)
                                                                              9.1
                                                         7.9
                            6                                                                                      5.8
                                     3.3                                      4.2                                 5.8
                                                      1.4                                           2.8
                            2
                                   0.5

                           (2)     2QFY10       3QFY10              4QFY10                 1QFY11               2QFY11

                                              US               Europe               Rest of the world


                   Source: Company, Angel Research

                   Hiring spree continues, utilisations sustained
                   During the quarter, HCL Tech added 8,379 gross employees, out of which 4,705
                   were lateral additions. The company added 2,049 net employees, taking its total
                   employee base to 72,267. In the core software services segment, 3,530 gross and
                   1,475 net employees were added during the quarter. The gross lateral employee
                   addition in this segment stood robust at 2,625, which indicates that the company is
                   witnessing a strong deal pipeline for transformational projects. Attrition rate for the
                   core software services segment increased up by 50bp qoq to 17.1% (LTM basis)

                   The infrastructure services segment, which has been growing at a scorching pace,
                   reported net addition of 784 employees in 2QFY2011. Gross addition in the
                   segment stood at 1,459 employees, out of which 1,346 were laterals. Attrition rate
                   for the segment also grew by 60bp qoq to 17.5% (LTM basis).

                   The BPO segment again witnessed employee rationalisation in 2QFY2011,
                   reporting a reduction of 210 net employees. The quarterly offshore attrition rate
                   for this segment grew by 50bp to 10.8% during the quarter.

                   Exhibit 8: Hiring trend (net addition, service wise)
                                             2QFY10              3QFY10         4QFY10            1QFY11           2QFY11
                   Net additions
                   Software services           1,143               2,714             4,944           4,347              1,475
                   Infrastructure services         548                  438            465                980             784
                   BPO                          (446)               (711)            1,019                334            (210)
                   Total employees
                   Software services          33,455              36,169            41,113          45,460          46,935
                   Infrastructure services    11,317              11,755            12,220          13,200          13,984
                   BPO                        10,916              10,205            11,224          11,558          11,348
                   Source: Company, Angel Research

                   Utilisation onsite and offshore-excluding trainees inched up by 20bp and 90bp to
                   95.9% and 75.0%, respectively. Utilisation levels improved as the company hired
                   laterals to address assignments and as freshers hired in 4QFY2010 have started
                   getting billed. Utilisation offshore-including trainees stayed at 70.1%.



January 19, 2011                                                                                                             6
                                                       HCL Technologies | 2QFY2011 Result Update



                   The company is trying to improve its utilisation level further to 74–75%, which can
                   be an important lever to improve margins.

                   Exhibit 9: Utilisation trend (%)

                           100

                                      96.7             95.6                          95.7             95.9
                           90                                        95.2


                                      77.9             79.0
                                                                     77.0

                    (%)
                           80                                                                         75.0
                                                                                     74.1

                                      76.4             76.2
                           70                                        72.9
                                                                                     70.1             70.1

                           60
                                    2QFY10           3QFY10         4QFY10         1QFY11          2QFY11
                                 Offshore - Including trainees     Offshore - Excluding trainees       Onsite


                   Source: Company, Angel Research

                   EBIT margin inches up
                   During 2QFY2011, HCL Tech’s EBITDA and EBIT margins inched up by 5bp and
                   24bp qoq to 16.3% and 13.1%, respectively, in line with our expectation. The
                   improvement in EBIT margin was on account of 1) lower SG&A investment
                   2) higher productivity and 3) a slight improvement in utilisation.

                   EBIT margin growth was because of an 82bp positive effect derived on account of
                   operational efficiency, defying the negative impact of 58bp due to INR
                   appreciation.


                   Exhibit 10: Margin profile

                            40
                                       35.7
                                                       33.7          33.1
                            35                                                       31.6             31.6

                            30

                            25
                     (%)




                                       21.1
                                                       19.8
                                                                     18.6
                            20                                                       16.3             16.3
                            15
                                       16.6            16.2                            12.9             13.1
                                                                     15.3
                            10
                                     2QFY10          3QFY10         4QFY10         1QFY11          2QFY11

                                          Gross margin           EBITDA margin          EBIT margin


                   Source: Company, Angel Research

                   Segment wise, EBIT margin for core software services declined by 18bp qoq to
                   14.6%, while EBIT margin for infrastructure services increased by 30bp qoq to
                   14.5% in 2QFY2011. The BPO segment managed to pull up its gross margin by
                   151bp to 19.6%. However, at the EBIT level, the segment reported losses and will
                   continue to do so, as it is expected to be in the investment mode for the next four
                   quarters.

January 19, 2011                                                                                                7
                                                     HCL Technologies | 2QFY2011 Result Update




                   Exhibit 11: BPO segment – Margin trend

                         30
                                        27.7                                                          19.5
                                                   18.3                               18.1
                         20
                                                                       12.4
                                     7.9
                         10

                                  2.7



                   (%)
                           0                         (4.3)
                                                                                      (8.7)                  (4.9)
                                                                         (11.4)
                         (10)                                                                             (11.0)
                                                   (9.6)
                         (20)                                           (14.3)         (14.8)
                                  2QFY10         3QFY10              4QFY10         1QFY11       2QFY11

                                        Gross margin               EBITDA margin        EBIT margin


                   Source: Company, Angel Research

                   Client pyramid strengthens
                   During the quarter, HCL Tech witnessed qualitative client addition, as clients from
                   various brackets migrated to higher billing segments such as US $40mn–50mn
                   and US $50mn–100mn. Further, out of the 46 new clients, 19 were added in the
                   US $1mn–5mn bracket. The top clients of the company also registered decent
                   growth, with the top 5, top 10 and top 20 clients growing by 2.8%, 6.3% and 6.9%
                   qoq (LTM basis), respectively.

                   Exhibit 12: Client pyramid

                    Particulars                      2QFY10          3QFY10        4QFY10     1QFY11       2QFY11
                   Active client relationship                399         404          408        426            434
                   New client relationship                    36           39          51         48                 46
                   US $1mn–5mn                               177         175          176        180            199
                   US $5mn–10mn                               53           51          49         48                 46
                   US $10mn–20mn                              30           33          34         38                 39
                   US $20mn–30mn                              12           12          12         12                 12
                   US $30mn–40mn                              2               3         5             7              7
                   US $40mn–50mn                              3               2         2             1              2
                   US $50mn–100mn                             3               4         4             5              6
                   US $100mn plus                             1               1         1             1              1
                   Source: Company, Angel Research


                   Outlook and valuation
                   HCL Tech has been witnessing an 8.0% volume CQGR over 2QFY2010–
                   2QFY2011 in its core software business due to return of discretionary type of
                   spending i.e., more transformational engagements with increasing components of
                   EAS. Also, clients are increasingly looking at outsourcing ERD services to encash
                   the surge in consumer spending. Infrastructure management, which proved to be
                   the growth driver even in the downturn, has also witnessed double-digit revenue
                   growth at a 10.5% CQGR over 2QFY2010–2QFY2011.




January 19, 2011                                                                                                      8
                                                     HCL Technologies | 2QFY2011 Result Update



                   Further, management is witnessing a rise in outsourcing infrastructure and
                   applications by clients to drive cost efficiencies.

                   We expect HCL Tech to be the outperformer at the volume front amongst Tier-I IT
                   companies on the back of its higher value services portfolio, which is gaining
                   momentum with clients’ businesses getting to normalcy and they bracing
                   themselves for future growth. We expect revenue in USD terms to grow at a 28.6%
                   CAGR over FY2010–12, with a 25.6% CAGR in INR terms over the same period.
                   At the operating front, the company has many levers such as 1) normalising
                   employee pyramid (i.e. hiring more low-cost freshers), 2) reaping the benefits of
                   high investments in SG&A planned in 1HFY2011, 3) increasing utilisation
                   (including trainees) in core software, which was as low as 70.1% (end of
                   2QFY2011) and 4) turning around the BPO business by returning it to profitability
                   by 2HFY2012. Thus, we expect EBITDA margins to remain subdued in FY2011 at
                   17.3% (v/s 20.5% in FY2010) and expand to 18.7% in FY2012 on the back of the
                   mentioned levers. Going forward, we expect EBITDA to grow at a 20% CAGR over
                   FY2010–12, but PAT growth will be much higher at a 38% CAGR over the same
                   period on the back of nil forex losses, improved profitability in FY2012 and better
                   other income to be accrued from higher liquid investments.

                   At the CMP of `508, the stock is trading at 14.6x FY2012E EPS of `34.7.
                   The outperformance registered by the company warrants the discounts to Infosys to
                   be bridged. Thus, we value the company at 17x FY2012E EPS i.e., at a discount of
                   32% to Infosys’ target multiple (v/s historical discount of 35–40%). We revise our
                   rating on the stock to Buy (earlier Accumulate) with a Target Price of `590.


                   Exhibit 13: Key assumptions
                                                                              FY2011E                FY2012E
                   Revenue growth (USD)                                               32.0               25.3
                   USD-INR rate (realised)                                            45.1               44.3
                   Revenue growth (INR)                                               28.2               23.2
                   EBITDA margin (%)                                                  17.3               18.7
                   EBIT margin (%)                                                    14.2               15.6
                   Tax rate (%)                                                       21.7               24.0
                   EPS growth (%)                                                     31.5               39.4
                   Source: Company, Angel Research



                   Exhibit 14: Change in estimates
                                                   FY2011E                              FY2012E
                   Parameter           Earlier     Revised    Variation     Earlier      Revised     Variation
                   (` cr)            estimates    estimates        (%)    estimates    estimates          (%)
                   Net revenue         15,977      16,103          0.8     19,503        19,832           1.7
                   EBITDA               2,875        2,799        (2.7)      3,500           3,724        6.4
                   Other income              12         15        24.7          83             75      (10.1)
                   PBT                  2,350        2,304        (2.0)      2,941           3,167        7.7
                   Tax                    513          500        (2.4)        706            760         7.7
                   PAT                  1,764        1,728        (2.0)      2,237           2,408        7.7
                   Source: Company, Angel Research



January 19, 2011                                                                                             9
                                                                                                        HCL Technologies | 2QFY2011 Result Update



                                                 Exhibit 15: One-year forward PE (x) chart
                                                        750
                                                        650
                                                        550
                                                        450




                                                  (`)
                                                        350
                                                        250
                                                        150
                                                         50




                                                                                                                                                 Feb-10
                                                                                                           Nov-08




                                                                                                                                     Sep-09
                                                                                               Jun-08




                                                                                                                                                                     Dec-10
                                                                                Jan-08
                                                               Aug-07




                                                                                                                        Apr-09




                                                                                                                                                            Jul-10
                                                                        Price                   19x                   16x              13x                10x           6x

                                                 Source: Company, Angel Research



Exhibit 16: Recommendation summary
 Company                Reco.         CMP Tgt. price Upside        FY2012E P/BV                 FY2012E P/E FY2010-12E                        FY2012E RoCE FY2012E RoE
                                       (`)       (`)     (%)                             (x)                    (x)     EPS CAGR                           (%)                 (%)
 3iInfotech             Buy            56        78     39.2                             0.7                 4.1                 (12.7)                   11.6                19.4
 Educomp                Buy           499       734     47.0                             2.2               10.9                   26.9                    21.0                22.9
 Everonn                Neutral       621                                                3.3               20.3                   29.6                    15.6                17.5
 HCL Tech               Buy           508       590     16.2                             3.9               14.6                   35.4                    17.4                26.5
 Infosys                Accumulate   3,252     3605     10.9                             5.5               22.3                   15.5                    26.3                24.8
 Infotech Enterprises   Accumulate    172       184      7.1                             1.6               10.2                    4.4                    17.3                16.4
 KPIT Cummins           Accumulate    154       164      6.6                             2.1               10.2                   18.2                    25.9                22.8
 Mphasis                Buy           682       866     27.0                             2.6               11.8                    5.3                    28.4                24.5
 NIIT                   Buy            56        83     48.0                             1.5                 9.7                  16.6                    12.1                15.8
 TCS                    Accumulate   1,194     1287      7.8                             7.7               23.2                   21.1                    30.6                33.0
 Tech Mahindra          Buy           689       853     23.9                             2.2               12.7                    0.4                    17.3                17.1
 Wipro                  Accumulate    475       515      8.4                             4.0               19.6                   13.3                    17.3                22.1

 Source: Company, Angel Research




January 19, 2011                                                                                                                                                               10
                                                   HCL Technologies | 2QFY2011 Result Update



                   Profit and loss statement (Consolidated, US GAAP)
                   Y/E June (` cr)                            FY2009    FY2010   FY2011E FY2012E
                   Net sales                                  10,630    12,564    16,103   19,832
                   Cost of revenues                            6,625     8,196    10,884   13,597
                   Gross profit                                4,005     4,369     5,219    6,234
                   % of net sales                               37.7      34.8      32.4     31.4
                   SG&A expenses                               1,661     1,796     2,420    2,510
                   % of net sales                               15.6      14.3      15.0     12.7
                   EBITDA                                      2,345     2,573     2,799    3,724
                   % of net sales                               22.1      20.5      17.4     18.8
                   Depreciation and amortization                 449      501       510      632
                   % of net sales                                4.2       4.0       3.2      3.2
                   EBIT                                        1,895     2,072     2,289    3,093
                   % of net sales                               17.8      16.5      14.2     15.6
                   Other income, net                             164      (55)       15       75
                   Profit before tax                           2,058     2,017     2,304    3,167
                   Provision for tax                             254      240       500      760
                   % of PBT                                     12.4      11.9      21.7     24.0
                   PAT                                         1,803     1,777     1,804    2,407
                   Share from equity investment                    3        1          -        -
                   Forex loss                                   (530)    (476)      (76)       1
                   Adj. net profit                             1,277     1,302     1,728    2,408
                   Fully diluted EPS (`)                        18.8      18.9      24.9     34.7




January 19, 2011                                                                              11
                                                       HCL Technologies | 2QFY2011 Result Update



                   Balance sheet (Consolidated, US GAAP)
                   Y/E June (` cr)                                 FY2009   FY2010 FY2011E FY2012E
                   Cash and cash equivalent                          420      469      476      548
                   Account receivables, net                         2,708    3,050    3,529    4,238
                   Deposit with banks                               1,456    1,091    1,948    3,148
                   Deposit (one year with HDFC ltd)                     -     100      150      150
                   Investment securities, available for sale          23      782      487      787
                   Other current assets                             1,070     885     1,208    1,487
                   Total current assets                             5,678    6,376    7,799   10,359
                   Property and equipment, net                      1,586    1,849    2,155    2,446
                   Intangible assets, net                           4,533    4,312    4,190    4,117
                   Investment securities HTM                          20       50      100      100
                   Investment in equity investee                      17       21       21       24
                   Other assets                                      861      964     1,119     703
                   Total assets                                    12,694   13,572   15,384   17,749
                   Current liabilities                              3,268    3,133    4,245    5,303
                   Borrowings                                       2,977    2,663    2,452    2,140
                   Other liabilities                                 763      739      976     1,220
                   Total liabilities                                7,008    6,535    7,672    8,662
                   Minority Interest                                    -        -        -        -
                   Total stockholder equity                         5,686    7,037    7,711    9,087
                   Total liabilities and stock holder equity       12,694   13,572   15,384   17,749




January 19, 2011                                                                                 12
                                                          HCL Technologies | 2QFY2011 Result Update



                   Cash flow statement (Consolidated, US GAAP)
                   Y/E June (` cr)                                   FY2009    FY2010    FY2011E    FY2012E
                   Pre tax profit from operations                     1,893     2,072      2,289      3,093
                   Depreciation                                         449       501        510        632
                   Expenses (deferred)/written off/others             (573)     (564)      (167)        (70)
                   Pre tax cash from operations                       1,770     2,009      2,631      3,655
                   Other income/prior period ad                         164       (55)        15         75
                   Net cash from operations                           1,934     1,954      2,647      3,729
                   Tax                                                (254)     (240)      (500)      (760)
                   Cash profits                                       1,680     1,714      2,146      2,969
                   (Inc)/dec in current assets                       (1,429)    (156)      (803)      (988)
                   Inc/(dec) in current liabilities                   1,497     (135)      1,112      1,058
                   Net trade working capital                             67     (291)        309         70
                   Cash flow from operating activities                1,747     1,424      2,455      3,039
                   (Inc)/dec in fixed assets                          (609)     (652)      (750)      (850)
                   (Inc)/dec in intangibles                          (3,669)      109         56          0
                   (Inc)/dec in investments                             491     (528)      (662)     (1,503)
                   (Inc)/dec in minority interest                        (6)         -          -          -
                   (Inc)/dec in non-current liabilities                 168       (25)       238        243
                   (Inc)/dec in non-current assets                    (355)     (103)      (155)        416
                   Cash flow from investing activities               (3,980)   (1,199)    (1,274)    (1,694)
                   Inc/(dec) in debt                                  2,950     (314)      (212)      (312)
                   Inc/(dec) in equity/premium                        (145)       778          0         (0)
                   Dividends                                          (617)     (640)      (962)      (962)
                   Cash flow from financing activities                2,188     (176)     (1,174)    (1,274)
                   Cash generated/(utilised)                            (44)       48          8         72
                   Cash at start of the year                            465       420        469        476
                   Cash at end of the year                              420       469        476        548




January 19, 2011                                                                                         13
                                                         HCL Technologies | 2QFY2011 Result Update



                   Key ratios
                   Y/E June                                          FY2009   FY2010 FY2011E FY2012E
                   Valuation ratio (x)
                   P/E (on FDEPS)                                      26.9     26.9    20.4    14.6
                   P/CEPS                                              19.9     19.4    15.8    11.6
                   P/BVPS                                               6.1      5.0     4.6     3.9
                   Dividend yield (%)                                   1.6      1.6     1.6     1.6
                   EV/Sales                                             3.4      2.8     2.1     1.6
                   EV/EBITDA                                           15.5     13.8    12.4     8.8
                   EV/Total assets                                      2.9      2.6     2.2     1.8
                   Per share data (`)
                   EPS (Fully diluted)                                 18.8     18.9    24.9    34.7
                   Cash EPS                                            25.5     26.2    32.2    43.8
                   Dividend                                             8.0      8.0     8.0     8.0
                   Book value                                          83.9    102.2   111.0   130.8
                   Dupont analysis
                   Tax retention ratio (PAT/PBT)                        0.9      0.9     0.8     0.8
                   Cost of debt (PBT/EBIT)                              1.1      1.0     1.0     1.0
                   EBIT margin (EBIT/Sales)                             0.2      0.2     0.1     0.2
                   Asset turnover ratio (Sales/Assets)                  0.8      0.9     1.0     1.1
                   Leverage ratio (Assets/Equity)                       2.2      1.9     2.0     2.0
                   Operating ROE                                       31.7     25.2    23.4    26.5
                   Return ratios (%)
                   RoCE (pre-tax)                                      14.9     15.3    14.9    17.4
                   Angel RoIC                                          17.6     18.7    18.7    23.8
                   RoE                                                 22.5     18.5    22.4    26.5
                   Turnover ratios (x)
                   Asset turnover (fixed assets)                        2.2      1.8     2.2     2.6
                   Receivables days                                     79       84      80       78




January 19, 2011                                                                                 14
                                                                                    HCL Technologies | 2QFY2011 Result Update




  Research Team Tel: 022 - 3935 7800                E-mail: research@angelbroking.com                    Website: www.angelbroking.com

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  Disclosure of Interest Statement                                                HCL Tech
  1. Analyst ownership of the stock                                                   No
  2. Angel and its Group companies ownership of the stock                             No
  3. Angel and its Group companies' Directors ownership of the stock                  No
  4. Broking relationship with company covered                                        No

  Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors



  Ratings (Returns):              Buy (> 15%)                      Accumulate (5% to 15%)                 Neutral (-5 to 5%)
                                  Reduce (-5% to 15%)              Sell (< -15%)

January 19, 2011                                                                                                                           15

				
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