Views on HCL Technologies 4QFY2015 Results: Angel Broking

Views of Ms. Sarabjit Kour Nangra (VP Research - IT, Angel Broking) on HCL Technologies 4QFY2015 Results:

"HCL Tech posted results better than expected on the top-line, while the OPM came below expectations, and net profit just in line with expectations. HCL Tech posted a growth of 3.2% qoq in USD revenues to US$ 1,538mn in 4QFY2015 V/s US$ 1,535mn expected V/s US$ 1491mn in 3QFY2015. On Constant Currency terms (CC) the company posted a 2.9% qoq growth during the period. In rupee terms, the revenues came in at INR 9,777cr V/s INR 9,724cr expected and V/s INR 9,267cr in 3QFY2015, a qoq growth of 5.5%.

In terms of geography, the US (57.5% of sales) posted a robust CC growth of 5.1% qoq and Europe (31.4% of sales) was CC growth of 0.1% qoq, while ROW (11.2% of sales) posted a 0.1% qoq CC dip in the revenue. In terms of Verticals, the financial services (26.0% of sales) posted a qoq CC growth of 2.1%. The best performing verticals during the quarter were Life sciences & Healthcare (12.0% of sales), Retail & CPG (8.8% of sales) and Telecommunications, Media, Publishing & Entertainment (9.5% of sales) which posted CC qoq growth of 10.2%, 7.1% and 9.6% qoq respectively. In terms, of services, Infrastructure Services and Business Services posted a CC qoq growth of 5.2% and 4.0% respectively.

On the operating front the EBDITA margins came in at 21.5% V/s 22.8% expected and V/s 22.6% in 3QFY2015, a qoq dip of 108bps. EBIT, on the other hand, came in around 20.2% V/s 21.3% in 3QFY2015, registering a dip of 113bp. The margins came under pressure, on back of wage hikes during the quarter. The utilization rate moved up to 83.5% V/s 81.9% in 3QFY2015, while attrition rate was 16.5% V/s 16.2% in 3QFY2015. The PAT came in at INR 1,783cr V/s INR 1,782cr expected and INR 1,624cr in 3QFY2015, a qoq growth of 5.9%. PAT came in line with expectations in spite of the EBDITA contraction, more than expected, on back of higher than expected other income. Other income came in at INR 212cr in 4QFY2015 V/s INR 179cr in 3QFY2015.

On client additions, the company added 1 client in USD 100mn+ category, 5 Clients in USD 40mn+ category being driven by increased momentum in large deal signings in ITO and Engineering and R&D Services. It added 10 clients in USD 10mn+ category, 24 clients in USD 5mn+ category and 47 clients in USD 1mn+ category reflective of increased participation in engagements in digitalization and modern apps.

Overall, HCL Tech has signed 58 transformational engagements during the FY2014-15 with US$ 5bn+ of Total Contract Value. These Bookings saw significant momentum driven by Next-gen ITO, Engineering Services Outsourcing, Digital and Modern Apps deals, each of which had a component of new technology constructs like Digitalization, Cloud etc. These engagements reflected a broad-based spread across verticals, service lines and geographies.

We maintain our ACCUMULATE rating on the stock with a target price of INR 1,100.

HCL Tech (CMP: INR 997/ TP: INR 1,100/Upside: 10.3%)

Shares of HCL TECHNOLOGIES LTD. was last trading in BSE at Rs.934.5 as compared to the previous close of Rs. 937.4. The total number of shares traded during the day was 86294 in over 3899 trades.

The stock hit an intraday high of Rs. 950 and intraday low of 931.1. The net turnover during the day was Rs. 81077701.

Source : Equity Bulls

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