Technology

For 1QFY2017, HCL Technologies (HCL Tech) posted better-than-expected
numbers on all fronts. In US$ terms, revenue came in at US$1,691mn V/s
US$1,674mn expected and V/s US$1,587mn in 3QFY2016, ie a growth of 6.5%
qoq (6.0% qoq in constant currency [CC] terms). On the operating front, the EBIT
margin came in at 20.6% V/s 19.4% expected and V/s 20.8% in 3QFY2016, ie a
qoq dip of 19bp. Thus, the adj. net profit came in at Rs2,047cr V/s Rs1,925cr in
3QFY2016, a qoq growth of 6.3%. For FY2017, the company gave a revenue
growth guidance of 12.0-14.0% in CC terms which translates into an 11.2% to
13.2% growth in US$ terms. The operating margin (EBIT) for FY’2017 is expected
to be in the range of 19.5% to 20.5%. We maintain our Buy rating on the stock.
Quarterly highlights: For 1QFY2017, the company posted better-than-expected
numbers on all fronts. In US$ terms, revenue came in at US$1,691mn V/s
US$1,674mn expected and V/s US$1,587mn in 3QFY2016, ie a growth of 6.5%
qoq (6.0% qoq in CC terms). The growth was driven by Europe which posted a
16.9% CC qoq growth; USA posted a 2.0% qoq growth and ROW posted a flat
growth. In terms of industries, Manufacturing grew 12.0% qoq CC, Public Services
posted an 11.8% qoq CC growth and Retail & CPG posted a 14.5% qoq CC
growth. On the operating front, the EBIT margin came in at 20.6% V/s 19.4%
expected and V/s 20.8% in 3QFY2016, ie a qoq dip of 19bp. Thus, the adj. net
profit came in at Rs2,047cr V/s Rs1,925cr in 3QFY2016, a qoq growth of 6.3%
Outlook and valuation: We expect HCL Tech to post a USD and INR revenue
CAGR of 16.0% and 18.0, respectively, over FY2016–18E. On back of strong order
book and given the attractive valuations, we recommend a Buy on the stock.

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