Technology

After this quarter (3QFY2016), the company has migrated to March year-ending.
For 3QFY2016, HCL Technologies (HCL Tech) posted lower than expected
numbers on the top-line as well as the bottom-line front. It reported a top-line
growth of 1.3% QoQ to US$1,587mn V/s US$1,607mn expected. In constant
currency (CC) terms, the growth was of 1.7% QoQ. On the operating front, the
EBIT margin came in at 20.8%, in line with our expectations. The net profit came
in flat on a QoQ basis at Rs1,926cr (V/s Rs1,936cr expected). On the operational
front, the utilization level moved up to 85.6% V/s 84.7% in 2QFY2016, while the
attrition rate for IT services came in at 17.3% V/s 16.7% in 2QFY2016. We
maintain our Buy recommendation on the stock with a price target of Rs1,000.
Quarterly highlights: The company posted a 1.3% QoQ growth for the quarter to
US$1,587mn (V/s US$1,607mn expected). In rupee terms, the company posted a
sales growth of 3.4% QoQ to Rs10,698cr (V/s Rs10,850cr expected) while in CC
terms the growth was of 1.7% QoQ. In terms of geographies, the company
posted 3.7%, (2.4)% and 1.3% QoQ growth in USA, Europe and ROW in CC
terms respectively. In terms of verticals, the company posted a QoQ CC growth of
-1.3%, 0.9%, 6.4%, 7.1%, -1.2%, 4.2% in Financial Services, Manufacturing, Life
sciences & Healthcare, Public Services, Retail & CPG and Telecommunications,
Media, Publishing & Entertainment (MPE) respectively. On the operating front, the
EBIT margin came in at 20.8%, in line with our expectation. The net profit grew
0.3% QoQ to Rs1,926cr (V/s Rs1,936cr expected).
Outlook and valuation: We expect HCL Tech to post a USD and INR revenue
CAGR of 12.5% and 15.5%, respectively, over FY2015–18E. On back of strong
order book and given the attractive valuations, we recommend a Buy on the stock.

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