Technology

HCL Technologies (HCL Tech) reported better-than-expected results for
2QFY2016. It posted a sales growth of 1.4% qoq to US$1,566mn V/s an
expected US$1,568mn. In constant currency (CC) terms, revenue grew 2.1% qoq.
On the operating front, the EBITDA margin came in at 21.5% (V/s an expected
20.9%) an uptick of 58bp qoq. Consequently, the PAT came in at Rs1,920cr (V/s
an expected Rs1,739cr), a growth of 5.3% qoq. On back of a strong order book,
the company expects 2HFY2016 to be better than 1HFY2016. We maintain our
Buy recommendation on the stock with a price target of Rs1,038.
Quarterly highlights: The company has reported better-than-expected results for
the quarter. It posted a sales growth of 1.4% qoq to US$1,566mn V/s an
expected US$1,568mn. In constant currency (CC) terms, revenue grew 2.1% qoq.
In CC terms, the key geography which drove sales was Americas, which grew
5.5% qoq; while Europe and ROW posted a dip of 2.4% qoq and 3.4% qoq,
respectively. On the operating front, the EBITDA margin came in at 21.5% (V/s an
expected 20.9%) an uptick of 58bp qoq. Consequently, the PAT came in at
Rs1,920cr (V/s an expected Rs1,739cr), a growth of 5.3% qoq. On the productivity
front, the blended utilization came in at 84.7% V/s 83.6% in 1QFY2016, while the
attrition rate came in at 6.4% V/s 7.1% in 1QFY2016.
Outlook and valuation: We expect HCL Tech to post a USD and INR revenue
CAGR of 13.0% and 13.2%, respectively, over FY2015–17E. On back of strong
order book and given the attractive valuations, we recommend a Buy on the
stock.

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