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Sunday, December 28, 2008

HCL TECHNOLOGIES - Research report with buy stock rating

HCL Tech has announced order wins of over $1 billion in the December 2008 quarter so far. However, the case remains balanced with a ramp down/loss of significant business from existing clients.

Reco price: Rs 134
Current market price: Rs 113.35
Target Price: Rs 144
Upside: 27%
Brokerage: Emkay Global Financial Services


HCL Technologies (HCL Tech) has recently announced the completion of the Axon buy for $701 million. Although Axon brings with it much wanted significant front-end SAP consulting capabilities for HCL Tech, the worsening macro environment could impact Axon’s business prospects negatively.

HCL Tech has announced order wins of over $1 billion in the December 2008 quarter so far. However, the case remains balanced with a ramp down/loss of significant business from existing clients. HCL Tech’s FY10 organic revenue growth is expected to be close to 11 per cent, which is higher than its peers.

However, the company’s profitability might still remain under pressure, given Axon’s lower margins (Axon’s EBIT margins at about 13 per cent vis-à-vis HCL’s standalone margins of about 17 per cent), impact of rupee’s appreciation against the pound (HCL’s BPO business derives nearly two-third of revenues from UK) and probable hedging losses. At Rs 134, the stock trades at 7.1x FY09E and 7.4x FY10E earnings. Maintain ‘neutral’ rating on the stock, with a revised target price of Rs 144 (Rs 197 earlier).

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