Multi Baggers

HCL Technologies

HCL crosses US$ 1 bn in quarterly revenues; Revenues doubled in 3 years from US$ 501 mn in JAS'08 to 1,002 mn in JAS'11.

The company has registered excellent numbers for the quarter ending September 2011. A sharp rise of 25% in the consolidated revenue to Rs. 46513 million was witnessed in the quarter as compared with Rs.37081 million in the like quarter last year. This has been a fantastic quarter for HCL at 5.1% volume growth. Operating profit surged upto to Rs.7949 million from the same quarter previous year of Rs.6033 million. Net profit skyrocketed about 50% y-o-y to stay at Rs.4967 million. On a sequential basis, there was little pressure on the margins due to salary hikes and hiring. However, the rupee depreciation has positively impacted margins.

Americas constitutes to be a good growth curve for HCL at 6.8% in constant currency, Europe at 4.5% and the rest of the world at 0.7%. Gross & Net Employee additions are of 9,311 & 3,474 respectively taking total headcount to 80,520. Top five customers have growth by 5.3% quarter-on-quarter.

The four quarter CAGR is 5.7%. In engineering services HCL has a very strong quarter with 8.9% QoQ and at the same time it had a growth of 24.2% YoY. This growth is all round both from a geographic perspective as well as the industry segments perspective. Infrastructure revenues grew 4.3% QoQ and 36.8% YOY on a reported basis. Custom applications have grown at about 6% in this quarter and 29.1% YoY. BPO revenues were flat as compared to the last quarter.

Valuation

Robust deal pipeline and decent growth in all business verticals poses strong revenue visibility going forward for HCL. Further, the company will get benefit of rupee depreciation against USD. We believe HCL is trading at an attractive valuation at 13.19x and 10.45x of FY12EPS of Rs.29.45 and FY13EPS of Rs.37.19. We initiate a 'BUY' on the stock with a target price of Rs.520 (appreciation of about 34%) with the medium to long term investment horizon.