Result much above expectations
Stock down 2.7%
HCL Tech (CMP: `843 / TP `1,132 : Buy / Upside: 34.3%)
During 2QFY2016, the company posted results better than expected. On sales the company posted a 1.4% QoQ growth in USD revenues to US$1,566mn V/s US$1,568mn expected. On Constant Currency, (CC) the company posted a 2.1% QoQ. In rupee terms, revenues came in at `10,341cr V/s `10,331cr expected, a growth of 2.4% QoQ.
In CC terms the key geography that drove the sales was 5.5% QoQ, while Europe and ROW posted a dip of 2.4% QoQ and 3.4% QoQ respectively. In services all services posted robust growth, with the expectation of Engineering and R&D Services which dipped by 1.5% QoQ CC, while Application Services, Infrastructure Services and Business Services posted a QoQ CC growth of 2.0%, 3.4% and 8.0% respectively. In verticals, only Manufacturing and Life sciences & Healthcare were soft posting a dip of 1.3% QoQ CC and 0.3% QoQ CC growth respectively. Other Verticals like Financial Services, Public Services, Retail & CPG and Telecommunications, Media posted QoQ CC growth of 1.9%, 8.4% , 10.3% and 3.4% respectively.
On operating front, the EBITDA margins came in at 21.5% V/s 20.9% expected an uptick of 80bp QoQ. Consequently, PAT came in at `1,920cr V/s `1,739cr expected, de-growth of 0.5% QoQ. On 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.
Strong client addition continued for the company in CY’2015: US$50Mn+ clients up by 3, US$30mn+ clients up by 5, US$20mn + clients up by 5.Continuing its momentum of deal wins, HCL booked business in excess of USD 1 billion in TCV this quarter, including 8 transformational deals. The broad–based business wins, across service lines and industry verticals were driven by our next–generation offerings. Thus, on back of strong order book, the company expects the 2HFY2016, to be better than 1HFY2016. We maintain our Buy on the stock with a price target of `1,132.
