>HCL TECHNOLOGIES: Mar-12 results highlight weakness in financial services and US, in line with Infosys’

Quick Comment: Overall we maintain our OW rating on HCLT and expect the stock to continue outperforming in the current environment. We believe its continued revenue growth, stable margins and earnings outperformance are likely to support the stock price.


Mixed Mar-12 results: HCLT reported revenues below our estimates; however, EBIT margins and net income were ahead of our expectations. Revenues were US$1,048m (+2.5% qoq, +14.6% yoy). On constant currency, basis revenues grew 1.9% qoq. EBIT margins declined marginally to 15.3% (-18bps qoq, +141bps yoy) despite rupee appreciation of 3% qoq. Overall, net income improved to Rs5.8bn (+5% qoq, +33% yoy)


Strong addition to order book: HCLT has won over 30 new deals over the last two quarters with financial services leading the vertical contribution. Despite weakness in BFSI in Mar-12 quarter, management remains hopeful of continued growth in the segment. Quantum and volume of deal wins for HCLT are in line with our thesis of a stable business and demand operating environment for the offshore IT vendors.


However, employee additions lag: HCLT has benefited from vendor consolidation opportunities and won large new deals of over US$2.5bn in last six months. However, net headcount addition (420) remains muted in the software services and infra services. We believe that given strong deal wins and high 79% utilization rates, headcount addition appears modest.


Mar-12 results highlight weakness in financial services and US, in line with Infosys’: BFSI revenues declined 4% qoq in constant currency (vs Infosys’ -5% qoq). Overall management indicated that it won US$690m of deals in financial services vertical, which is likely to drive revenue growth ahead of company average. HCLT reported growth in revenues and volumes for Mar quarter, in stark contrast to the volume and revenue declines reported by Infosys.


To read report in detail: HCL TECHNOLOGIES
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