Firing on All Cylinders | Value Research HCL Tech has moved ahead of its peers to become India’s fifth-largest IT services company...
Stock Analyst Choice

Firing on All Cylinders

HCL Tech has moved ahead of its peers to become India’s fifth-largest IT services company...

HCL Tech is the country’s fifth-largest IT services company with focus on manufacturing, financial services, life sciences and retail. HCL Tech has already beaten Cognizant in the margins game and is coming closer to those reported by Infosys, TCS and Wipro.

Outlook and valuations
Strong executions, large deal wins and margin improvements make it one of the current favourites among Indian IT stocks. According to Surendra Goyal of Citi research, HCL Tech could see an earnings growth of 46.8 per cent in FY13, making the company one of its top picks in the IT space. At the CMP, the stock trades at 15.1 times its TTM earnings. On a 3-year PEG basis, that comes to an attractive 0.5x.

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How they did it
* Execution, deals and margins have helped the company move past its peers.
* Strong volume growth of 3% (q-o-q, December 2013) was double the growth seen by industry frontrunners Infosys and TCS. In a huge positive, the company announced 12 multi-year multi-million wins valued at a whopping $1 billion (Dec 12 quarter).
* Gained from its focus on infrastructure and BFSI segments and expects to see incremental growth in healthcare and utilities while the outlook for telecom remains cautious.
* Ebitda margins at 22.6% were up 4% (y-o-y) and 40 basis points (q-o-q) despite increase in wages. Margin expansion was seen across services.




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