HCL Technologies 3QFY2011 Result Update | Strong Growth Momentum Continues

3QFY2011 Result Update | IT
April 20, 2011
HCL Technologies
Performance Highlights
(` cr) Net revenue EBITDA EBITDA margin (%) PAT 3QFY11 2QFY11 % chg (qoq) 3QFY10 % chg (yoy)
BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code IT 35,763 0.9 523/345 225,881 2 19,471 5,852 HCLT.BO HCLT@IN
`523 `603
12 Months
4,138 716 17.3 468
3,888 635 16.3 400
6.4 12.9 99bp 17.0
3,076 607 19.8 344
34.6 17.9 (244)bp 36.1
Source: Company, Angel Research
For 3QFY2011, HCL Technologies (HCL Tech) reported strong numbers, way ahead of street but slightly below our expectations, shunning remote concerns related to the IT demand environment that began surfacing post Infosys results. HCL Tech has been a beneficiary of the return in demand for enterprise services, and we expect it to ride on the spending on discretionary services. The company is expected to post a revenue (USD terms) and PAT CAGR of 25.6% and 31.9%, respectively, over FY201013E, ahead of other tier-I companies. We maintain our Buy rating on the stock. Robust numbers: For 3QFY2011, HCL Tech reported revenue of US$914.5mn, up 5.8% qoq, on the back of 4.8% qoq volume growth and 1.0% qoq benefit due to cross-currency movement. EBIT margin also increased by 128bp qoq to 14.4% on the back of 1) improvement in utilisation level, 2) lower SG&A investment and 3) higher revenue productivity along with currency benefit. Outlook and valuation: Management is witnessing a strong demand environment and has signed 11 transformational deals in 3QFY2011 itself on the back of 17 sign offs in 2QFY2011. We expect HCL Tech to be the outperformer among tier-I IT companies, with a revenue (INR terms) CAGR of 23.7% over FY201013E on the back of its higher-value services portfolio. At the operating front, levers such as 1) managing SG&A 2) expanding utilisations and 3) turnaround in the BPO segment are expected to improve margins. Thus, we expect EBITDA to grow at a 19.6% CAGR over FY201013E. PAT, on the other hand, is expected to post a much higher CAGR of 31.9%, with improving profitability, forex gains on hedges and treasury gains. We maintain our Buy rating with a target price of `603. Key financials (Consolidated, US GAAP)
Y/E June (` cr) Net sales % chg Net profit % chg EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 64.8 5.8 21.6 7.8
Abs. (%) Sensex HCL Tech
3m
1yr
3yr 18.1 94.2
2.2 11.5 2.1 51.4
FY2009
FY2010
FY2011E
FY2012E
FY2013E
10,630 39.2 1,277 13.6 22.1 18.8 27.7 6.2 22.5 14.9 3.5 16.0
12,564 18.2 1,302 2.0 20.5 18.9 27.6 5.1 18.5 15.3 2.9 14.2
16,103 28.2 1,717 31.8 17.2 24.7 21.2 4.7 22.3 15.5 2.3 13.2
19,627 21.9 2,375 38.3 18.3 34.2 15.3 4.0 26.3 18.2 1.8 9.7
23,565 20.1 2,990 25.9 18.7 43.0 12.1 3.3 27.1 19.1 1.4 7.4 Srishti Anand
+91 22 3935 7800 Ext: 6820 srishti.anand@angelbroking.com
Ankita Somani
+91 22 3935 7800 Ext: 6832 ankita.somani@angelbroking.com
Please refer to important disclosures at the end of this report
HCL Technologies | 3QFY2011 Result Update
Exhibit 1: 3QFY2011 performance (Consolidated, US GAAP)

Y/E June (` cr) Net revenue Cost of revenue Gross profit SG&A expense EBITDA Dep. and amortisation EBIT Other income PBT Income tax PAT Forex loss Adjusted PAT EPS Gross margin (%) EBITDA margin (%) EBIT margin (%) PAT margin (%)
3QFY2011
2QFY2011
% chg (qoq)
3QFY2010
% chg (yoy)
9MFY2011
9MFY2010
% chg (yoy)
4,138 2,812 1,326 610 716 120 596 13 609 130 479 (11) 468 6.7 32.0 17.3 14.4 11.3
3,888 2,661 1,227 592 635 124 511 5 516 103 413 (13) 400 5.8 31.6 16.3 13.1 10.3
6.4 5.7 8.1 2.9 12.9 (3.1) 16.7 18.0 26.1 16.0 (16.4) 17.0 17.0 49bp 99bp 128bp 101bp
3,076 2,038 1,038 430 607 110 497 (14) 483 77 406 (63) 344 5.0 33.7 19.8 16.2 11.2
34.6 38.0 27.8 41.7 17.9 9.1 19.9 26.0 69.1 17.9 (82.1) 36.1 35.1 (170)bp (244)bp (176)bp 4bp
11,735 8,008 3,727 1,772 1,954 369 1,586 19 1,604 316 1,289 (90) 1,199 17.3 31.8 16.7 13.5 10.2
9,139 5,903 3,236 1,301 1,935 388 1,547 (34) 1,513 215 1,299 (339) 961 14.0 35.4 21.2 16.9 10.5
28.4 35.7 15.2 36.2 1.0 (4.9) 2.5 6.0 46.7 (0.8) (73.4) 24.8 23.6 (365)bp (451)bp (341)bp (35)bp
Exhibit 2: 3QFY2011 Actual vs. Angel estimates

(` cr) Net revenue EBITDA margin (%) PAT
Actual
Estimate
Variation (%)
4,138 17.3 468
4,186 18.6 502
(1.1) (132)bp (6.8)
Growth momentum continues

For 3QFY2011, HCL Tech reported robust set of numbers. Revenue in USD terms came in at US$914.5mn, up 5.8% qoq. Growth was on the back of 4.8% qoq volume growth and 1.0% qoq benefit because of cross-currency movement derived due to USD depreciation of 1.3%, 0.6% and 1.8% qoq as against the GBP, Euro and AUD, respectively. The company also reported a 1.4% qoq increase in price realisations offshore and 1.0% qoq onsite. In constant currency (CC) terms, revenue grew by 4.8% qoq to US$906.0mn. Growth again proved to be broad-based, spanning across verticals, geographies and service lines. HCL Techs revenue growth was led by modest volume growth of 4.9% in core software services and strong USD revenue growth of 7.7% qoq (CC terms) in infrastructure services. Volume growth of 4.9% qoq in core software services was led by strong volume growth of 5.6% qoq offshore. Onsite volumes grew decently by 3.0% qoq in 3QFY2011.
April 20, 2011
Exhibit 3: Volume growth trend (Effort wise)

12 10 8 8.2 7.2 4.6 10.9 10.3 10.5 7.9 7.7 7.9 7.1 5.6 6.7 5.6 3.0 4.9
(%)
6 4 2 0
3QFY10
4QFY10 Offshore
1QFY11 Onsite
2QFY11 Total
3QFY11
In INR terms, revenue came in at `4,138.2cr, up 6.4% qoq, reporting higher growth as compared to USD revenue growth due to the 1.0% qoq depreciation in INR against USD in 3QFY2011. Core software continues its growth momentum: During the quarter, core software services posted robust 5.4% qoq revenue growth (USD terms) to US$650.9mn on the back of strong USD revenue growth of 5.7% and 5.1% qoq (CC terms) in enterprise application services (EAS) (contributed 21.4% to revenue) and custom application services (contributed 32.0% to revenue). Among other core software services, growth of 1.6% qoq (CC terms) was witnessed in engineering and R&D services (ERD) (contributed 17.7% to revenue). This growth was slightly muted on account of disruption in delivery due to the mishap in Japan. Infrastructure services led to strong growth: The infrastructure services segment reported whopping 8.5% qoq growth in revenue (USD terms) to US$213.7mn on the back of strong 7.7% qoq growth (CC terms) in infrastructure management services (IMS), contributing 23.4% to revenue; and cross-currency benefit of 0.8%. Currently, the segment is witnessing continued demand traction for technology and operational transformation outsourcing as well as system integration. Continental Europe and emerging markets are focusing on reducing operations cost, which is driving transformational outsourcing. A large part of the deal flow is from existing clients due to contract renewals. BPO declines: The BPO segment has returned to its growth path since the last couple of quarters, with revenue of US$49.8mn, up 0.7% qoq. However, in CC terms, the segment reported a 1.0% qoq decline. The demand environment is heating up as clients are looking at globalisation of delivery capabilities, which is driving transformation and enterprise-wide cost efficiency. The company is continuously investing in building platforms for non voice-based businesses in this segment and has already made platforms for the insurance, logistics, telecom and MPE verticals. Also, HCL Tech has acquired certain software assets from Citibank International Plc; this has provided the company a platform to cater to the capital market vertical. The company is expected to invest US$5mn6mn every quarter in BPO services until CY2011.
April 20, 2011
Exhibit 4: 3QFY2011 performance (Segment wise)

(US$ mn) SOFTWARE SERVICES Revenue Gross profit Gross margin (%) EBITDA EBITDA margin (%) EBIT EBIT margin (%) INFRASTRUCTURE SERVICES Revenue Gross profit Gross margin (%) EBITDA EBITDA margin (%) EBIT EBIT margin (%) BPO SERVICES Revenue Gross profit Gross margin (%) EBITDA EBITDA margin (%) EBIT EBIT margin (%)
3QFY11
2QFY11 % chg qoq
3QFY10
% chg yoy
651 225 34.5 119 18.3 103 15.8
618 210 34.0 108 17.5 90 14.6
5.4 7.0 53bp 10.5 85bp 13.8 117bp
481 180 37.3 110 22.8 93 19.4
35.2 25.1 (280)bp 8.7 (447)bp 10.2 (359)bp
214 59 27.7 41 19.0 34 15.7
197 53 27.0 36 18.0 29 14.5
8.5 11.3 69bp 14.6 102bp 17.1 115bp
152 42 27.7 28 18.4 23 14.9
40.8 40.4 (8)bp 45.9 67bp 48.2 79bp
50 9 18.9 (2) (3.2) (5) (9.0)
50 10 19.6 (2) (4.8) (5) (10.9)
0.7 (3.1) (74)bp (33.3) 164bp (16.7) 188bp
52 10 18.3 (2) (4.4) (5) (9.6)
(4.2) (1.1) 59bp (30.4) 121bp (10.0) 59bp
Exhibit 5: Revenue growth trend (Service wise in CC terms)

20 15 10
(%)
5 0 (5) (10) (15) EAS ERD Custom application IMS BPO services 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11
April 20, 2011
HCL Techs anchor verticals, financial services (contributed 26.2% to revenue) and manufacturing (contributed 27.3% to revenue) continued their growth momentum as the companys primary growth drivers, up by 10.5% and 6.1% qoq (CC terms), respectively. In the financial services space, M&A consolidation work continued to drive growth, especially in Europe and Asia Pacific region. Demand in the manufacturing space is coming for business needs related to operational efficiency, cost reduction and product development. In addition, the energy, utilities and public sector (EPU) vertical (contributed 7.3% to revenue) grew strongly by 6.3% qoq (CC terms). This vertical is gaining strong demand from North America, especially for smart grid platforms. Other verticals, such as media, publishing and entertainment (MPE) (contributed 6.6% to revenue) and healthcare (contributed 8.0% to revenue) also posted moderate growth of 1.7% and 0.5% qoq (CC terms), respectively. However, the retail and consumer product group (CPG) vertical (contributed 8.7% to revenue) and the telecom vertical (contributed 10.3% to revenue), which posted 14.2% and 5.0% qoq (CC terms) growth in 2QFY2011, declined by 0.4% and 0.3% qoq (CC terms), respectively, in 3QFY2011. Management has indicated that the retail vertical will rebound from the next quarter, but telecom will continue to witness some systemic softness in IT spending.
Exhibit 6: Revenue growth trend (Industry wise in CC terms)

Growth by vertical (%) Financial services Manufacturing Telecom Retail and CPG MPE Healthcare EPU Others
3QFY10 5.5 10.5 0.4 1.0 16.3 10.2 1.8 10.3
4QFY10 1QFY11 8.3 10.4 2.9 19.6 1.5 19.3 6.8 5.7 7.2 7.9 7.2 11.2 1.3 10.5 6.5 4.5
2QFY11 3.3 6.7 5.0 14.2 6.0 7.1 12.3 4.8
3QFY11 10.5 6.1 (0.3) (0.4) 1.7 0.5 6.3 1.3
During the quarter, HCL Tech reported growth across all geographies. North America and Europe grew by 0.7% qoq and 4.2% qoq (CC terms), respectively, while rest of the world posted whopping growth of 20.5% qoq (CC terms).
April 20, 2011
Exhibit 7: Revenue growth trend (Geography wise in CC terms)

22 18 14 11.3 13.4 9.1 4.2 1.4 3QFY10 4QFY10 US
20.5 16.7 10.8
(%)
10 6 2 (2)
9.6
7.9
5.8 2.8
4.2 0.7
1QFY11 Europe
2QFY11
3QFY11
Rest of the world
Hiring spree continues, utilisations inch up

During the quarter, HCL Tech added 7,534 gross employees, out of which 5,984 were lateral additions. The company added 1,153 net employees, taking its total employee base to 73,420. In the core software services segment, 2,939 gross and 867 net employees were added during the quarter, taking the segments total employee base to 47,802. Gross lateral employee addition in this segment stood robust at 1,991, which indicates that the company is witnessing a strong deal pipeline for transformational projects. Attrition rate for the core software services segment declined by 30bp qoq to 16.8% (LTM basis) during the quarter. The infrastructure services segment, which has been growing at a scorching pace since the last few quarters, reported net addition of 750 employees in 3QFY2011, taking the segments total employee base to 14,734. Gross addition in the segment stood at 1,468 employees, out of which 1,466 were laterals. Attrition rate for this segment inched up by 10bp qoq to17.6% (LTM basis). The BPO segment again witnessed employee rationalisation in 3QFY2011, reporting a reduction of 464 net employees, taking the segments total employee base to 10,884. However, the company added 3,127 gross employees in the BPO segment during the quarter. The quarterly offshore attrition rate for this segment grew by 20bp to 11.0% during the quarter.
April 20, 2011
Exhibit 8: Hiring trend (Net addition, Service wise)

3QFY10
Net additions Software services Infrastructure services BPO Total employees Software services Infrastructure services BPO
4QFY10 4,944 465 1,019 41,113 12,220 11,224
1QFY11 4,347 980 334 45,460 13,200 11,558
2QFY11 1,475 784 (210) 46,935 13,984 11,348
3QFY11 867 750 (464) 47,802 14,734 10,884
2,714 438 (711) 36,169 11,755 10,205
Utilisation, onsite and offshore-excluding trainees, increased by 60bp and 130bp qoq to 96.5% and 76.3%, respectively. Utilisation level improved as the company hired laterals to address assignments and as freshers hired in 1HFY2011 started getting billed. Utilisation level, offshore-including trainees, also improved by 180bp qoq to 71.9%. The company is trying to improve its utilisation level (including trainees) further to 7475%, which can be an important lever to improve margins.
Exhibit 9: Utilisation trend (%)

100 95.6 79.0 95.2 95.7 95.9 96.5
90
(%)
80
77.0
74.1
75.0
76.3
70
76.2 72.9 70.1 70.1 71.9
60 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11 Onsite
Offshore - Including trainees

Offshore - Excluding trainees
EBIT margin enhances

During 3QFY2011, HCL Techs EBITDA and EBIT margins increased by 99bp and 128bp qoq to 17.3% and 14.4%, respectively. The improvement in EBIT margin was on account of 1) improvement in utilisation level, 2) lower SG&A investment and 3) higher productivity. EBIT margin growth was because of 48bp positive effect derived on account of operational efficiency, including higher utilisation, 45bp positive impact due to SG&A optimisation in addition to 36bp positive impact from INR depreciation against USD qoq.
April 20, 2011
Exhibit 10: Margin profile

35 30 25 33.7 33.1 31.6 31.6 32.0
(%)
19.8 20 15 10 3QFY10
18.6 16.3 16.3
17.3
16.2
15.3 4QFY10 Gross margin
12.9 1QFY11 EBITDA margin
13.1 2QFY11
14.4 3QFY11
EBIT margin
HCL Tech has been expanding its margins since the last two quarters and management has again guided for margin expansion of 100120bp in the next quarter as well. Segment wise, EBIT margin for core software services and infrastructure services increased by 117bp and 115bp qoq to 15.8% and 15.7%, respectively, in 3QFY2011. However, the BPO segment, which has managed to pull up its gross margin since the last two quarters, posted a 74bp qoq decline in gross margins to 18.9%. However, at the EBITDA and EBIT level, the segment trimmed down its losses with margins improving by 164bp and 188bp qoq, respectively.
Exhibit 11: BPO segment Margin trend

24 18 12 6 18.3 12.4 18.1 19.5 18.9
(%)
0 (6) (12) (18)
(4.3) (9.6) (11.4) (14.3) 3QFY10 4QFY10 (8.7)
(4.9)
(3.2) (9.1)
(14.8) 1QFY11 EBITDA margin
(11.0) 2QFY11 3QFY11
Gross margin
EBIT margin
Client pyramid strengthens

During the quarter, HCL Tech enhanced its client pyramid with the addition of new clients. The company added one client in the US$50mn100mn bracket, two clients in the US$30mn40mn bracket, three clients in the US$5mn10mn bracket and six clients in the US$1mn5mn bracket. Client addition stood tall at 58. Active client base of the company increased to 453 in 3QFY2011 from 434 in 2QFY2011. The companys top clients also registered decent growth, with the
April 20, 2011
top 5, top 10 and top 20 clients growing by 4.1%, 6.0% and 6.2% qoq (LTM basis), respectively. The company won 11 transformational deals in 3QFY2011. These deals span across all services lines and verticals. Eight of these deals have been won from existing customers. Also, three of these deals are business services-based deals.
Exhibit 12: Client pyramid

Particulars Active client relationship New client relationship US$1mn5mn US$5mn10mn US$10mn20mn US$20mn30mn US$30mn40mn US$40mn50mn US$50mn100mn US$100mn plus
3QFY10 4QFY10 404 39 175 51 33 12 3 2 4 1 408 51 176 49 34 12 5 2 4 1
1QFY11 426 48 180 48 38 12 7 1 5 1
2QFY11 434 46 199 46 39 12 7 2 6 1
3QFY11 453 58 205 49 39 12 9 2 7 1
Outlook and valuation

HCL Tech has recorded a 7.3% CQGR in revenue over the past four quarters. This is primarily on the back of discretionary services such as EAS and custom applications coming back strongly for the company, recording a CQGR of 7.6% and 9.3% over JFM201011, respectively. In addition, the companys anchor service line infrastructure services maintained its growth momentum at an 8.9% CQGR. Verticals such as financial services, manufacturing and EPU have proved to be the growth drivers for the company. Also, geography wise, continental Europe has proved to be a strong spender for the company vis--vis its peers because of a strong footprint gained in this geography post the acquisition of Axon. Management is witnessing a strong demand environment and has signed 11 large deals in 3QFY2011 itself, most being transformational deals, on the back of 17 sign offs in 2QFY2011. Management cautioned that the deals are more short term in nature and coming out of vendor churn exercises rather than any incremental spending. However, we believe, in such a competitive scenario where all companies are eyeing the existing pool of deals, an aggressive company like HCL Tech with end-to-end IT capabilities and strong client mining ability will emerge as a front runner. We expect HCL Tech to be the outperformer among tier-I IT companies, with a revenue (INR terms) CAGR of 23.3% over FY201013E, on the back of its higher-value services portfolio, which is set to address the current demand landscape. At the operating front, levers such as 1) managing SG&A 2) expanding utilisations and 3) turnaround in the BPO segment on top of strong growth are expected to improve the companys margins. Thus, we expect EBITDA to grow at a 19.6% CAGR over FY201013E. PAT, on the other hand, is expected to post a much higher CAGR of 31.9%, with improving profitability, forex gains on hedges and treasury gains.
April 20, 2011
At the CMP of `523, the stock is trading at 12.2x FY2013E EPS of `43.0. The outperformance registered by the company warrants the discount to Infosys to be bridged. Thus, we value the company at 14x FY2013E EPS i.e., at a discount of 33% to Infosys target multiple of 21x (vs. historical discount of 3540%). We maintain our Buy view on the stock with a target price of `603.
Exhibit 13: Key assumptions

FY2012E Revenue growth (US$) USD-INR rate (realised) Revenue growth (INR) EBITDA margin (%) EBIT margin (%) Tax rate (%) EPS growth (%)
FY2013E
24.6 44.3 21.9 18.3 15.4 24.0 38.3
21.0 44.0 20.1 18.6 15.8 25.0 25.9
Exhibit 14: Change in estimates

FY2012E Parameter (` cr) Net revenue EBITDA Other income PBT Tax PAT Earlier estimates Revised estimates Variation (%) Earlier estimates FY2013E Revised estimates Variation (%)
24,239 4,656 220 4,102 1,025 3,076
19,627 3,594 95 3,110 747 2,375
(19.0) (22.8) (56.9) (24.2) (27.2) (22.8)
24,239 4,656 220 4,102 1,025 3,076
23,565 4,400 242 3,970 993 2,990
(2.8) (5.5) 10.2 (3.2) (3.2) (2.8)
Exhibit 15: One-year forward PE (x) chart

750 650 550 450
(`)
350 250 150 50
Aug-07
Nov-08
Price
19x
16x
13x
10x
Dec-10
6x
Apr-09
April 20, 2011
Feb-10
Sep-09
Jan-08
Jun-08
Jul-10
10
Exhibit 16: Recommendation summary

Company 3iInfotech Educomp Everonn HCL Tech Infosys Infotech Enterprises KPIT Cummins Mphasis NIIT TCS Tech Mahindra Wipro Reco. Buy Accumulate Reduce Buy Buy Neutral Accumulate Buy Buy Accumulate Accumulate Accumulate CMP Tgt. price Upside (`) 46 465 689 523 2,906 156 165 459 54 1,219 723 464 (`) 55 522 602 603 3,435 189 537 69 1,274 796 510 (%) 20.0 12.2 (12.6) 15.3 18.2 14.8 17.0 27.9 4.5 10.1 9.9 FY2013E P/BV (x) 0.5 1.5 3.3 3.3 4.1 1.3 1.6 1.6 1.3 6.3 1.9 3.2 FY2013E P/E FY2011-13E (x) 2.8 9.0 16.3 12.1 17.8 9.6 9.2 9.4 6.9 20.1 12.8 15.3 EPS CAGR 21.5 17.7 27.7 32.0 17.0 13.5 23.9 6.9 26.2 16.7 (0.3) 17.7 FY2013E RoCE FY2013E RoE (%) 14.6 16.4 15.5 19.1 24.5 15.1 22.5 17.5 12.3 29.3 16.0 16.9 (%) 18.6 17.0 16.7 27.1 23.0 13.3 18.7 17.4 18.5 31.2 14.9 21.0
April 20, 2011
11
Profit and loss statement (Consolidated, US GAAP)

Y/E June (` cr) Net sales Cost of revenues Gross profit % of net sales SG&A expenses % of net sales EBITDA % of net sales Dep. and amortization % of net sales EBIT % of net sales Other income, net Profit before tax Provision for tax % of PBT PAT Share from equity invst. Forex loss Adj. net profit EPS (`) FY2009 FY2010 FY2011E FY2012E FY2013E
10,630 6,625 4,005 37.7 1,661 15.6 2,345 22.1 449 4.2 1,895 17.8 164 2,058 254 12.4 1,803 3 (530) 1,277 18.8
12,564 8,196 4,369 34.8 1,796 14.3 2,573 20.5 501 4.0 2,072 16.5 (55) 2,017 240 11.9 1,777 1 (476) 1,302 18.9
16,103 10,927 5,176 32.1 2,410 15.0 2,766 17.2 500 3.1 2,266 14.1 26 2,292 487 21.3 1,804 (88) 1,717 24.7
19,627 13,483 6,144 31.3 2,550 13.0 3,594 18.3 578 2.9 3,016 15.4 95 3,110 747 24.0 2,364 11 2,375 34.2
23,565 16,498 7,066 30.0 2,666 11.3 4,400 18.7 672 2.9 3,728 15.8 242 3,970 993 25.0 2,978 12 2,990 43.0
April 20, 2011
12
Balance sheet (Consolidated, US GAAP)

Y/E June (` cr) Cash and cash equivalent Account receivables, net Deposit with banks Deposit (one year with HDFC ltd) Investment securities, available for sale Other current assets Total current assets Property and equipment, net Intangible assets, net Investment securities HTM Investment in equity investee Other assets Total assets Current liabilities Borrowings Other liabilities Total liabilities Minority Interest Total stockholder equity Total liabilities and stock holder equity FY2009 FY2010 FY2011E FY2012E FY2013E
420 2,708 1,456 23 1,070 5,678 1,586 4,533 20 17 861 12,694 3,268 2,977 763 7,008 5,686 12,694
469 3,050 1,091 100 782 885 6,376 1,849 4,312 50 21 964 13,572 3,133 2,663 739 6,535 7,037 13,572
497 3,441 1,298 160 300 1,256 6,952 2,200 4,310 100 21 1,000 14,583 3,551 2,476 852 6,880 7,703 14,583
570 3,925 1,982 150 721 1,472 8,820 2,495 4,237 100 24 881 16,557 4,449 1,998 1,068 7,515 9,042 16,557
651 4,519 3,445 200 1,148 1,767 11,731 2,692 4,168 100 20 772 19,483 5,445 1,708 1,307 8,459 11,024 19,483
April 20, 2011
13
Cash flow statement (Consolidated, US GAAP)

Y/E June (` cr) Pre tax profit from operations Depreciation Expenses (deferred)/written off Pre tax cash from operations Other income/prior period ad Net cash from operations Tax Cash profits (Inc)/dec in current assets Inc/(dec) in current liabilities Net trade working capital Cash flow from oper. actv. (Inc)/dec in fixed assets (Inc)/dec in intangibles (Inc)/dec in investments (Inc)/dec in minority interest (Inc)/dec in non-current liab. (Inc)/dec in non-current assets Cash flow from invest. actv. Inc/(dec) in debt Inc/(dec) in equity/premium Dividends Cash flow from financing actv. Cash generated/(utilised) Cash at start of the year Cash at end of the year FY2009 FY2010 FY2011E FY2012E FY2013E
1,893 449 (573) 1,770 164 1,934 (254) 1,680 (1,429) 1,497 67 1,747 (609) (3,669) 491 (6) 168 (355) (3,980) 2,950 (145) (617) 2,188 (44) 465 420
2,072 501 (564) 2,009 (55) 1,954 (240) 1,714 (156) (135) (291) 1,424 (652) 109 (528) (25) (103) (1,199) (314) 778 (640) (176) 48 420 469
2,266 500 (176) 2,590 26 2,616 (487) 2,128 (763) 418 (345) 1,783 (785) (64) 165 114 (36) (607) (187) 0 (962) (1,149) 28 469 497
3,016 578 (63) 3,531 95 3,625 (747) 2,879 (700) 898 198 3,076 (800) 0 (1,097) 215 119 (1,563) (478) 0 (962) (1,440) 73 497 570
3,728 672 (34) 4,366 242 4,609 (993) 3,616 (889) 995 106 3,722 (800) 0 (1,938) 239 110 (2,389) (290) 0 (962) (1,252) 81 570 651
April 20, 2011
14
Key ratios
Y/E June Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BVPS Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS (Fully diluted) Cash EPS Dividend Book value Dupont analysis Tax retention ratio (PAT/PBT) Cost of debt (PBT/EBIT) EBIT margin (EBIT/Sales) Asset turnover ratio (Sales/Assets) Leverage ratio (Assets/Equity) Operating ROE Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios (x) Asset turnover (fixed assets) Receivables days FY2009 FY2010 FY2011E FY2012E FY2013E
27.7 20.5 6.2 1.5 3.5 16.0 2.9 18.8 25.5 8.0 83.9 0.9 1.1 0.2 0.8 2.2 31.7 14.9 17.6 22.5 2.2 79
27.6 20.0 5.1 1.5 2.9 14.2 2.7 18.9 26.2 8.0 102.2 0.9 1.0 0.2 0.9 1.9 25.2 15.3 18.7 18.5 1.8 84
21.2 16.4 4.7 1.5 2.3 13.2 2.5 24.7 31.9 8.0 110.8 0.8 1.0 0.1 1.1 1.9 23.4 15.5 18.5 22.3 2.2 78
15.3 12.3 4.0 1.5 1.8 9.7 2.1 34.2 42.5 8.0 130.1 0.8 1.0 0.2 1.2 1.8 26.1 18.2 23.1 26.3 2.6 73
12.1 9.9 3.3 1.7 1.4 7.4 1.7 43.0 52.7 9.0 158.6 0.8 1.1 0.2 1.2 1.8 27.0 19.1 26.7 27.1 3.0 70
April 20, 2011
15
Research Team Tel: 022 - 3935 7800
E-mail: research@angelbroking.com
Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
HCL Tech No Yes No No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
Buy (> 15%) Reduce (-5% to 15%)
Accumulate (5% to 15%) Sell (< -15%)
Neutral (-5 to 5%)
April 20, 2011
16

HCL Technologies 3QFY2011 Result Update | Strong Growth Momentum Continues

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HCL Technologies 3QFY2011 Result Update | Strong Growth Momentum Continues

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3QFY2011 Result Update | IT

April 20, 2011

4,138 716 17.3 468

3,888 635 16.3 400

6.4 12.9 99bp 17.0

3,076 607 19.8 344

34.6 17.9 (244)bp 36.1

Source: Company, Angel Research

Abs. (%) Sensex HCL Tech

3yr 18.1 94.2

2.2 11.5 2.1 51.4

Please refer to important disclosures at the end of this report