PINC Research has maintained `Buy` on HCL Technologies with a price target of Rs 470 as against the current market price (CMP) of Rs 388 in its report dated Dec. 27, 2011. The broking house gave the following rationale:
“Deal renewals and emerging technologies to drive long term growth“
IT budgets expected to be flat; deal renewals to drive the growth:
In light of the current macroeconomic environment, HCL Tech expects overall IT budgets to be flat for CY12. The company believes that the growth would be driven by Indian IT vendors grabbing a larger share of the mega deals coming up for renewal over the next couple of years. Positioning of HCL Tech as a total IT outsourcing partner along with cost efficiencies due to higher off-shoring would give it a competitive edge over the global peers.
Continue to win large deals, mostly in renegotiations:
HCL Tech has signed a 5 years deal with AstraZeneca for managing its data centers across 60 global locations. Apart from the hosting, migration and collaboration services, the company would deliver transformational projects like server virtualization and implementation of hybrid cloud.
Run-the-Business doing well; thrust on emerging technologies:
While offerings like IMS and custom applications are doing well, growth in Enterprise application services is expected to be subdued. The company is looking for acquisitions in the areas of Analytics & Cloud Computing in Nordic Europe, France & Germany.
Utilization, off-shoring & rupee depreciation to support margins:
HCL Tech has scope for further improvement in utilization levels and increasing the share of offshore revenues. Along with these factors, depreciation of rupee would provide margin benefits. As per Q1FY12, the company has hedged USD 713 million which includes hedges for around 40% of inflows for one year.
Outlook and Recommendation:
HCL Tech by leveraging its strength in Run-the-Business offerings would be able to tide over the slowdown expected in discretionary spending. Also, the company is very well positioned to grab higher share of deal renewals from the incumbent vendors. We maintain `BUY` recommendation on the stock with a target price of Rs 470 based on 13x FY13E EPS of Rs 36.1.
Source:http://www.myiris.com/newsCentre/storyShow.php?fileR=20111227160150715&dir=2011/12/27
