Result Flash on HCL Tech for 3QFY2011

HCL Technologies reported robust set of 3QFY2011 numbers today which were way ahead of the street expectations but marginally below our expectations. The dollar revenues came in US$914.5mn, up 5.8% qoq on the back of modest 4.9% qoq volume growth in core software as well as whopping 8.6% qoq dollar revenues growth in Infrastructure services. Cross currency movement aided growth further by 0.6% qoq. In rupee terms, revenue came in `4,138.2cr, up 6.4% qoq. The EBIT margin grew by 130bp qoq to 14.4%. PAT stood tall at `462.8cr, up 17.1% qoq on the back of stronger growth and higher other income of `12.7cr v/s `5.4cr in 2QFY2011.

3QFY2011: Result highlights

(Rs cr)	3QFY11	3QFY11E	% Var	2QFY11	% chg (qoq)	3QFY10	% chg (yoy)
Net revenue	4,138	4,186	(1.1)	3,888	6.4	3,076	34.6
EBIT	597	653	(8.7)	511	16.8	497	20.0
EBIT margin (%)	14.4	15.6	(119)bp	13.1	128bp	16.2	(175)bp
PAT	468	502	(6.7)	400	17.1	344	36.2

Key highlights:

·         Hiring remained decent with 4,407 gross additions and 1,617 net additions in IT services with attrition rate inching down by 20bp to17.0% on LTM basis.

·         Utilisation level in core software, including trainees as well as excluding trainees, increased by 180bp and 130bp to 71.9% and 76.3%, respectively.

·         BPO business is back on growth as well as trimming down losses on operational level with EBIT margins of -9.0% (v/s -11.0% in 2QFY2011).

·         In constant currency, geographies like North America and Europe grew by 0.7% and 4.2% qoq, respectively while Rest of the world posted whopping growth of 20.5% qoq.

·         In constant currency, anchor industry segment, BFSI grew by strongly at 10.5% qoq. Manufacturing, Energy & utilities and Media, publishing & entertainment grew by 6.1%, 6.3%and 1.7% qoq, respectively. However, Retail & CPG and Telecom vertical, which posted 14.2% and 5.0% qoq growth in 2QFY2011, de grew by 0.4% and 0.3% qoq, respectively.

·         In constant currency, services like enterprise application grew at 5.7%, Engineering and R&D Services grew by 1.6% and Custom application by 5.1%. Infrastructure services posted robust 7.7% qoq growth. However, BPO services, which were growing since last couple of quarter, de grew by 1.0% qoq.  .

·         The company won 11 transformational deals during 3QFY2011. These deals span across all services lines and the vertical segments. 8 of these deals have been won from existing customers.

·         Client addition was robust at 58 in this quarter. Active client base of the company stood at 453.

The company is riding the wave of discretionary spend which has been demonstrated by its robust revenue growth. The company remains as one of our top pick amongst the tier-I IT companies with target price of `595. We will be shortly releasing a detailed result update.