HCL Technologies Q1FY17 Preview: Revenue to grow 5.3% q-o-q; Buy

Motilal Oswal | July 10, 2016, 7:54 p.m.

Highlights:


- We expect HCLT’s USD revenue to grow 5.3% QoQ in 1QFY17 and 5% QoQ on a constant currency basis. Impact from cross currencies should add ~30bp to revenue growth.


- Organic growth of 2.5% QoQ CC, would be summed up by the following factors: [1] Ramp up in IMS deals, [2] Commencement of revenue from the Volvo deal, [3] Pressure of insourcing at a major client. The remainder would be contributed to by the external IT business of Volvo that HCLT acquired.


- Given the lower margin of the external IT business of Volvo and investments in visas, margins are expected to decline by 150bp QoQ to 20.7%.


- PAT estimate for the quarter is INR18.8b, -2% QoQ, on the back of lower margins.


- The stock trades at 13.7x FY17E and 12.4x FY18E EPS. Maintain Buy.


Key issues to watch for


- Commentary on margin expectations for FY17.


- TCV of deals signed during the quarter.


- Organic growth in IMS and traction in Engineering.

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