Indiabulls Securities maintains 'buy' on HCL Technologies

HCL Technologies
Research: Indiabulls Securities
Rating: Buy
CMP: Rs 234

Indiabulls Securities has maintained its ���buy��� rating on the stock because the company witnessed a strong deal inflow during Q4 ���08 ($310 million) and signed a total contract worth $1 billion during the year. HCL Technologies reported strong results for the quarter and the year ended June ���08.

Its topline recorded a sequential growth of 11.5% to Rs 2,170 crore, driven by an appreciating dollar and a modest volume growth. EBITDA margin increased by 117 bps q-o-q to 23.4%, led by an improved operational efficiency and a decrease in the cost of revenue, which helped offset the increase in SG&A expenses.

Although in a weak macro-economic environment, pricing will continue to remain under pressure, Indiabulls expects the company���s revenues to grow at ~21.4% in dollar terms for FY09, driven by volumes. Besides, gain from the appreciating dollar against the rupee will also help improve revenues to grow at 27.2% in rupee terms for FY09E.

Despite a slowdown, the US remained the highest revenue contributor and showed a decent growth throughout the year. Besides, the company steadily improved its utilisation rate from 69.2% in Q1 ���08 to 73.9% in Q4 ���08, which helped improve margins. Despite having stable fundamentals, the stock is trading at a discount of 29% to the average industry multiple. Moreover, valuation gives a fair value of Rs 316. The stock has an upside of around 37%.