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报告摘要

HCL Technologies (HCLT IN) Summary

Core Content

HCL Technologies (HCLT IN) is a leading Indian technology company with a current share price of INR937 and a target price of INR1,005, indicating a 7% increase. The company's market capitalization is USD20.6B, with an average daily trading volume (ADTV) of USD24M. The stock is currently rated as "HOLD" due to limited upside and a downgrade from "BUY."

Key Financial Metrics

EBIT margin: Declined by 110bps to 20.2% in 4Q, driven by higher visa costs, SG&A expenses, onsite effort, and employee re-badging, partially offset by INR depreciation and doubtful debt write-backs.
Revenue growth: 3.2% QoQ in 4Q, with USD revenue growth expected at 12.0% for FY16 and 13.4% for FY17.
Core EPS: Projected at INR54 for FY16 and INR63 for FY17.
Core P/E ratio: 16x for FY17F, which is slightly below the five-year average of 17x.
Net debt/equity: Net cash for all years.
ROAE/ROAA: 28.9% and 20.5% respectively for FY17E.
FCF yield: 4.8% for FY17E.

Revenue Performance

4Q15: Revenue grew by 3.2% QoQ to INR97.8B, with a reported growth of 9%.
FY15: Revenue reached INR370.6B, up 13% YoY.
FY16E: Projected revenue growth of 13.3%.
FY17E: Expected revenue growth of 13.4%.
Revenue by service line:
- Enterprise Application Services: 14.4% (4Q15), -6.3% YoY.
- Engineering and R&D Services: 18.7% (4Q15), +26.1% YoY.
- Custom Application Services: 26.5% (4Q15), +5.7% YoY.
- Infrastructure Services: 35.3% (4Q15), +11.8% YoY.
- BPO Services: 5.2% (4Q15), +11.4% YoY.
Revenue by geography:
- US: 58.6% (4Q15), +17.9% YoY.
- Europe: 30.4% (4Q15), +0.7% YoY.
- Rest of the world: 11.0% (4Q15), -5.3% YoY.
Revenue by industry:
- Manufacturing: 32.7% (4Q15), +13.1% YoY.
- Financial services: 26.0% (4Q15), +0.0% YoY.
- Healthcare: 12.0% (4Q15), +28.6% YoY.
- Retail & CPG: 8.8% (4Q15), +13.1% YoY.
- Telecom, Media, Publ. & Ent: 9.5% (4Q15), +16.7% YoY.
- Energy & Utilities & Public services: 9.7% (4Q15), +5.0% YoY.
- Others: 1.3% (4Q15), -38.2% YoY.

EBITDA and Profitability

EBITDA: INR57,540.0M in FY13A, rising to INR107,488.3M in FY17E.
Core net profit: INR40,220.0M in FY13A, projected at INR88,228.4M in FY17E.
EBITDA margin: Declined from 26.3% in FY13A to 21.5% in FY16E and 22.6% in FY17E.
EBIT margin: Fell from 24.1% in FY14A to 20.2% in FY16E and is expected to rise to 21.3% in FY17E.
Pretax profit margin: Dropped from 24.1% in FY14A to 22.8% in FY16E and is expected to rise to 23.9% in FY17E.
Net profit: INR40,220.0M in FY13A, projected at INR88,228.4M in FY17E.
Pretax profit: INR52,360.0M in FY13A, projected at INR113,843.1M in FY17E.

Key Financial Ratios

P/E ratio (reported): 16.2x in FY13A, projected at 14.9x for FY17E.
Core P/E ratio: 16.2x in FY13A, projected at 14.9x for FY17E.
P/BV ratio: 5.0x in FY13A, projected at 4.0x for FY17E.
Net dividend yield: 1.3% in FY13A, projected at 0.0% for FY17E.
FCF yield: 4.6% in FY13A, projected at 4.8% for FY17E.
EV/EBITDA: 4.1x in FY13A, projected at 10.8x for FY17E.
Debt/EBITDA: 0.2x in FY13A, projected at 0.0x for FY17E.
Capex/revenue: 2.1% in FY13A, projected at 2.5% for FY17E.

Key Views

The company's EBIT margin is expected to decline in FY16, but improve from 2H onwards due to margin levers such as offshoring and G&A leverage.
Revenue growth is expected to remain flat, with no material increase in deal TCV.
Despite reasonable valuations, the downgrade to "HOLD" reflects weaker growth expectations compared to prior periods.
The company's performance in FY15-17F is expected to show a slower EPS CAGR of 10.3% compared to 33.7% in FY13-15.
The outlook is influenced by factors such as higher onsite effort, employee re-badging, and wage increases, which negatively impact margins.

Summary of Key Points

Share Price: INR937, with a target price of INR1,005 (+7%).
Market Cap: USD20.6B.
EBIT margin: Fell to 20.2% in 4Q, expected to decline to 20.2% for FY16 and rise to 21.3% for FY17.
Revenue growth: 3.2% QoQ in 4Q, projected to be 12.0% for FY16 and 13.4% for FY17.
EPS growth: Expected to be 3.8% for FY16 and 17.2% for FY17.
Valuation: Core P/E at 16x for FY17F, slightly below the five-year average of 17x.
Dividend yield: Expected to drop to 0.0% for FY17E.
Investor Outlook: Downgraded to "HOLD" due to limited upside and weaker growth expectations.

Conclusion

HCL Technologies is experiencing a slowdown in growth and margin pressures, which have led to a downgrade from "BUY" to "HOLD." While the company has shown reasonable valuations and a stable cash flow, the outlook for the next few years is cautious due to the impact of higher costs and slower revenue growth. Investors should monitor the company's ability to leverage cost-saving initiatives and improve margins to determine future performance.

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