Expect some fireworks only above 866-875 up to 935-990
Quarterly PAT came around Rs.1726 cr against revised median estimate of Rs.1723 cr
and EPS at 9.99 (Exp 9.80) vs 10.21 (QOQ) & 12.00 (YOY)
Is the management's profit warning action overdone ?
CMP: 858
Either buy on breakout above 866-875 or in dips around 830-811-800
TGT: 905-921-935 (1-3M)
TGT: 990-1045 & 1165-1280 (12-24M)
TSL<790
Note: Consecutive closing below 790 for any reason, HCL can fall up to 760-740-725-700 levels, where it can be again accumulated for better investment buying average.
Sep'15 QTR result published yesterday by HCL was by and large in line with revised street estimates after management's guidance warning last month.
As expected QTR numbers is very weak and PAT fall by 8% due to cross currency headwinds and one time provision made to compensate for loss of revenue from a particular large client. Although the result showed that the infrastructure management services (IMS) is a drag for the company, but its core manufacturing clients added more projects. IMS contribute nearly 23% of the revenue of HCL.
The other business verticals of HCL also reported slower sequential growth of under 1% on QOQ basis (financial services, manufacturing, retail & telecom together comprises of around 77% of total revenue of HCL)
The management is confident about its large order book and expected for the revenue reflection of the same from Jan'16 on wards and is not emphasizing too much on short term QOQ numbers. The management has pointed out the longer term trailing 12 month numbers (TTM), where the above verticals has shown good growth as a large multiyear order takes time to reflect in revenue stream.
Analysts are pointing out that this is the third consecutive earning downgrade for HCL. There is immense competition in IMS from other tier-1 players, HCL has somewhat weak software applications portfolio, which reflects in multi-year under performance and the company lags competition in capturing digital opportunity (artificial intelligence-AI, automation etc).
But, all the above negative news for HCL may be already discounted by the market going by the time & price action of the scrip. Technically, 800 zone should hold for HCL, unless we hear some more negative news or further earning downgrades/weak guidance from the management.
Looking ahead, apart from the export revenue, all major IT companies may be benefited immensely from our own domestic opportunity (Digital India theme) in the coming days and HCL might also be one of them.
HCL is also the the process of acquiring a Bangalore based engineering services firm "Concept to Sillicon System" (C2SiS) specializes in system-on-chip and design services and it has large Fortune-100/500 client base.
As par BG metrics & current market parameters:
Present median valuation of HCL may be around: 870 (FY:15)
Projected fair valuations might be around : 905-990-1070 (FY:16-18)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| HCLTECH | 43.17 | 111.97 | 20 | 884.01 | 856.66 | 870.34 | 905.12 | 849.98 |
| HCLTECH | 46.55 | 125.55 | 20 | 917.97 | 889.57 | 903.77 | 905.12 | 849.98 |
| HCLTECH | 55.75 | 140.75 | 20 | 1004.59 | 973.51 | 989.05 | 905.12 | 849.98 | 830 |
| HCLTECH | 65.15 | 156.25 | 20 | 1085.99 | 1052.39 | 1069.19 | 905.12 | 849.98 | 830 |
Analytical Charts:
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