Company Report | Q4FY11 Result Update

LONG TERM INVESTMENT CALL

27 July 2011 Industry CMP (INR) Target (INR) Upside / Downside (%) 52 week High/Low (INR) Market Cap (INR bn) 3M Avg. Daily Volumes P/E (FY12 E) Shareholding Pattern (%) IT / ITES 504 590 17% 528 / 368 345.72 677,890 15.71

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Better than Expected Margins Boost Bottomline Profit!

HCL Technologies Ltd. (HCLT) reported revenue of INR 42.99 bn in Q4FY11 reflecting a growth of 27% and 4% on an annual and sequential basis respectively. This was inline with our estimates. Revenue was aided by a 2.1% volume growth and 2.8% growth in pricing during the quarter. Amongst business segments, the software services segment grew 2.9% QoQ while the infrastructure segment grew 9% QoQ. The BPO segment saw a decline of 5.5% on a quarterly basis.

EBITDA for this quarter was at INR 7.9 bn, demonstrating a growth of 26% and 11% on an annual and sequential basis respectively. This was above our estimates. EBITDA margin improved by approximately 120 bps to 18.5% on a quarterly basis. Increased growth in volume and better utilization of freshers contributed to better operating margins in Q4. 1 Year Stock Chart Net Income clocked a growth of 52% on a YoY basis and 9% on a QoQ basis at INR 5.1 bn. Net profit margin for the quarter improved by 190 bps YoY and 60 bps QoQ to 11.9%, despite the increase in the effective tax rate of the company to 25% from 21.7% in the previous quarter.

HCLT added 3,626 employees (net) in this quarter taking its total employee base to 77,046. Its utilization rate (including freshers) stood at 72.5%. The company signed 20 new deals across its industry verticals during the quarter. Stock Performance (%) 1 Month 2.7% 0.0% 3 Months -1.8% -4.1% 1 Year 32.2% 15.5%
(INR in mn)

FY11 Performance
For the full year 2010 11 (ending June), HCLTs net profit was up 31% YoY to INR 17.09 bn, while revenue rose 27% to INR 160.34 bn. EBITDA

HCLT NIFTY

Particulars Total Income EBIDTA Reported PAT

Actual 42,995 7,942 5,109

Estimates 42,350 7,495 4,692

and Net Profit Margin during FY11 stood at 20.5% and 10.4% respectively. The company has reported growth across all geographies during FY11 with the Americas as 23.5%, Europe at 28.9% and the Rest of the World at 69%.

* Source: Bloomberg, Unicon Research

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Outlook & Valuation:

With continued revenue momentum across verticals and better margin performance, we remain positive on the technology spending environment during H2FY12 which is positive for the company. The firm has added new clients as well as extended their current contracts. This provides revenue visibility for the company going forward. The management expects margin expansion for the next two quarters through optimum utilizations and controlling operating expenditure. At the current market price, the stock is trading at 15.7x its FY12 earnings. We continue to be positive on the stock with a target price of INR 590, implying a 17% upside.

Consolidated Financials
(INR in mn)

Particulars Net Revenue Operating Exp. EBITDA EBITDA Margin Depreciation EBIT EBIT (%) Interest Other Income Tax Provision Tax Rate (%) PAT Extraordinary Items Minority Interest Reported PAT PAT Margin Diluted EPS (INR)

Q4 FY11 42,995.0 35,053.0 7,942.0 18.5% 1,288.0 6,654.0 15.5% 0.0 154.0 1,699.0 25.0% 5,109.0 0.0 0.0 5,109.0 11.9% 7.28

Q4 FY10 33,722.0 27,440.0 6,282.0 18.6% 1,114.0 5,168.0 15.3% 0.0 (1,553.0) 250.0 6.9% 3,365.0 0.0 0.0 3,365.0 10.0% 4.85

Y-o-Y 27% 28% 26% -16 bps 16% 29% 15 bps N.A. -110% 580% 1804 bps 52% N.A. N.A. 52% 190 bps 50%

Q3 FY11 41,382.0 34,217.0 7,165.0 17.3% 1,198.0 5,967.0 14.4% 0% 15.0 1,300.0 21.7% 4,682.0 0.0 0.0 4,682.0 11.3% 6.68

Q-o-Q 4% 2% 11% 120 bps 8% 12% 110 bps N.A. 927% 31% 330 bps 9% N.A. N.A. 9% 60 bps 9%

FY11 160,342.0 132,854.0 27,488.0 17.1% 4,976.0 22,512.0 14.0% 0.0 (562.0) 4,854.0 22.1% 17,096.0 0.0 (1.0) 17,095.0 10.7% 24.50

FY10 125,882.0 100,097.0 25,785.0 20.5% 5,022.0 20,763.0 16.5% 0.0 (5,289.0) 2,418.0 15.6% 13,056.0 0.0 2.0 13,058.0 10.4% 18.90

Y-o-Y 27% 33% 7% -334 bps -1% 8% -245 bps N.A. -89% 101% 649 bps 31% N.A. -150% 31% 29 bps 30%

Source: Company, Unicon Research (Average Exchange Rate USD 1 = INR 45.72)

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in