00 52 week range inr 221230 356545 market cap m inrm

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Unformatted text preview: t bearing debt Other liabilities Total liabilities Shareholders' equity Minorities Total shareholders' equity Net debt 16E Sales growth (%) DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%) Payout ratio (%) ROE (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x) Source: Company data, Deutsche Bank estimates Net interest cover (RHS) Aniruddha Bhosale +91 22 7180 4037 aniruddha.bhosale@db.com Deutsche Bank AG/Hong Kong Page 31 7 January 2014 Software & Services Indian IT Services Rating Company Price at 6 Jan 2014 (INR) 1,251.30 Sell HCL Tech Price target - 12mth (INR) 1,040.00 52-week range (INR) 1,263.10 - 624.87 BSE 30 Asia India 20,851 Aniruddha Bhosale Technology Reuters Bloomberg Software & Services HCLT.BO HCLT IN Research Analyst (+91) 22 7180 4037 aniruddha.bhosale@db.com Price/price relative Lopsided service portfolio raises growth concerns; Sell Outperformance to reverse in CY14 We reiterate our Sell rating on HCL Tech with a revised target price of INR1,040. We expect the company to deliver an earnings CAGR of 6.2% over FY14-16. HCL Tech was up 104% in CY13 and has outperformed the Sensex by 96%. In CY14E however, we believe HCL Tech will struggle to (a) maintain its revenue growth leadership in the sector, (b) improve revenue traction outside of infrastructure management services and (c) sustain margin improvement. We prefer TCS, TechM and Wipro. No signs of let up in lopsided revenue growth Our channel checks suggest that, among the Indian vendors, HCL Tech stands out for its IMS offering. However, despite the acquisition of Axon, which significantly enhanced its SAP capability in Europe, it trails peers, such as Infosys, in this market. Also, with respect to commoditized services like ADMS (application development and maintenance services), TCS, Cognizant and Infosys are preferred by customers. With only IMS finding favor with customers and an inability to cross-sell other services, we expect to see a continuation of IMS-driven lopsided revenue growth at HCL Tech. 1400 1200 1000 800 600 400 200 1/12 7/12 1/13 7/13 HCL Tech BSE 30 (Rebased) Performance (%) 1m 3m 12...
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