HCL Tech's Q4FY07 results (Outperformer): Performance in $ terms in line; strong traction in large deals

HCL Tech  (CMP: Rs317)            

Mkt Cap: Rs217bn; US$5.3bn       Bloomberg code (HCLT IN)

HCLT's Q4FY07 (June- year ending) results were marginally below our expectation, though, $ terms revenues were exactly in line. HCLT's realized rate at Rs40.74/$ was below our assumed rate of Rs41.33/$. Hence revenues at $396m (9.2% qoq and 45.3% yoy) were in line but in Rupee terms revenues at Rs16.12b (2.2% qoq and 28.6% yoy) was lower than our forecast of Rs16.36b. HCLT reported 7 large deal wins in Q4FY07. With HCLT continuing to win large deals of over $50m (it has signed 3 large deals so far of $200-500m), we believe, sales productivity would keep rising. The company indicated a gross hiring target of 25,000 people including just 8,000 freshers, which points towards the imminent growth momentum in business.  It also indicated that margins would remain stable as pricing moves away from a people-based model to a transaction oriented one. As the realized exchange rate was lower than our earlier forecast we are lowering our revenue forecast by 1.4% for FY08 and FY09. We are maintaining our earnings forecast for FY08 but raising FY09 earnings by 2.4%.  We believe, HCLT has scaled up significantly and given its large deal market share, at 17.3x FY08 and 13.4x FY09 earnings, there is likely re-rating possible in FY08. It is one of our top picks in the sector. Maintain Outperformer.