1

SYNOPSIS

HCL is the 5th largest IT service

provider and 3rd largest BPO service

providers in the country.

HCL will provide transformational data

centre services to AstraZeneca in a 5-

year contract as a strategic

infrastructure outsourcing partner.

During the quarter ended, the robust

growth of Net Profit is increased by

72.73% to Rs. 4939.70 million.

HCL partners with Apacheta Corp. to

provide global delivery of mobile sales,

delivery & merchandising solutions to

the consumer goods industry.

HCL has won 18 large contracts

worth $1Billion deal from a leading

US based industrial manufacturer to

enable deployment of its multiple

product categories onto an e-commerce

platform.

Net Sales and PAT of the company are

expected to grow at a CAGR of 24% &

26% over 2010 to 2013E respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 67944.80 16826.40 11982.80 17.40 24.25

FY 12E 83985.87 25505.16 18201.43 26.43 15.97

FY 13E 96583.75 29288.22 21020.77 30.52 13.83

Stock Data:

Sector: IT

Face Value Rs. 2.00

52 wk. High/Low (Rs.) 528.40/360.10

Volume (2 wk. Avg.) 86000.00

BSE Code 532281

Market Cap (Rs in mn) 290631.40

Share Holding Pattern

1 Year Comparative Graph

HCL Technologies BSE SENSEX

C.M.P: Rs. 422.00 Target Price: Rs. 476.00 Date: Jan. 19th 2012

BUY

HCL Technologies Ltd. Result Update: Q2 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

HCL Tech. Ltd 422.00 290631.40 17.40 24.25 4.96 375.00

TCS 1075.35 210469.76 48.29 22.27 10.80 1400.00

Wipro 403.50 99142.53 19.66 20.52 4.65 200.00

Infosys 2610.55 149902.77 129.58 20.15 6.12 1200.00

Investment Highlights

Q2 FY12 Results Update

HCL Technologies Ltd reported a rise in standalone net profit for the quarter

ended December 2011. During the quarter, the profit of the company rose

72.73% to Rs. 4939.70 million from Rs. 2859.70 million in the same quarter

previous year. Net sales for the quarter rose 32.87% to Rs. 21911.80 million,

while total income for the quarter rose 31.34% to Rs. 22165.30 million, when

compared with the prior year period. Company posted earnings of Rs.7.15 a

share during the quarter, registering 71.06% growth over prior year period.

Quarterly Results - Standalone (Rs. in mn)

As At Dec-11 Dec-10 %change

Net sales 21911.80 16490.60 32.87%

PAT 4939.70 2859.70 72.73%

Basic EPS 7.15 4.18 71.06%

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Net Sales & PAT Growth

During the quarter, Net sales rose by 32.87% to Rs. 21911.80 million from

Rs.16490.60 million in the same quarter last year and the Total Profit for the

quarter ended December 2011 was Rs. 4939.70 million grew by 72.73% from

Rs.2859.70 million compared to same quarter last year.

EPS Growth

The basic EPS of the company stood at Rs. 7.15 for the quarter ended December

2011 from Rs. 4.18 for the quarter ended December 2010.

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Break up of Expenditure

Segment Revenue

� Declared Interim Dividend

HCL Technologies Ltd has declared an interim dividend of Rs. 2/- per equity

share of face value of Rs. 2/- each of the Company.

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� HCL to provide transformational data centre services to AstraZeneca

HCL Technologies (HCL) has been selected by AstraZeneca as a strategic

infrastructure outsourcing partner for managing AstraZeneca’s entire Data

Centre environment across over 60 locations globally including hosting and

migration of some of the existing large Data Centers into state-of-the-art facilities.

As part of the five year engagement, in addition, HCL will manage AstraZeneca’s

global Collaboration environment including Email, Messaging and Collaboration

Services for users worldwide.

� HCL selected as a preferred partner for ICD-10 Transition by UHG

HCL Technologies’ has been chosen by the United Health Group to support its

transition to ICD-10 diagnostic and procedure codes. According to the agreement,

UHG will incorporate HCL’s Proprietary ICD Crosswalk Mapping (iCRM™) tool

into its healthcare management portfolio to ensure a smooth transition from ICD-

9 to ICD-10. HCL’s Proprietary ICD Crosswalk Mapping (iCRM™) tool will help

identify the inherent financial implications of the transition and help in

developing a roadmap to effectively deal with the issues.

� Apacheta partners with HCL Technologies to provide Mobile Enterprise

Solutions to Consumer Goods Companies

Apacheta and HCL Technologies announced a partnership to provide global

delivery of mobile sales, delivery and merchandising solutions to the consumer

goods industry to enhance operational efficiencies and provide improved time-to-

market benefits. HCL will provide value-added services to Apacheta’s flexible

mobile applications, including consulting, application enhancements, and back-

end integration with ERP systems, delivering a complete solution for consumer

packaged goods (CPG) companies. Together, this blend of software and services

allow CPG companies to improve efficiencies and deliver enhanced accountability

in operations.

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� HCL Technologies receives an ITSMA Diamond Award

HCL Technologies has been named a 2011 Diamond Award winner in the

“Building Client Loyalty and Trust” category by the IT Services Marketing

Association (ITSMA). HCL won the award based on its Customer Advisory Council

(CAC)—a global, collaborative forum where 80 of HCL’s Fortune 500 C-level

customers and thought leaders convene on a regular basis to advise HCL on

industry trends, changing business priorities, and its strategic direction

(including brand positioning, M&A validation and Go-to-Market strategies).

� HCL Technologies wins Industry Award for Leadership

HCL Technologies Ltd. (HCL) has been awarded the ‘2011 Leadership award’ for

the Best Electronic System Design Company in the Embedded systems and Very-

Large-Scale Integration (VLSI) industry segment for the second consecutive year

at the Silicon India-Mentor Graphics Leadership Awards. The jury comprising of

eminent industry leaders is administered by Mentor Graphics and SiliconIndia.

� Geographic Mix

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� Servicing Offering Mix (Q2 FY12)

� Revenue by vertical (Q2 FY12)

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� Client Contribution to Revenue

� Offshore/Onsite Revenue

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� Head Count

Company Profile

HCL Technologies Limited was originally incorporated on 12th November 1991, as

"HCL Overseas Limited". The Certificate of commencement of business was received

on 10th February, 1992. On July 14, 1994, the name of the Company was changed

to "HCL Consulting Limited". The Company changed its name to "HCL Technologies

Limited" on 6th October 1999 to better reflect the line of activities of the Company.

Today, HCL Technology is the fifth largest Indian company in IT services. HCL is a

$5.9 billion leading global technology and IT enterprise comprising two companies

listed in India – HCL Technologies and HCL Infosystems. HCL Tech. includes product

engineering, custom & package applications, BPO, IT infrastructure services, IT

hardware, systems integration, and distribution of information and communications

technology (ICT) products across a wide range of focused industry verticals. The

company’s BPO business is the third largest one in the country. The company

operates with clients mainly on technologies focused Transformation Outsourcing, in

areas that impact and re-define the core of client business.

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HCL Technologies has global network of offices in 31 countries. The company is

having around 27 subsidiaries located in different parts of the world and the total

number of the clients of the company exceeds to 70.

Company offerings

The different verticals that the company works are as follows:

• Aerospace & Defense

• Automotive

• Capital Markets

• Consumer Electronics

• Financial Services

• Government

• Healthcare

• Hitech Semiconductor Storage

• Insurance

• Life Sciences and Healthcare

• Media & Entertainment

• Medical Devices

• Pharmaceutical

• Retail & Corporate Banking

• Retail and Consumer

• Telecom

• Transportation

• Travel

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Business Area

HCL Technologies Ltd.

IT Services

IT Enable Services (ITES)

Core Software IT

Infrastructure BPO Services

Custom Applications

Engineering and R&D

Services

Enterprise Application

Solutions

Contract

Management &

Front Office

Support

Back Office Process

Support

Infrastructure and

Support Services

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value (Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 50787.60 67944.80 83985.87 96583.75

Other Income 1630.50 1662.70 1493.98 1568.68

Total Income 52418.10 69607.50 85479.85 98152.43

Expenditure -37136.00 -52781.10 -59974.69 -68864.22

Operating Profit 15282.10 16826.40 25505.16 29288.22

Interest -1013.60 -1013.90 -910.96 -956.51

Gross profit 14268.50 15812.50 24594.20 28331.71

Depreciation -2740.30 -2913.70 -3274.00 -3601.40

Profit Before Tax 11528.20 12898.80 21320.21 24730.31

Tax -962.40 -916.00 -3118.78 -3709.55

Profit After Tax 10565.80 11982.80 18201.43 21020.77

Equity capital 1357.60 1377.40 1377.40 1377.40

Reserves 47980.90 57204.10 75405.53 96426.30

Face value 2.00 2.00 2.00 2.00

EPS 15.57 17.40 26.43 30.52

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E

Description 3m 3m 3m 3m

Net Sales 19493.60 19792.20 21911.80 22788.27

Other income 471.20 495.50 253.50 273.78

Total Income 19964.80 20287.70 22165.30 23062.05

Expenditure -14465.30 -14481.70 -15075.90 -15951.79

Operating profit 5499.50 5806.00 7089.40 7110.26

Interest -251.90 -222.90 -221.40 -214.76

Gross profit 5247.60 5583.10 6868.00 6895.50

Depreciation -762.50 -820.80 -862.60 -828.10

Profit Before Tax 4485.10 4762.30 6005.40 6067.41

Tax -629.20 -786.80 -1065.70 -637.08

Profit After Tax 3855.90 3975.50 4939.70 5430.33

Equity capital 1377.40 1379.60 1381.50 1381.50

Face value 2.00 2.00 2.00 2.00

EPS 5.60 5.76 7.15 7.86

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares (in mn) 678.80 688.70 688.70 688.70

EBITDA Margin (%) 30.09% 24.76% 30.37% 30.32%

PBT Margin (%) 22.70% 18.98% 25.39% 25.61%

PAT Margin (%) 20.80% 17.64% 21.67% 21.76%

P/E Ratio (x) 27.11 24.25 15.97 13.83

ROE (%) 21.41% 20.45% 23.71% 21.49%

ROCE (%) 28.47% 28.66% 32.85% 30.13%

Debt Equity Ratio 0.28 0.18 0.14 0.12

EV/EBITDA (x) 18.74 17.27 11.40 9.92

Book Value (Rs.) 72.68 85.06 111.49 142.01

P/BV 5.81 4.96 3.79 2.97

Charts:

Net Sales & PAT:

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P/E Ratio(x):

Debt Equity Ratio:

16

EV/EBITDA(x):

P/BV:

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Outlook and Conclusion

At the current market price of Rs. 422.00, the stock is trading at 15.97 x FY12E

and 13.83 x FY13E respectively.

Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs. 26.43 and Rs. 30.52 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 24% and

26% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 11.40 x for FY12E and 9.92 x

for FY13E.

Price to Book Value of the stock is expected to be at 3.79 x and 2.97 x

respectively for FY12E and FY13E.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.476.00 for Medium to Long term investment.

Industry Overview

Over the past few years, the Indian information technology (IT) and IT enabled Services

(ITeS) industry has been on a steady growth trajectory. The IT industry, alone, has

played a pivotal role in placing India on the world map as a major knowledge-based

economy and outsourcing hub. The major sub-segment, that entails Business Process

Outsourcing (BPO), is re-inventing itself and experiencing a paradigm shift from being

a volume-oriented proposition to a value-oriented proposition by expanding its scope

of services and providing substantial high-end solutions in the areas of Data Analytics,

Legal Process Outsourcing, etc.

The number of internet users in India crossed the 100-million mark in September

2011, growing 13 per cent over last year's figure of 87 million, according to the latest

report of the Internet and Mobile Association of India (IAMAI) co-prepared with

research firm IMRB. The study anticipates India's internet population to grow to 121

million by December 2011. Further, the country's broadband subscriber base stood at

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12.69 million in August 2011, according to data released by the Telecom Regulatory

Authority of India (TRAI).

Competitive Landscape

After personal computers (PCs) and laptops, tablets are mushrooming as a major

competitive avenue wherein vendors are striving hard to launch more affordable

devices for the Indian market. Second quarter of 2011experienced the release of the

iPad2 in India in less than 50 days after its US launch while Samsung is scouting for

40 per cent share of the Indian tablet market in 2011.

In the enterprise software segment, US giant Oracle claims to cater around 7,000

clients across the Indian government and private sectors; recent wins being Punjab

National Bank (PNB) - India's second-largest public sector bank and Hindustan

Petroleum Corporation (HPCL) - another Indian public sector organ. Meanwhile, Indian

IT companies like Wipro, Infosys, TCS, HCL and Mahindra Satyam are developing their

technologies to entail cloud computing applications and solutions for various

segments ranging from financial services and banking to manufacturing.

IT & ITeS - Key Developments and Investments

Between April 2000 and August 2011, the computer software and hardware sector

received cumulative foreign direct investment (FDI) of US$ 10,787 million, according to

the Department of Industrial Policy and Promotion (DIPP).

• Monster India has launched an online campus hiring initiative - 'Monster

College' – wherein it will collaborate with educational institutions across India

and connect them with over 20,000 employers for campus placements.

• Investor Relations Global Rankings (IRGR), a New York-based organization, has

ranked Technology giant Infosys as the country's best company for corporate

governance practices, financial disclosure procedures, IR website and online

annual report. There were more than 80 companies that registered themselves

for the rankings.

• Tower infrastructure company Indus Tower is looking for a partner to provide

end-to-end IT solutions and Indian tech-biggies like Infosys, IBM and Wipro are

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in discussions with the former for the same. The contract, potentially in the

range of Rs 2,430-2,916 crore (US$ 500-US$ 600 million), would involve areas

such as infrastructure management, application development and other related

managed services and would span for 8-10 years. Indus Tower, a joint venture

firm between Bharti Group, Idea Cellular and Vodafone Essar, owns 110,000

towers and operates 16 out of the 22 telecom circles.

• Google, with its partner web hosting firm HostGator, has announced that it will

offer free web domain names to small and medium businesses (SMBs) in India

in order to boost internet usage in Asia's third largest economy. The company

will maintain the websites for a year without any charges and at the end of the

first year, users will be asked to pay a nominal fee if they wish to renew their

domain name. India is shelter to around 8 million SMBs of which about

400,000 have a website and 100,000 have active online presence, said Google.

Hence, the market poses a great potential for growth.

Cloud Computing – The Emerging Technology

The model of cloud computing has attracted attention of organizations of all sizes as

the technology offers lower operational costs, scalability and mobility at every level.

Indian companies are increasingly adopting 'hybrid cloud' (a mix of private and public

cloud) to address their concerns of data privacy as well.

Indian businesses and government agencies are expected to create huge demand for

guidance in the usage of cloud computing services. There are already more than 50

cloud computing service providers in the Indian market. Meanwhile, Indian internet

services providers (ISPs) and data centre service providers including Bharti Airtel, Sify,

Trimax, and NetMagic are investing applications and bandwidth to support new cloud

service offerings.

NTT Communications Corp plans to invest US$ 1.58 billion in Europe and India over

2011-15 to develop its cloud computing business at a faster pace while AWS, the

world's largest cloud-based service provider, that forms about 2 percent of Amazon's

revenues, is projected to become the online retail giant's next most-profitable business

in India.

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Soaring e-Commerce

The US$ 10 billion Indian e-commerce market is expanding exponentially (it grew 47

per cent in 2011 to reach the present size) as rising internet penetration is making

customers buy more and more stuff online. Investors are also betting high in the

industry; they poured around US$ 200 million into Indian e-commerce start-ups in

last couple of years.

As a result of such growth, e-retailers, who want to focus on their core functionalities,

are expected to outsource bulky back-end operations (such as customer care, order

processing, invoice processing, finance and accounts et al) and emerge as a

substantial source of revenue to BPOs.

Retail brands are expected to bring a great transformation in online space. Women's

apparel retail brand Biba and tyre brand Bridgestone have become available online

recently. IAMAI expects online advertising to increase by 30-40 per cent in 2011-12 on

back of increased internet usage by retailers.

Government Initiatives

The government of India is leaving no stone unturned to accelerate growth of IT & ITeS

sector in the country. Earlier in 2011, the ministry had revealed its intentions to

launch e-governance initiatives that would facilitate rolling out mobile governance and

electronic service delivery bill.

Sufficient funds have also been earmarked to connect Indian villages and classrooms

across the country with knowledge centres wherein the government aims to provide

broadband connectivity to all the village panchayats by 2012.

Mr. Sachin Pilot, Minister of State for Communications and IT believes that

broadening connectivity in such a manner would improve the way government

interacts with people.

Further, the Ministry of Communications and Information Technology has revealed its

intentions to attract higher investments for IT sector in smaller cities and make

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software services sector grow more than three times to US$ 300 billion by 2020. The

government also wants to increase the IT exports from US$ 59 billion currently to US$

200 billion by 2020. The projections and focus areas were laid in a draft national

policy which also stated that the government will endorse innovation, research and

development (R&D) in advanced technologies and application development in areas

such as cloud computing, mobile value-added services and social media.

The policy also aimed at employing additional 10 million skilled people in the

information communication technology sector. The sector currently has manpower

strength of 2.5 million skilled people.

IT & ITeS in India - Road Ahead

The Indian market for IT products and services is expected to consolidate its growth

achieved in 2010 and increase from US$ 19.7 billion in 2010 to US$ 41.2 billion by

2015, according to India Information Technology Report for the third quarter of

2011by Business Monitor International (BMI). BMI estimates that the Indian market

for PCs (including notebooks and accessories) will be worth around US$ 8 billion in

2011, higher from US$ 6.8 billion in 2010 while it projects IT services market at

around US$ 7.5 billion in 2011 which would further swell to a size of US$ 16.9 billion

by 2015. The report has estimated a compounded annual growth rate (CAGR) of 18

per cent for Indian software market over the span of 2011-2015.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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