Recommendation Review: HCL Technologies

We had recommended HCL Technologies to our readers as a part of our cover story ‘Where’s IT Headed? (DSIJ Vol. 28, Issue No. 11, dated May 19, 2013). Our recommendation was backed by factors like the company’s strong financial performance, its robust strategy, consistent outperformance and last but not the least, its broad-based growth. The company has been able to sustain good growth on account of its ability to cater to diversified verticals. Its geographical diversification has also helped the company not only to grow on the topline front but also in sustaining its margins.

After our recommendation at the Rs 701 level, the stock has witnessed an up-move and is trading at Rs 1072. While the strong financial performance for the June quarter has been one reason for this, the depreciating INR against the USD has also resulted in its improved financial performance. For the June 2013 quarter, the company has posted a topline of Rs 6944 crore and bottomline of Rs 1210 crore, showing sequential growth of 8.1 per cent and 16.30 per cent respectively. Europe was the major growth driver on the geographical front, with 8.8 per cent QoQ growth. As regards verticals, while Enterprise Applications declined marginally by 3.7 per cent, growth was strong in Infrastructure Services. Apart from that, recently, the FIPB cleared HCL Technologies’ proposal to hike the FDI limit in the company from 49 per cent to 74 per cent. This news helped the scrip touch its 52-week high of Rs 1104. We feel that scrip has provided good returns in a brief period, and hence, booking profits seems to be a prudent strategy.