Prabhudas Lilladher: HCL Tech outperformer

Prabhudas Lilladher has maintained its outperformer rating on HCL Technologies with a price target of Rs 700.

In a results update, the brokerage said: "HCL Tech declared largely in-line Q2 FY07 results. Revenues grew 6.2% qoq (and 39% yoy), while net profit grew 14.4% qoq (and 58.1% yoy). The higher-than-expected net profit growth was due to 'Other Income', which grew by 65.9% sequentially largely due to forex gain of Rs.347m.

"While revenue from IT Services grew 5.2% qoq, growth in BPO revenue was 5.4% qoq. Infrastructure Services once again led the overall growth and registered a healthy 12.5% qoq growth in revenue (following a 16.6% and 19.7% qoq rise in the previous two quarters). EBITDA margins expanded 50bps qoq driven by higher bill rates and better manpower utilization.

"HCL Tech quotes at 16.1x FY08E earnings and 12.5x FY08 EV/EBITDA. We believe given its steady growth, sustaining margins and high payout the stock remains attractive. Maintain 'Outperformer' with a price target of Rs 700."

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