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SYNOPSIS

HCL is a $6.2 billion leading global

technology & IT enterprise comprising

two companies listed in India – HCL

Technologies and HCL Infosystems.

During the quarter, 52 new clients were

added by HCL Technologies Ltd.

During the quarter ended, the robust

growth of Net Sales is increased by

27.51% to Rs. 214647.20 million.

HCL and UPM have signed a five year

outsourcing frame agreement of IT

infrastructure services.

HCL signed an agreement with State

Street Bank & Trust Company (State

Street) to provide BPO services.

HCL has entered into a relationship with

GAIG to provide integrated IT services,

BPO & Infrastructure Mgt. Services.

HCL wins ICD 10 transformation deal

with Blue Shield of California.

Net Sales and PAT of the company are

expected to grow at a CAGR of 27% &

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 28.91

FY 12E 89687.14 26001.17 17803.42 25.85 19.46

FY 13E 104037.08 30252.99 21005.01 30.50 16.49

Stock Data:

Sector: IT

Face Value Rs. 2.00

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

Volume (2 wk. Avg.) 38000

BSE Code 532281

Market Cap (Rs in mn) 346416.10

Share Holding Pattern

1 Year Comparative Graph

HCL Technologies BSE SENSEX

C.M.P: Rs. 509.20 Target Price: Rs. 565.00 Date: April. 25th 2012

BUY

HCL Technologies Ltd. Result Update: Q3 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 509.20 346416.10 17.40 28.91 5.91 375.00

TCS 1096.80 214668.00 53.99 20.31 11.02 1400.00

Wipro 427.00 104991.90 19.00 22.47 4.92 200.00

Infosys 2373.05 136267.65 147.50 16.09 4.13 1200.00

Investment Highlights

Q3 FY12 Results Update

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

ended March 2012. During the quarter, the profit of the company rose 20.60% to

Rs. 4001.50 million from Rs. 3318.10 million in the same quarter previous year.

Net sales for the quarter rose 27.51% to Rs. 21647.20 million, while total income

for the quarter rose 26.54% to Rs. 21962.70 million, when compared with the

prior year period. Company posted earnings of Rs.5.78 a share during the

quarter, registering 19.45% growth over prior year period.

Quarterly Results - Standalone (Rs. in mn)

As At Mar-12 Mar-11 %change

Net sales 21647.20 16977.30 27.51%

PAT 4001.50 3318.10 20.60%

Basic EPS 5.78 4.84 19.45%

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Net Sales & PAT Growth

During the quarter, Net sales rose by 27.51% to Rs. 21647.20 million from

Rs.16977.30 million in the same quarter last year and the Total Profit for the

quarter ended March 2012 was Rs. 4001.50 million grew by 20.60% from

Rs.3318.10 million compared to same quarter last year.

EPS Growth

The basic EPS of the company stood at Rs. 5.78 for the quarter ended March

2012 from Rs. 4.84 for the quarter ended March 2011.

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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.

5

� HCL and Cisco launch South Africa Global Center of Excellence

HCL Technologies Ltd. (HCL) has strategically aligned with Cisco to announce the

opening of a South Africa Global Centre of Excellence (GCoE) in Johannesburg as

part of its commitment to build a socially responsible business. The

Johannesburg GCoE will serve as a local support center for HCL and Cisco’s

South African clients. It will also train local engineers on advanced Cisco

technologies to support clients across Africa and specifically South Africa. It will

also service clients by developing ICT skill sets thus ultimately creating trained

local personnel to deploy and manage advanced solutions.

� HCL, Cisco announce Alignment around Vertical Solutions

HCL Technologies (HCL) and Cisco Systems, Inc. announced that they are jointly

creating vertical solutions. First of these solutions is targeted at the financial

services industry to improve the end-customer experience. It will also integrates

components from Cisco’s Borderless Networks, Collaboration & Data Center/

Virtualization portfolios & leverages HCL’s exception capabilities around industry

specific applications & sys integration capabilities around Cisco architectures.

� UPM to outsource part of its IT services to HCL

UPM and HCL Technologies Limited (HCL) have signed a five year outsourcing

frame agreement of IT infrastructure services. As part of this agreement, HCL will

provide data center, end user support, network services and professional IT

services to UPM. HCL will also set up a data center in Finland and strengthen its

existing Espoo Delivery Center to provide the services.

� HCL Technologies enters into strategic relationship with State Street

HCL Technologies Ltd. signed an agreement with State Street Bank and Trust

Company (State Street) to provide business process outsourcing services in

support of a variety of a variety of State Street’s investment services businesses.

The vision is to provide domain specific transaction processing BPO services to

leading clients in the Financial Services Vertical.

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� HCL wins ICD 10 transformation deal with Blue Shield of California

HCL Technologies announced that Blue Shield of California will leverage HCL’s

iCRM web based tool to complete its ICD 10 remediation to meet the compliance

deadline of October 2013. HCL’s Proprietary ICD 10 Transformation Framework

will help Blue Shield of California to transition people, processes, and technology

from ICD-9 to ICD-10. HCL’s ICD 10 Transition framework with built-in

proprietary tools, takes a comprehensive approach to assessment & remediation,

and automates a significant amount of the transition exercise to streamline

compliance efforts.

� HCL Technologies enters into strategic relationship with GAIG

HCL Technologies has entered into a strategic relationship with Great American

Insurance Group (GAIG) to provide integrated IT services, Business Process

Outsourcing (BPO) and Infrastructure Management Services to GAIG and its

affiliates. The strategic alliance with GAIG significantly enhances capabilities and

helps to create a differentiated value proposition in the insurance industry,

especially in the commercial specialty sector, enabling them to target a wider

audience.

� HCL Technologies awarded with Statoil

HCL Technologies announced that Statoil has selected it for strategic

infrastructure management services. This deal win reinforces HCL’s dominance

in the Nordic region’s IT services market where it is already the global partner of

choice for several leading global corporations like Nokia, Danfoss and Electrolux

in the region. The company will also open a delivery centre in Stavanger, Norway

to service Statoil, in line with its model of Global Centers of Excellence. HCL will

deliver services across 36 countries handling the end to end monitoring and

management of Statoil’s entire The engagement includes managing Compute,

Storage, Database and Telecom (network & security) environments along with

desktop support.

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� Geographic Mix

� Servicing Offering Mix (Q3 FY12)

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� Revenue by vertical (Q3 FY12)

� Client Contribution to Revenue

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� Offshore/Onsite Revenue

� Head Count

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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. 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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Partnerships

HCL has enhanced its relationships with partners and created a variety of innovative

partnership models, with various approaches to risk-reward sharing.

Product Partnership

Joint Venture

Strategic Alliances

Strategic Acquisitions

• Axon group Plc.

• Capital Stream, Inc.

• Liberata Financial Services (LFS)

• Control Point Solutions

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Financial 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 89687.14 104037.08

Other Income 1630.50 1662.70 1695.95 1746.83

Total Income 52418.10 69607.50 91383.09 105783.91

Expenditure -37136.00 -52781.10 -65381.92 -75530.92

Operating Profit 15282.10 16826.40 26001.17 30252.99

Interest -1013.60 -1013.90 -1044.32 -1075.65

Gross profit 14268.50 15812.50 24956.85 29177.35

Depreciation -2740.30 -2913.70 -3350.76 -3685.83

Profit Before Tax 11528.20 12898.80 21606.10 25491.51

Tax -962.40 -916.00 -3802.67 -4486.51

Profit After Tax 10565.80 11982.80 17803.42 21005.01

Equity capital 1357.60 1377.40 1377.40 1377.40

Reserves 47980.90 57204.10 75007.52 96012.53

Face value 2.00 2.00 2.00 2.00

EPS 15.57 17.40 25.85 30.50

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Quarterly Ended Profit & Loss Account (Standalone)

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

Description 3m 3m 3m 3m

Net Sales 19792.20 21911.80 21647.20 24028.39

Other income 495.50 253.50 315.50 347.05

Total Income 20287.70 22165.30 21962.70 24375.44

Expenditure -14481.70 -15075.90 -15849.30 -17564.75

Operating profit 5806.00 7089.40 6113.40 6810.69

Interest -222.90 -221.40 -289.20 -297.88

Gross profit 5583.10 6868.00 5824.20 6512.81

Depreciation -820.80 -862.60 -898.40 -970.27

Profit Before Tax 4762.30 6005.40 4925.80 5542.54

Tax -786.80 -1065.70 -924.30 -931.15

Profit After Tax 3975.50 4939.70 4001.50 4611.39

Equity capital 1379.60 1381.50 1384.70 1384.70

Face value 2.00 2.00 2.00 2.00

EPS 5.76 7.15 5.78 6.66

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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% 28.99% 29.08%

PBT Margin (%) 22.70% 18.98% 24.09% 24.50%

PAT Margin (%) 20.80% 17.64% 19.85% 20.19%

P/E Ratio (x) 32.32 28.91 19.46 16.49

ROE (%) 21.41% 20.45% 23.31% 21.57%

ROCE (%) 28.47% 28.66% 33.66% 31.21%

Debt Equity Ratio 0.28 0.18 0.14 0.12

EV/EBITDA (x) 22.34 20.59 13.32 11.45

Book Value (Rs.) 72.68 85.06 110.91 141.41

P/BV 6.92 5.91 4.54 3.56

Charts:

Net Sales & PAT:

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P/E Ratio(x):

Debt Equity Ratio:

17

EV/EBITDA(x):

P/BV:

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Outlook and Conclusion

At the current market price of Rs. 509.20, the stock is trading at 19.46 x FY12E

and 16.49 x FY13E respectively.

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

is seen at Rs. 25.85 and Rs. 30.50 respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 27% and

26% over 2010 to 2013E respectively.

On the basis of EV/EBITDA, the stock trades at 13.32 x for FY12E and 11.45 x

for FY13E.

Price to Book Value of the stock is expected to be at 4.54 x and 3.56 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.565.00 for Medium to Long term investment.

Industry Overview

India's Information technology (IT) and information technology enabled services (ITeS)

segments are aligned in a way that the growth in one avenue has ripple effects on

another. The IT & ITeS industry, as a whole, is the mainstay of Indian technology

sector as it has driven growth of the economy in terms of employment, revenue

generation, standards of living etc and has played a major part in placing the country

on the global canvas.

National Association of Software and Services Companies (Nasscom) president Som

Mittal believes that software exports would be in tune with the estimates and are

projected to grow 15-17 per cent to generate about US$ 70 billion in 2011-12 as

against US$ 59 billion in 2010-11.

Furthermore, Internet and Mobile Association of India (IAMAI) has stated that internet

users in the country have crossed the 100-million mark (owing to increasing internet

penetration and affordability for personal computers (PCs), of which 17 million are

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online shoppers. It estimates that the number of Internet users in India will triple by

2015.

Rural India Calling

Rural business process outsourcing (BPO) units account for over US$ 10 million

towards India's IT-BPO revenues. Many big IT-BPO companies in India are getting

attracted towards hinterlands due to availability of immense untapped talent and

lower costs. Attrition rates in rural areas are just about 3-5 per cent as against a high

of 50 per cent in urban BPOs. Employee costs in rural BPOs is almost half as against

that of urban BPOs which bring overall operational costs down by almost 30-40 per

cent for IT companies. Nasscom has further stated that employee base in these areas

would expand by over 10 times by 2013-14 from 5000 in 2009-10.

Wipro BPO, the BPO arm of Wipro Technologies had launched its first rural BPO

centre at Manjakkudi Village in Tamil Nadu in August 2011. In October 2011, Infosys

BPO had inked an agreement with the Government of Andhra Pradesh to open rural

BPO centers in 22 districts. Rural Shores is another firm that had opened a BPO

centre in Bagepalli district of Karnataka and serves over 20 clients including HDFC,

Infosys, Wipro Technologies and Genpact. It aims to recruit more than 10, 000 youth

by 2014.

IT & ITeS - Key Developments and Investments

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

received cumulative foreign direct investment (FDI) of US$ 10.93 billion, according to

the Department of Industrial Policy and Promotion (DIPP).

• Network equipment maker Cisco Systems Inc.'s Indian unit is vying for a bigger

share of the IT spending by small and medium enterprises (SMEs) in 14 non-

metro markets. The company is planning to increase the amount of investments

on its distribution network in the smaller cities in 2012. It has also intensified

its research activities in order to develop India-specific products that in some

cases may cost just 20 per cent of the global product.

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• California-based IT services company UST Global is expanding its footprints in

India's IT capital Bengaluru. The company already operates in

Thiruvananthapuram and Kochi in Kerala. In Thiruvananthapuram also, the

company is building a 3 million sq ft campus which would be a major hub for

offshore IT services offered by the company.

Online Retailing on a High

Emergence of internet retailing and e-commerce as a completely new space is driving

the growth of number of online shoppers. As a result, the internet retailing companies

are getting attracted towards Indian markets which are poised to grow leaps-and-

bounds in the years to come. There are about 17 million online shoppers in India and

the number is projected to grow over three times in the years to come.

• Seattle-based world's largest internet retailer Amazon.com has recently

launched its website Junglee.com with a view to harness burgeoning online

shopping market in India which is expected to triple in size by 2015.

Junglee.com has partnered with several Indian online and offline retailers like

HomeShop18, Hidesign, Dabur Uveda, the Bombay Store and others. It has also

formed alliances with online players like Snapdeal, Univercell, Saholic (a Spice

Group firm) and Fommy.co.in.

• India's largest and most-funded e-commerce company Flipkart Online Services

Pvt. Ltd has acquired Letsbuy.com, the country's second-largest online

electronics retailer, for an undisclosed amount. The move reflects Flipkart's

strategy of becoming a major player through acquisitions and eventually

grabbing a substantial pie of ever- increasing Indian online retailing space.

Cloud Computing – The Emerging Technology

Cloud computing is a set of services that provide infrastructure resources using

internet media and data storage on a third party server, that is, the subscriber (of

cloud service) does not need to own the infrastructure, which saves him from entailing

any capital expenditure and he pays to the service provider as per his usage.

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The concept is on a high rage in India these days. The cloud solutions industry in

India is around US$ 400 million currently and by 2015 it is poised to grow 10 times to

US$ 4-4.5 billion. This further enhances the fact that Indian market is the most

mature when it comes to adoption of cloud technologies and has the highest usage

levels of converged systems.

• The state of Gujarat has over 10 per cent of 3 million small and medium

enterprises (SMEs) present in India. Hitachi Data Systems is ready to launch its

cloud services for the SMEs in Gujarat as they are searching for data backup

and email management services along with data and business analysis by cloud

solutions providers.

• Videocon and AEC Partners will jointly invest US$ 21 million in a cloud-

computing start-up called Nivio. The US$ 100 million-cloud computing

company will use these funds to expand its engineering centre in Palo Alto,

California and recruit fresh talent. AEC Partners is a US-based private equity

(PE) firm that holds expertise in technology investments.

Government Initiatives

Industry experts believe that increase in Government spends over e-governance

projects would be a major driver of growth for Indian IT/ITeS space. Nasscom has

stated that infrastructure for spends is ready and now is time when National e-

Governance Plan (NeGP) should be executed in full force. NeGP aims to create the right

governance and institutional mechanisms, set up the core infrastructure and policies

and implement various Mission Mode Projects across the Centre, state and integrated

service levels to create a citizen-oriented and business-centric environment for

governance.

Meanwhile, the Government has recently announced that it would buy some 100,000

low-cost Aakash tablets from Datawind (the Canadian company that has developed

this device) and would distribute them to students in schools and colleges for free. The

move comes as an effort to facilitate e-learning.

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In another similar effort, IT major Intel India had joined hands with the Karnataka

Government's Sarva Shiksha Abhiyan in 2011 and had launched ‘Computers on

Wheels'. It was a pilot e-learning program that entailed digital instruction materials

from reputed education solutions provider 'Educomp'. The program focussed to equip

teachers with learning techniques and tools and deliver diverse learning styles and

abilities to students, making education more participative rather than passive.

The Government of India has also undertaken a project that aims to provide high

quality broadband access to village Panchayats through National Optical fibre network

by 2014. The process is in progress and is projected to be very beneficial, especially for

the SMEs.

Software giant Infosys is planning to expand its footprint in India with focus on Tier-II

cities. The company has recently inked an agreement with Government of Madhya

Pradesh for setting up a development centre in Indore and is awaiting response from

Goverenment of West Bengal for setting up a centre in Kolkata as well.

All such developments and initiatives on part of the Government of India reflect the

fact that the supreme administration is making all the possible efforts to boost the

country's IT and ITeS industries.

IT & ITeS in India - Road Ahead

There are many predictions and forecasts pertaining to IT & ITeS in India across

various segments.

For instance, a study by management advisory firm Zinnov states that IT adoption in

Indian SME segment is growing at a rate of 15 per cent and would touch US$ 15

billion by 2015. The study noted that as of now, only 20 per cent of the total 50 million

SMEs in India are technology-ready today which poses an immense scope for further

growth.

Another study by consulting and advisory services firm CyberMedia Research suggests

that the PC market in India would have witnessed sales of 11.15 million units in the

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2011 calendar year which would further accelerate by 14 per cent to 12.71 million

units in 2012.

Internet retailing is also emerging as an entirely new avenue to be explored. According

to estimates made by an industrial body, India's online retail industry is anticipated to

surge to Rs 70 billion (US$ 1.43 billion) by 2015 from Rs 20 billion (US$ 405.93

million) as broadband is becoming increasingly accessible and internet penetration is

increasing. Another report by Avendus Capital Pvt. Ltd states that e-tailing would

become a Rs 53,000 crore (US$ 10.76 billion) market by 2015 from the current Rs

3,600 crore (US$ 731 million).

________________ ____ _________________________ 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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