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BUY HCL Technologies – ASK Raymond James

January 19, 2007

ASK Raymond James has upgradded HCL Technologies Ltd to BUY with a 12 month price target of Rs 740 from current levels of Rs 640.

After reviewing Q3 results, ASK analysts believe that HCL Tech is one of the cheapest stocks in the large-cap universe.

Strong volume growth: Revenue growth was driven by a strong growth in volumes of 7.1% sequentially and improved price realization (+1.3%) in core software services (IT & Infrastructure). Infrastructure services (+11.8% QoQ), Engineering services (+7.1% QoQ), BFSI (+26.7% QoQ) and Life Sciences, though on a smaller base, (+21.4% QoQ) surpassed the company growth rates.

Margins increase by 47 bps: Margins increased by 47 bps to 22.1% mainly due to higher utilization (+120 bps) and improved price realization (+140 bps). This was offset to a certain extent by rupee appreciation (-150 bps) and increased SG&A (-90 bps) as there was a customer summit held during the quarter. The management noted that the large deals, in contrary to the belief are proving to be margin accretive for them.

Maintain Buy at a price target of Rs 740: In view of the quarterly results, we have revised our FY07E earnings marginally to Rs32.6 (+1.4%). However, we are maintaining our FY08E earnings at Rs39.1.

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