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Buy HCL Info – ABN Amro + Citi

January 29, 2008

ABN Amro and Citigroup Research have upgraded the stock of HCL Infosystems from Hold to BUY with aggressive price targets.

HCL Infosystems’ Q2FY08 results came in above our expectations – EBITDA at Rs1.12b was significantly ahead of our expectation (Rs944m). Revenues of Rs32.7b were in line with our expectation while margins surprised positively due to better margins in the PC business. The PC business delivered another strong quarter – revenue increased 43.5% yoy (our expectation: 32% yoy) to Rs8.75b and margin of 6.4% (ex. forex gains). Nokia business had an inline quarter with revenue growth of 4% yoy to Rs24b.

Increasing PC penetration, higher government and commercial IT spends, Robust telecom subscriber growth and System Integration deal flow improve prospects for top-line growth over FY07-10, while an improving business mix should help drive
margins.

ABN Amro expects HCL Infosystems to report an EPS of Rs 18.8 for FY08 and Rs 23.1 for FY09 and has set a target price of Rs 270. While Citi has set a target price of Rs 300.

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