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HCL Technologies – In-Line 3Q Numbers

April 15, 2008

HCL Tech reported Q3 revenues of $485m (+5.2% qoq; our exp: $488m). EBITDA margins expanded ~90 bps (our exp: flat margins). Net profits at Rs3.2b came in higher than our expectation of Rs3b.

IT services revenues increased 6.5% qoq – good performance in challenging times. BPO had another sluggish quarter – with revenue growth of ~2% sequentially. Infrastructure services revenues were affected due to hardware related revenues declining 26% qoq; services revenues increased ~11.5% qoq.

Headcount declined marginally in IT services; management indicated that it was due to strong hiring at the end of Q2. However, management maintained its guidance of 35% yoy growth – implying only ~3% revenue growth in Q4.

Even though Citi maintains a BUY with a target price of Rs 340 and an EPS of Rs 18.02 and Rs 20 for FY08 and 09, we are don’t recommend the scrip and ask investors to stay invested in Capital Goods Sector and other Growth Stories.

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