We raise our FY13-15f revenue to ~15% CAGR, driven by improved growth forecasts in core software to 9% CAGR versus 7% earlier. Our FY14/15f ebitda margins are higher by ~100 bps for each year given Q2 beat and increased comfort. We look for EPS CAGR of 32% over FY13-15f. We up our target multiple to 16x (from 15x) on greater growth and margin comfort, thus, our target price rises to Rs 1,700, based on 16x 1-year forward EPS (up to December 2015) of R106.3.
HCL Tech’s Q2 results were ahead of expectations on dollar revenue growth (4% q-o-q versus our estimate of 3.2% q-o-q), surprised positively on ebit margins (down 10 bps q-o-q versus our estimate of 100 bps drop) and were ahead on PAT (R1,500 crore versus our forecast of R1,410 crore). The company’s Q2 results addressed key investor concerns raised in the previous quarter — improved growth in core software (segment lagging until now), DSO days back in line with trend, an increase in dividend, continued momentum in IMS, and better-than-expected margin performance. Our confidence on growth increases on over $1 billion of signings (50% of which are non-IMS deals) and upside potential from white spaces targeted by the company like the multi-billion application modernisation opportunity in partnership with Computer Sciences Corp.