HCLT reported revenue growth of 2.1% QoQ (cc terms), slightly ahead of consensus estimates and EBIT margin of 20%, in line with consensus estimates (50bps lower adjusted for one-offs). Infrastructure Management Services (IMS) segment growth re-accelerated to 3.4% QoQ vs 0.9% in Sep-15 and the management indicated further acceleration over the next two quarters (we build 5% CQGR) – this should assuage investor concerns of HCLT losing its competitive edge. For the past four quarters, HCLT has fielded one googly after another: sharp margin cuts in Mar-15 and Jun-15, IMS slowdown and a one-off loss in a public services client in the Sep-15 quarter and a fishy spike in BPO segment margins in Dec-15.
Positive feedback about the company’s offerings from our channel checks and attractive valuations (14x 1-year forward earnings) keep us positive. Ambit Capital has the following Review,
We cut our FY16-FY18 EPS estimates by 2%-3% on account of revenue growth miss compared to our estimates and lower margin commentary. Maintain BUY
