HCL Tech revenues grew 7.5%QoQ to USD864mn led by strong volume growth of 6.5%QoQ, better than peers Infosys and TCS, and 1%QoQ positive impact of cross currency. Lower forex losses led to surge in profitability. EPS stood at Rs5.7 (PINCe - Rs5.5, Consensus Est. Rs5.4).

Strong revenue growth; forex losses not hurting the bottom-line anymore - HCL Tech revenues grew 6.9%QoQ to Rs38,625mn led by volume growth. EBITDA margin was flat at
16.3%. Forex losses on the back of cash flow hedges were absent in this quarter as they were written off since the last 6 quarters and this led to PAT growth of 23%QoQ to Rs3,970mn.

Emerging verticals and emerging geographies lead the pack - APAC surged 14.5%QoQ with growth primarily driven by Japan, Australia and Africa. US and Europe grew 5.8%QoQ and 7.1%QoQ. Emerging verticals like retail & CPG and energy utilities grew 15.1%QoQ and 13.8%QoQ, respectively. BFSI grew moderately by 4.9%QoQ. Management has witnessed high traction in European markets and expects further growth.

IMS poses strength; discretionary spend drives other key service lines - IMS with 9.9%QoQ growth outperformed among all service lines. Key services like custom applications, EAS and engineering services also posted an impressive performance with 9.2%QoQ, 5.5%QoQ and 6.4%QoQ driven by demand for discretionary spend. BPO was muted on the back of restructuring towards platform based services.

Outlook - Stronger growth in Europe, recovery in BPO, improvement in EBIDTA margin, lower forex losses to drive profitability - HCL Tech has witnessed strong traction in the utilities and public sector of Europe which is expected to boost volumes. It has won 17 large transformational deals in this quarter which is one of the highest booking. BPO will have to bear a loss of USD6mn every quarter till Q2FY12 on the back of restructuring. EBITDA margin is expected to improve in the next two quarters led by higher utilisation and offshoring. Absence of forex losses (cash flow hedge) will also positively impact the bottom-line going forward.

We have introduced FY13E financials. We maintain `BUY' with a target price of Rs 615 based on 16x FY13E earnings.