Uptick in discretionary IT spend will continue to provide robust revenue growth for HCL Tech. Recovery of the BPO segment will also provide support to operating margin in FY12. Further strengthening of EUR against USD will have positive near-term impact. What will move the stock?

1) Robust volume growth of 7.4% QoQ in Q2FY11; 2) Broad based growth across key verticals; 3) Returning to growth trajectory of the BPO segment that appears to have bottomed out; 4) High growth in IMS and custom application segment driven by discretionary spend; 5) Large deal pipeline and highest gross addition proves the confidence in demand environment; 6) Lower forex losses due to absence of negative impact of OCI losses in the ensuing quarters.

Where are we stacked versus consensus? Our revenue estimates vary from Consensus by ~1%, underpinned by stronger volumes and modest uptick in pricing for FY12. Our EBITDA margin forecast for FY12 is in line with consensus. Our FY12 EPS estimate is also in line with consensus.

What will challenge our target price?
1) Slower recovery in the US economy; 2) Appreciation of INR vs. USD; 3) Increase in tax rates after the sunset clause; 4) Higher attrition and wage increments.