Buy HCL Technologies; target of Rs 1300: Motilal Oswal

Motilal Oswal is bullish on HCL Technologies has recommended buy rating on the stock with a target price of Rs 1300 in its research report dated January 16, 2021.

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February 03, 2021 / 17:20 IST

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26 Aug, 2025 12:21

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Motilal Oswal's research report on HCL Technologies

HCL Technologies (HCLT) delivered strong revenue growth (3.5% QoQ CC) in 3QFY21, above our expectation and its guidance, led by stronger than expected seasonality in the Products and Platforms vertical (P&P, +8.3% QoQ in CC) and continued traction in Mode 2 services (+10.9% QoQ in CC). n We expect HCLT to return to mid-teens growth in FY22 (14% YoY in CC USD) as continued strength in P&P – due to improving deal wins and new client additions – complements improving demand environment in IT Services and R&D verticals. The P&P business should deliver low teen USD revenue growth over the next two years. n We view the improvement in deal wins (+13% YoY), robust deal pipeline, and large ER&D exposure (~16% of revenue) as positive. It should also continue to benefit from high demand for Cloud migration (Digital foundation) work. n EBIT margin expanded by 130bp QoQ to 22.9%, driven by lower SG&A spends (+80bp) and increased offshoring (+50bp), despite a partial wage hike impact (-50bp). While we see a wage hike and sales investments as margin headwinds in FY22, it should also benefit from growth led positive operating leverage. We expect the company to report 21.8% EBIT margin, up 20bp YoY, but still 110bp below the peak delivered in 3QFY21.

Outlook

The stock is currently trading at a modest ~15x FY23E earnings, which offers a margin of safety. Our TP is based on 20x FY23E EPS (a 20% discount to TCS). Maintain Buy.

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