HCL can be re-rated; see buying interest: Equirus Sec

In an interview to CNBC-TV18, Bhavin Shah, chief executive officer, Equirus Securities gives his views on HCL Tech's Q2 earnings. Shah says the numbers posted by the company are 'quite astounding'. "despite the run up in the stock, it might make people consider buying the stock even at these levels," he says. HCL reported quarterly revenues of Rs 6,274 crore; up 19.6 percent year-on-year and 3 percent sequentially.

Shah says the company can be re-rated given its strong performance. "On the back of this kind of margin expansion, if HCL starts to deliver this kind of profitability on top of the industry leading revenue growth, then suddenly the multiples for HCL Tech can go higher," he adds.

Below is the edited transcript of Shah's interview to CNBC-TV18.

Q: What do you make of the HCL Tech’s Q2 figures? It looks like it is upbeat both on top and bottom-line. Even margins have seen expansion.
A: Yes, the upside of the earnings is quite astounding actually. I think the revenue upside is not as big a deal, but the earnings upside, EBITDA upside is pretty astounding. I think that despite the run up in the stock, it might make people consider buying the stock even at these levels. Q: In terms of prices, they have been outperforming their peers, but can a case be made now for a re-rating for HCL Tech?
A: Yes, I think so. Obviously, we will have to look into the details for the margin expansions. However, on the back of this kind of margin expansion, if HCL starts to deliver this kind of profitability on top of the industry leading revenue growth, then suddenly the multiples for HCL Tech can go higher. Q: Anant Gupta has been appointed as the CEO of the company. We have seen all HCL Tech’s peers Tata Consultancy Services (TCS), Infy, Wipro – all have new CEOs in the past two years. How do you think this will go down with the street?
A: This seems like a kind of planned transition as achieved by other companies in the space. I don’t know enough about Anant Gupta to say what difference it would make, but clearly Vineet Nayar has laid a very strong foundation and basically created a lot of momentum, which will certainly carry HCL Tech forward atleast for the near-term. For the longer-term we will have to evaluate. Q: What about the stock itself? Will you have to up your earnings per share (EPS) targets after looking at the strong EBITDA performance this time around? What would your recommendation be on HCL Tech at this level?
A: Clearly, earnings will have to go up, there is no question about it. It is a very strong performance on the profitability side. I haven’t obviously gone through the numbers or anything like that, but on the face of it the target will have to go up substantially.