Buy HCL Technologies; target of Rs 1180: Motilal Oswal

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26 Aug, 2025 12:21

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Motilal Oswal's research report on HCL Technologies

HCLT delivered a growth of 0.7% QoQ (CC), below our estimate of 2.4%, led by weak growth in IT Services (+0.5%) and Products & Platforms (-1%), but partially compensated by better than expected ER&D (+4.5%). Excluding the impact of a one-time bonus in 4QFY21, EBIT margin was down 80bp QoQ and missed our estimate by 130bp due to COVID-related expenses of 90bp. The management reiterated its double-digit USD revenue growth guidance and EBIT margin band of 19-21% for FY22. -New deal TCV stood at USD1.7b (+37% YoY, eight large deals) in 1QFY22. Deals saw an increase in tenure, with a higher proportion of Cloud-centric Digital transformation programs. While growth in 1QFY22 was impacted by supply-related challenges (60-70bp) and project completion in Europe, we expect HCLT to deliver 11.5% USD revenue growth in FY22, led by a good demand environment and strong deal pipeline in Europe and US. The company should also benefit from a strong rebound in ER&D.

Outlook

We maintain our Buy rating as we expect traction in the Services business in 2HFY22E and FY23E, driven by higher IMS/Cloud focused deals. Our TP of INR1,180 per share implies 20x FY23E EPS.

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