Buy HCL Technologies; target of Rs 1258: Prabhudas Lilladher

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Prabhudas Lilladher's research report on HCL Technologies

HCLT reported strong revenue growth of 6% QoQ CC slightly below our estimates (Ple: 6.5%, Cons:6.4%) of which organic growth accounted to 1.5% QoQ CC higher than our estimates of 0.8% QoQ CC. Strong revenue growth was led by ERD segment (+5.4% QoQ). IBM products contributed ~US$105mn (~4.4%) in incremental revenues. EBIT margin increased by 286bps QoQ to 20% ahead of HCLT guided range of 18.5-19.5% due to improvement in core business, benefits from the consolidation of the higher-margin IP business. ER&D margins also increased sharply by 540bps QoQ to 21.4% on account of productivity improvements and recognition of deferred revenue.

Outlook

We fine tune our estimates & incorporate FY22E estimates & now value HCLT based on Sep-21 earnings of Rs.90 valuing at 14x multiple & arriving at a changed target price of Rs.1258(earlier: Rs. 1210). Stock is currently trading at 12.7x FY21E EPS and 11.8x FY22E EPS. HCLT remains our top pick in overall IT coverage universe.

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