Buy HCL Technologies; target of Rs 691: Prabhudas Lilladher

Prabhudas Lilladher's research report on HCL Technologies

HCLT reported strong revenue growth of 2.1% QoQ CC above our estimates (Ple: 1.2%, Cons:2%). Strong revenue growth was led by products & platforms segment (+17% QoQ). EBIT margin increased by 30bps QoQ to 20.2% ahead than our estimates of 19.5% led by strong growth in high margin product led business. We like to note that margins are improving in Mode-2 (120bps QoQ,290bps YoY) at 15.2% in Q3FY20. We believe the raise in upper end of revenue guidance is led by stronger visibility in organic revenues & project ramp ups in line with our thesis of HCLT. We continue to remain pessimistic on strong & steady outlook of new acquired product business but no further capital deployment over the near term gives us comfort.

Outlook

We now value HCLT at 15X earnings multiple on Sep-21 to arrive at changed TP of Rs. 691 (earlier Rs. 628). Valuations are still inexpensive at just 13.6X/12.5X FY21E/22E multiple. Maintain BUY.