ICICI Securities's research report on HCL Technologies
HCLT reported revenue growth and EBIT margin in line with our estimates. IT and business services grew 4% QoQ CC and Engineering R&D was down 1.6%. Software business was down 18.5% QoQ CC on seasonal weakness. Geography-wise growth was led by North America, at 4.2%. TCV was robust at USD 2.29bn, with 13 out of 21 large deal wins originating from services. However, FY25 growth guidance of 3–5% was lower than our/ Street’s estimate of 4-7%. This guidance includes a soft Q1FY25 impacted by offshore transition in large contact and a soft Q2FY25 impacted by State Street JV divesture. This implies a weak CQGR of -0.2% to +0.6% QoQ through FY25. Factoring this in, we reduce FY25E/26E EPS by 3–7%.
Outlook
We value HCLT on an SoTP-basis – Services (IT and ER&D) at 20x and Products at 16x on FY26E EPS to arrive at a TP of INR 1,330. Retain REDUCE on soft H1FY25 and unexciting EBIT margin guidance of 18-19%.
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