Accumulate HCL Technologies; target of Rs 1285: Dolat Capital

Dolat Capital's research report on HCL Technologies

HCL Tech reported strong performance in Q2 with a 6% CC terms QoQ growth in revenues, despite lower-than-expected inorganic addition. OPM rebounds by 290bps QoQ at 20% against our expectation of 18.2% (adjusted margins at 19.3%). H1 OPM now within the guided band of 18.5%-19.5%. Guidance revised up by 100bps+ to 15%-17% CC; more importantly organic component is expected to be about 10%-11% that implies HCLT would now be the growth leader in FY20; organically. Management is confident on its growth outlook across business segments and expects IBM acquisition to achieve similar-to-better numbers on profitability. Also expect it to emerge as strong cross-sell engine in near term. Strong operating performance, upward revision in guidance, robust outlook and confident commentary reinforces our preferred pick view on the stock.

Outlook

We largely retain our operating estimates for the business and retain our ACCUMULATE rating on the stock with revised TP of ` 1,285 valued at 15x PER on FY21E earnings (higher multiple justified given superior financial performance).