Accumulate HCL Technologies; target of Rs 1550: Prabhudas Lilladher

Prabhudas Lilladher's research report on HCL Technologies

HCLT reported revenue of USD3.43b, up 0.3% QoQ in CC and 0.4% in reported terms, tad above consensus of flat CC, that translates to FY24 revenue growth of 5.0% YoY CC (lower end of the guidance). The growth was partly aided by further progress in mega deal within Telecom, otherwise the growth was board-based (ex-Retail). The margin impact was meaningful, down 210bps QoQ (vs consensus of 130bps decline). The decline was led by normalizing high-margin P&P business coupled with compensation revision that was long due for the mid and senior-level leadership team. The deal TCV wins were healthy at USD2.3b (+10.4% YoY), which takes FY24 TCV to USD9.75b (BTB 1.0x). Despite this strong wins, the full year revenue guidance (3.0-5.0%) was a little disappointing, which bakes in early volatility as it enters into FY25.

Outlook

The stock is currently trading at 21x FY26e, we are assigning PE of 22x to FY26e with a target price of INR 1,550. With that we assume coverage on HCL Tech with an “ACCUMULATE” rating.