Accumulate HCL Technologies; target of Rs 560: Dolat Capital

Dolat Capital's research report on HCL Technologies

HCLT reported 0.8% QoQ growth in CC terms (our estimate: 1.4%) led by 7.1% QoQ growth in Mode 2 covering up for 0.4%/1% QoQ decline in Mode 1/Mode 3. OPM improved by 60bps to 20.9% (DE: 20.3%) driven by one-off margins gains in Mode 2 (Q4:18.1% up ~290bps QoQ)  HCLT didn’t offer guidance for FY21 due to uncertainty in environment despite 12% order book growth YoY (Order pipeline soften in April but reviving now). HCLT expects growth to come in H2 as ramp up of deals (14 transformational deals wins in Q4) will begin only in Q2.

Outlook

With strong lead indicators and expectations of performance revival in H2, we largely retain our estimates building in CC revenue and EPS CAGR of ~5%/5% over FY20-22E. We have an Accumulate rating on the stock with TP of `560 valued at 12.5x PER on FY22E EPS (10% disc. to Infy).