Accumulate HCL Technologies; target of Rs 795: Dolat Capital

Dolat Capital's research report on HCL Technologies

FY20 was an eventful year for HCL Tech with acquisition being consummated in HCL in June’19 and the focus on performance of Product & Platform Segment (and IBM portfolio). The Annual Report highlighted the focus of HCL Tech to evolve further as a Technology company with focus on building IP assets and driving innovation and filling gaps via acquisition. Significant inorganic investments over last three years have led to significant decline in OCF to FCF conversions. But, now with no meaningful investments in sight (organic as well as inorganic), FCF profile would improve materially – growth of about ~120% over FY20-22 (incremental US$1bn on TMF basis as second tranche paid in Q1FY21).

Outlook

With strong business momentum across units, RPO up 35% (up 22% for FY21E), confidence from guidance (1.5%-2.5% over next three quarters), decent transformational deal flow (53 deals in FY20) and attractive valuations of 15x FY22E, we maintain an ACCUMULATE Rating on HCL Tech with TP of Rs. 795 (valued at PER of 17x on FY22E earnings, implies 2PEG).