Accumulate HCL Technologies; target of Rs 909: KR Choksey

KR Choksey's research report on HCL Technologies

In the previous quarter, HCL Tech segmented it’s services into 3 broad categories, i.e. Model 1 which includes the core services, Mode 2 which includes the disruptive technologies and Mode 3 which is the products and platforms. HCL Tech’s mode 1 services has maintained robust growth momentum since the last 3 quarters. We believe Mode 1 services is HCL Tech’s core strength as performance indicates continuous increase in participation and win rates. We believe that Mode 2 services are at an inflection point and will drive the next phase of HCL Tech’s growth. While performance of Mode 1 services was strong, Mode 2 services drove growth through increasing adoption of disruptive technologies in the Telecom and Pharma space.

We remain thoroughly convinced with HCL Tech’s Q2 performance and it’s ability to deliver growth and profitability as per guidance (with an upside bias). Management confidence on win rates, engagements and market opportunities is noteworthy as Tier I peers struggle to maintain growth momentum and guidance. We are also optimistic about penetration of Mode 2 services and will closely watch its performance. Having said that, we will continue to monitor the environment post Brexit, US elections and the industry structure for any stress. We have an “ACCUMULATE” rating on the stock as we assign a multiple of 14.5x to its FY18E EPS of INR. 62.7 to arrive at a price target of INR 909.