Buy HCL Tech; target of Rs 1190: JM Financial

JM Financial's research report on HCL Tech

HCL reported organic revenue growth in 1QFY19 a tad below our estimates, likely on higher than expected pricing resets in some of the extant large contracts/renewals + delays in the start of new deals. However, a strong order booking (‘highest-ever’) should help the growth recover through 2Q-4QFY19. Management’s stance was incrementally positive and improved disclosures, especially on the IP partnerships, should help increase investors’ confidence, more so, given the stock’s inexpensive valuations – at c.13x FY20F EPS, HCL trades at 27%/5% discount to INFO/TECHM. A 4% dividend + buyback yield also limits the downside risk.

Outlook

Maintain BUY with INR 1,190 PT (INR 1,180 earlier).