Buy HCL Tech; target of Rs 950: Sharekhan

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Sharekhan's research report on HCL TechFor Q3FY2016, HCL Technologies (HCL Tech) has reported a weaker-than-expected revenue growth of 1.3% QoQ at $1,587.2 million on a reported basis and 1.7% Q-o-Q growth on a constant-currency (CC) basis (weaker growth rate on lower base as compared with Infosys [1.9%] and TCS [2.1%]). The lower-thanexpected revenue growth was attributed to some project closures in the BFSI space and some slow ramp-ups. The IMS services grew by 3.9% QoQ (in line with our expectation), IT services grew by 0.7% QoQ, while BPO declined by 4.1% QoQ on a CC basis. The increasing complexity deals engagement (slower deal conversion) and integration of headwinds will result in volatile earnings performance in FY2017. Further, lack of conviction in management commentary on the organic growth front, ex Volvo in Q1FY2017 and absence of margins guidance, will affect the near-term stock’s performance. We have revised our estimates down for FY2017 and FY2018 by 7% and 2% respectively. We expect, after near-term hiccups and volatility, margins performance will start showing improvement with deals reaching steady state (also reflects in revenue growth), which will be the most important rerating trigger for HCL Tech. The stock is trading at inexpensive valuation of 14x and 12x its FY2017E and FY2018E earnings. We have maintained our Buy rating on the stock with a revised price target of Rs950.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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