Buy HCL Technologies; target of Rs 1030: JM Financial

JM Financial's research report on HCL Technologies

Our  in - depth  analysis of the  profitability curves  of the IP partnerships that HCL has invested  in  over the last 6 quarters  indicate s that  while their revenue impact could be low ( c . 3 % over  FY18 - 20), their superior profitability  provides HCL with an  in cremental margin lever (up to  c . 50 bps  EBIT margin leverage in  FY19 - 20 ). We believe t h e market has ignored this given a limited understanding of the economics of these partnerships. We see value in the stock after the c. 6% correction since 2QFY18 results, ostensibly on a weak near - term outlook for the infrastructure services (IMS) business.  We believe the slowdown in IMS is transient and at 12. 6 x FY19F EPS (9 % discount to its 3 - year me dian PER), we find the risk - reward attractive.  We upgrade to BUY; our revised INR 1,030 (INR 980 earlier) PT implies a 20 % upside.

Outlook

We upgrade to BUY; our revised INR 1,030 (INR 980 earlier) PT implies a 20 % upside. For all recommendations report, click here

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