Reliance Securities research report on HCL Technologies
HCL Technologies (HCLT) has delivered a healthy performance in 1QFY18 with USD revenue growing by 3.7% QoQ (2.6% QoQ in CC terms) to US$1,884mn, marginally ahead of our estimate of US$1,873mn. Aided by revenue growth and slightly improved utilisation, its EBIT margin beat our estimate by 77bps. Maintaining CC revenue growth guidance at 10.5-12.5%, the IT major expects EBIT margin in 19.5-20.5% range for FY18E. Engineering Services drove quarterly growth with revenue rising by as much as 8.8% QoQ (+7.9% in CC terms), while the key IMS segment grew by 3.2% QoQ (+1.7% QoQ in CC terms). Continued decline in attrition in the Software Services segment at 16.2% (vs. 16.9%n in 4QFY17) is a major positive, in our view.
Outlook
On the back of consistent performances over past few quarters, well above industry growth guidance and broad-based growth, we expect HCLT to outperform top-tier peers in FY18E, going forward. We believe the company’s strong positioning in high-growth IMS and Engineering Services businesses is likely to drive underlying revenue growth ahead of peers, which we believe should enable the stock to command a higher earnings multiple. Valuation at 12.9x/11.5x FY18E/FY19E EPS also seems to be attractive. We retain our BUY recommendation on the stock with an upwardly revised Target Price of Rs1,030 (Rs963 earlier), as we roll over to FY19E earnings (target at 14x FY19E EPS).
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