Buy HCL Technologies; target of Rs 1075: KR Choksey

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KR Choksey's research report on HCL Technologies

HCL Tech’s Q2 FY18 result was largely in line with our estimates in revenue, however, in profitability front it was below our estimates. Europe has outperformed as far as Geographies are concerned, with a 8.7% qoq growth followed by the US of 1.7% qoq , whereas Asia-Pacific declined by 5.0% qoq, largely due to decline of $20m revenue from Indian business . Manufacturing and Financial Services led the growth pack with a 3.8% and 2.7% qoq. Engineering Services led the pack with a 4.7% qoq growth followed by BPO service at 2.3% qoq. ER&D growth was largely supported by existing clients and IP-partnership. The management expects the material impact of its recent acquisitions can only be seen after FY18.

Outlook

We expect that the strong client addition during the quarter, strengthen IP-Led revenues, and gaining traction for its Mode 2 services, would bring radical changes to its overall business. We have a “BUY” rating on the stock and we have assigned a multiple of 15x to its FY19E EPS of INR 71.7 to arrive at a price target of INR 1,075.

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