HDFC Securities' research report on HCL Technologies
We maintain BUY on HCL Tech (HCLT), based on solid 3Q and a strong outlook across multiple growth vectors. Large deal momentum (>13% YoY and 13 transformational deals >USD25mn TCV in 3Q) and pipeline at nearly an all-time high (many USD 200-300mn deals) supports the growth outlook. Operational highlights include offshore-led improvement in ER&D and IT & Business services margins and continuity in strong cash generation with OCF/EBIT at 114% (119% in 2Q). P&P business traction (>14,000 customers 6,000 sales transactions across new and renewals) is expected to continue (beyond 4Q weak seasonality), supported by new product releases (15+ in 3Q), strong deal activity (USD 91mn net new license bookings) and more cross-sell/up-sell transactions across products/services.
The absence of large acquisitions and subsequent accretion to FCF/payout are upside risks to valuations. Our target price is Rs 1,110 at 18x Dec-22E (15% EPS CAGR over FY21-23E).
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