Buy HCL Technologies; target of Rs 1175: Sharekhan

Sharekhan's research report on HCL Technologies

HCL Tech reported constant currency revenue degrowth of 1.2% q-o-q in-line with our estimates, while EBIT margin contracted 140 bps q-o-q to 18.2% chiefly due to software seasonality but was slightly better than our estimates of 18.1%. The company reported new deal win TCV of $2,074 million down 8% y-o-y. Company guided for FY24 cc revenue growth of 6%-8% y-o-y with services revenue growth expected to be slightly higher between 6.5-8.5%. The company expects FY24 EBIT margin to be between 18%-19% and aspires to take it to 19%-20% going forward. Management stated that booking delays and deal ramp downs are only on the discretionary space while cost optimisation and transformation initiatives in others continue. The Management highlighted that Europe is weaker than US with bookings being stronger in the US than Europe.

Outlook

HCL Tech is trading at a discount to its peers and considering reasonable valuation we maintain Buy rating on the stock with a revised PT of Rs. 1175. At CMP, the stock trades at the stock trades at 18.7x its FY2024E EPS and 16.9 its FY2025E EPS.