Buy HCL Technologies; target of Rs 1186: Prabhudas Lilladher

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

Prabhudas Lilladher's research report on HCL Technologies

HCLT reported strong revenue growth of 3.3% QoQ CC led by IMS(7.3% QoQ CC & application services (5.2% QoQ). Strong growth in application services reflects signs of growth in digital services business. HCLT EBIT margin came slight below our estimates at 19% (Ple: 19.2%) eroded by 65bps QoQ mainly due to currency movements, utilization downtick & seasonal weakness in margin profile of Mode 3. HCLT has cut FY2020E EBIT margin guidance band by 100 bps at 18.5%-19.5% because of investments in digital competencies & large deal competencies. HCLT has guided 14-16% CC revenue growth which includes contribution from acquisition from select products of IBM , Actian corp., H&D international & C3i. Organic revenue guidance stood at 7-9% & will be back ended. Organic guidance is largely inline with peers & improved from last year's organic growth 6.5% YoY. We believe strong deal wins in FY19(~78 transformational deals) coupled with healthy outlook for BFSI & IMS will help HCLT to achieve higher end of organic guidance. We include IBM acquisition of IBM in our estimates resulting ~5% rise in our revenue estimates, excluding inorganic component our projections remain the same.

Outlook

We believe HCLT is focusing on broad-based growth (e.g megadeal in BPO segment, investing in digital competencies) will reduced its dependence on IMS growth. HCLT is trading at inexpensive valuations of ~13x FY21E valuations, We maintain our Buy rating (risk-reward ratio favorable) valuing HCLT at 14X FY21E earnings (30% discount to Infosys, 60% discount to TCS target multiple) & arrive at TP of Rs. 1186.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More