Buy HCL Technologies; target of Rs 1210: Prabhudas Lilladher

Prabhudas Lilladher's research report on HCL Technologies

Our meeting with Management of HCL Technologies(HCLT) increased our conviction in the growth trajectory of their organic and product business in FY20E. HCLT is on its way to deliver industry leading organic growth of (Ple:11%) and meet its margin guidance of 18.5-19.5% in FY20E. The company is confident of its ability to win mega deals on a regular basis. HCLT is confident in growth of IMS segment led by integrated full-stack deals due to strengths in implementation of hybrid cloud, automation skillsets, IoT and core engineering capabilities. We believe management is conservative on revenue guidance on account of weak & volatile external environment & have enough cushion to meet any potential slowdown in spending. We believe there is high possibility of upgrading the growth guidance, as the top-end of FY20 guidance (16% yoy in CC) implies flattish organic revenues over Q2-Q4.

Outlook

we maintain our Buy rating (GARP - growth at reasonable price) valuing HCLT at 14X FY21E earnings (30% discount to Infosys, 60% discount to TCS target multiple) & arrive at a TP of Rs. 1210. Stock is currently trading at 13x FY20E EPS and 12X FY21E EPS. Our EPS estimates stands for FY20E/FY21E stands at Rs 77.2/ Rs 86.4.