Buy HCL Technologies; target of Rs 1280: Motilal Oswal

Motilal Oswal's research report on HCL Technologies

HCL Technologies (HCLT) reported a weak 1QFY24 with revenue of USD3.2b, down 1.3% QoQ in constant currency (CC) and 110bp below our estimate. Continued ramp-downs in Telecom and Technology verticals, mainly in ER&D (-5.2% QoQ in CC), led to the underperformance. Net new deal TCV was also muted at USD1.56b (down 25% QoQ), but the deal pipeline was at all-time high. Despite the weak quarter, HCLT has maintained its FY24 USD revenue growth guidance at 6.0-8.0% YoY in CC (6.5%-8.5% YoY in CC for Services). EBIT margin declined 120bp QoQ to 17.0%, missing our estimate by a huge 140bp, despite a 2.5k reduction in workforce (-1.1% QoQ). The miss was led by lower utilization due to project delays and one-time travel costs. The management has retained FY24 EBIT margin guidance at 18.0-19.0%.

Outlook

We have lowered our FY24/25 EPS estimates by 1-2% to account for the 1Q miss. Reiterate BUY with a TP of INR1,280 (based on 19x FY25E EPS).

For all recommendations report, click here