HCLT is well positioned to deliver strong growth in IT Services and ER&D given 1) improving deal TCV, 2) broad-based nature of growth across service lines with ability to win integrated apps+infra deals, 3) improving client metrics, 4) investments in digital engineering and 5) strengthening of sales leadership in lesser penetrated markets (Australia, Canada, France, Germany and Japan). We expect strong double digit growth in services for the next three years after a disappointing FY2021 and 1HFY2022. HCLT expects strong recovery in product business in Q3 due to seasonality, we believe products business has low growth characteristics; hence we model a softer revenue growth over the next 2 years.
OutlookOur DCF based TP is INR 1,402 (implied target multiple of 21.2x on FY24 EPS). In last 3 months, HCLT has corrected from +2SD and is now trading at 6 months mean P/E valuation and is at a discount to entire IT pack- makes it a deep value stock with strong catalysts ahead. HCLT is currently trading at earnings multiple of 20x/18x on FY23/24E EPS of INR 59x/66x of respectively. Maintain Buy!
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