Buy HCL Technologies; target of Rs 1880: Motilal Oswal

Motilal Oswal's research report on HCL Technologies

HCL Technologies (HCLT) delivered a robust 3QFY24 performance, with a 6.0% QoQ revenue growth in constant currency (CC) terms, ahead of our estimate of +4.4%. This growth was driven by seasonal gains in HCL Software (P&P), which rose 34% QoQ. HCLT’s Services grew 3.1% QoQ in CC terms (110bp ahead of MOFSLe), with healthy growth in both the IT and ER&D verticals. The TCV was at USD1.9b, down from 2Q’s high base of USD4.0b. HCLT narrowed its FY24 USD revenue growth guidance to 5.0%-5.5% YoY in CC (vs. 5.0-6.0% YoY earlier, including ASAP) for both consolidated and Services segment. The EBIT margin also exceeded expectations at 19.8% (+130bp QoQ), led by HCL Software, which achieved 32.9% margin. The Services margin contracted 50bp QoQ though. HCLT retained its EBIT margin guidance band of 18-19%.

Outlook

After the strong 3Q results and beat, we have raised our FY24-26E EPS by 3- 4%. We reiterate our BUY rating with a TP of INR1,880, as we roll forward our P/E-based valuation to FY26 and assign a multiple of 24x.