Motilal Oswal 's research report on HCL Technologies
HCL Technologies (HCLT) reported EBITDA margin expansion (+20bp QoQ) despite the COVID-19 disruption, which is impressive. Notably, it had reported margin expansion even in 4QFY20, when most other large companies had witnessed contraction. A decent increase in net new deal wins and a robust deal pipeline (+40% QoQ) comfort us. HCLT surprised us by reinstating revenue growth (+1.5-2.5% CQGR, CC) and EBIT margin guidance (19.5-20.5%). Besides bringing back performance visibility, it further hinted that the worst was behind. We upgrade our FY21/FY22E EPS by 12-14%. Maintain Buy, as we expect HCLT to better navigate the current crisis and emerge stronger on the back of an expected increase in enterprise demand for Digital Services.
Outlook
The stock is currently trading at a modest ~12x on FY22E earnings and offers superior margin of safety. Our TP is based on ~15x FY22E EPS.
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