Buy HCL Technologies; target of Rs 1030: Edelweiss

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Edelweiss's reserach report on HCL TechnologiesWhile non-currency related revenue concerns are worrisome till we get more clarity, we expect some trimming in USD revenue growth estimates due to weak start to the year. However, we do not foresee a cut in earnings due to change in INR/USD estimate from 62 to 65. We also believe other IT companies in the sector too will be adversely impacted due to the sharp movement in various currencies like AUD and BRL. We maintain ’BUY/Sector Outperformer’ on HCLT with a target price of INR1,030 and will review our estimates post the quarterly numbers.HCL Technologies (HCLT) has issued a Q1FY16 revenue warning citing 3 reasons: (1) adverse impact of 80bps due to sharp depreciation of multiple currencies versus USD; (2) client specific issue in custom application development leading to provisioning of USD20mn; and (3) rising complexity and delays in the IMS business. We believe sharp cross currency movements will impact the entire sector depending upon exposure to respective geographies. Movements of Brazilian Real (BRL) and Australian Dollar (AUD) have been particularly sharp—14% and 7%, respectively. Though there will be some positive impact of GBP and EUR, it will not be sufficient to offset the adverse impact of other currencies. Though we are not concerned about the currency impact, we are keen to gain more clarity on the client specific issue and complexities in IMS business issues. We believe the above caution warrants some trimming of revenue estimates, at least for FY16, and the demanding CGQR for even double digit growth will not be low. However, we will wait for Q1FY16 numbers to alter our estimates. Maintain ‘BUY’ with INR1,030 target price.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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