Buy HCL Technologies; target of Rs 950: ICICI Direct

ICICI Direct's research report on HCL Technologies

HCL Tech’s dollar revenues grew robustly 1.9% QoQ to $1,722 million. Constant currency (CC) revenue grew 2.8% QoQ vs. 6.0% in the previous quarter. HCL Tech continues to perform well in its core segment i.e. IMS (40.3% of revenues), which grew 4.4% QoQ on top of 16.5% QoQ growth in Q1FY17. On the other hand, application services (37.8% of revenues) grew 1.4% sequentially while BPO business recovered after two quarters with 2.1% QoQ growth. Going ahead, the management maintained its revenue growth guidance of 12-14% in CC terms translating into 11.0%- 13.0% in dollar terms (based on September end rates). However, FY17E guidance does not include Butler and Geometric acquisition.

HCL Tech maintained its guidance for FY17E, providing visibility on revenue growth and margin. We expect HCLT to report revenue, PAT CAGR of 12%, 7% in FY15-18E with average 20.1% EBIT margins during FY16-18E compared to 24%, 41% in FY10-15, respectively, with 18.8% margins led by order book conversion and steady execution. We maintain our BUY recommendation with a target price of Rs 950 (15x FY18 EPS).