CLSA retains buy on HCL Tech, IMS to drive growth

Moneycontrol Bureau

CLSA has reiterated buy rating on HCL Tech as it believes Infrastructure Management Services (IMS) will drive its near-term growth. The brokerage is optimistic that robust deal wins, onsite hiring and client activity suggest the former is on track, while history in juicing operating levers lends credibility to the latter over FY16.

"HCL Tech continues to see healthy demand conditions driven primarily by IMS deal wins. Despite a rise in competition from peers, HCL Tech continues to enjoy high win rates in new deals and 98 percent renewals on older contracts. There is near-term traction in applications development and maintenance (ADM), while enterprise application services face structural changes due to transition to SaaS solutions," CLSA says in a note.

However, in an interaction of CLSA with HCL Tech, the management has indicated concerns about margin growth. Its first half of FY16 margin is likely to be impacted by wage hikes, large deal transitions and onsite investments despite currency benefits. Its FY16 EBIT margin target remains 21-22 percent suggesting some heavy lifting in later half.Posted by Nasrin SultanaFollow @NasrinzStory