Hold HCL Technologies; target of Rs 1000: ICICI Direct

ICICI Direct's research report on HCL Technologies

US$ revenues grew 2.5% QoQ to $2,038 million, slightly lower than our 3% growth and $2,047.6 million estimate. Revenues in constant currency (CC) grew 1.2% QoQ Revenues in rupees grew 2.9% QoQ to Rs 13,179 crore, in line with our 2.9% QoQ growth and Rs 13,176.6 crore estimate At 19.6%, EBIT margins were flat QoQ, in line with our 19.7% estimate PAT of Rs 2,227 crore was in line with our Rs 2,221.4 crore estimate led by an in line operating performance HCL Tech announced a dividend of Rs 2/share for a consecutive 61st quarter

Outlook

HCL Tech’s Q4FY18 results were largely in line with our expectations. However, the constant currency guidance of 9.5%-11.5% (in constant currency) implies weaker organic growth trajectory (organic growth is expected to ~5% in FY19E). While, company is making efforts to strengthen its position in Mode 2 &3 (Emerging Technologies & product & solutions platform) through acquisition, the slower than expected growth in organic business remains a concern. We slightly fine tune our EPS estimates and expect HCL Tech to report revenue, PAT CAGR of 10.9%, 6.5% in FY18-20E. Hence, we retain our HOLD rating with target price of Rs 1000 (14x FY20E).