Hold HCL Technologies; target of Rs 1050: Sharekhan

Sharekhan's research report on HCL Technologies

The company announced the largest acquisition ever in Indian IT industry with an amount of $1,775 million (~ Rs12,500 crore) for the acquisition of seven IBM products. Risks quotient on account of the deal is at much higher level and will increase the investors’ concerns. Improving organic growth prospects going ahead on account of ramp-up of deals won earlier (with record high orders in Q3FY2018/Q1FY2019) and large deal wins in new services. Our back of envelope calculation suggests, taking a 25% goodwill for the deal and rest as intangibles, EPS accretion will be minimal at around 2-3%.

Outlook

We downgrade our rating on HCL Tech to HOLD with a revised PT of Rs. 1,050 given the uncertainty around the deal with IBM.