Hold HCL Technologies; target of Rs 1090: ICICI Direct

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ICICI Direct's research report on HCL Technologies

HCL Tech reported a strong Q3FY19 on the revenue front with constant currency growth of 5.6% QoQ (vs. our estimate of 2.7%). For FY19E, the company maintained its revenue guidance of 9.5-11.5% in constant currency though it expects to reach upper end of guided range US$ revenues grew 4.9% QoQ to $2,202 million At 19.7%, EBIT margins declined 30 bps QoQ (vs. our 20.2% estimate) on account of a partial wage hike (~70 bps) partly offset by rupee depreciation (+15 bps) and productivity enhancements.

Outlook

HCL Tech’s strong execution led to better than estimated revenue growth in the quarter. Further, optimistic outlook on IMS, BFSI revival and deal signings for FY20E enhance revenue visibility. However, sustainability of growth in the IMS and margin trajectory in the wake of increased investments needs to be watched. Hence, we maintain our HOLD rating on the stock with a revised target price of Rs 1090 (~12x FY20E EPS).

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