Hold HCL Technologies; target of Rs 2050: Anand Rathi

Anand Rathi's research report on HCL Technologies

HCL Tech reported revenue by an increased of 5.1% YoY to Rs 29,890 crores on a consolidated basis. In constant currency (CC) terms the revenue grew by 4.1% YoY and 3.8% QoQ. In dollar terms, revenue of $3,533M, up 2.5% QoQ & up 3.5% YoY. The uptick in the revenue was seen due to increasing spending patterns in the verticals. On the business segment front, revenue for IT Business services, Engineering and R&D reported decent organic growth of 1.5% & 2.0% respectively, while software growth of +18.7% QoQ in constant currency terms. The Retail & CPG vertical clocked double-digit growth of +11.5% QoQ driven by the completion of a large transformational project. The strong growth in Telecom (+2.6% QoQ) is primarily driven by one month's revenue from the HPE CTG acquisition. On geography front, Americas grew 1.9% QoQ; Europe grew 3.5% QoQ in CC whereas the RoW markets fell by 0.6% QoQ in USD terms. EBIT margin grew 90bps QoQ to 19.5% on internal margin improvement initiatives and currency tailwinds, partially offset by wage hike and furlough headwinds. Net headcount additions were 2,134, taking the total headcount to 2,20,755. LTM attrition rose 30 bps QoQ to 13.2%. The company has won net new 12 deals with TCV of US$ 2095mn; the net new deals are composed of 7 from IT services and 5 from product business. Annual contract value (ACV) grew by 9% on QoQ and 23% YoY; while, a contraction of 5% QoQ in TCV was majorly due to delay in ramp up of large deals with smaller deals growing stronger.

Outlook

Going forward we believe that company’s gradual improvement in revenue growth could be seen ramping up of the recent signed deals and growing traction in AI-based solutions. Additionally, there has been an increase in the number of small-sized deals with the tenure of deals getting shorter with this demand environment and strategic partnership could aid in achieving the stable end of FY25 therefore, we maintain HOLD rating on the stock with a revised target price of ₹2050 per share.

For all recommendations report, click here