Hold HCL Technologies; target of Rs 548: Prabhudas Lilladher

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26 Aug, 2025 12:21

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Prabhudas Lilladher's research report on HCL Technologies

HCLT reported in-line sequential revenue growth of 0.8% and 13.5% YoY CC. Revenue growth was led by strong growth in Mode 2 revenues, which grew 7.1% in c/c, aiding healthy 1.6% growth in IT services. Products revenues were flat (-0.1% QoQ growth) while ER&D services declined by 1.8% QoQ. IBM business added US$160mn in Q4FY20. EBIT margin at 20.9% was up 70 bps QoQ aided by one-off improvement in Mode 2 margins, rupee depreciation (50 bps) and lower subcontracting costs (down 140 bps). FCF of US$451.7 mn was strong at 104.7% of net profit. IBM business revenues has steadily improved to US$160mn(Q3FY20: US$140mn,Q2FY20:US$ 106mn). FY21 will be a critical year for the products business as focus shifts to new business acquisition. Stickiness of the product portfolio is a tailwind for renewals in the current environment. HCLT has stopped guiding due to the uncertain environment following the epidemic. Management's base case is a sharp revenue decline in 1QFY21, followed by stable revenues in 2QFY21 and growth recovery in 2HFY21.

Outlook

We marginally fine tune our estimates & now value HCLT on 12X (earlier 11x) to arrive at a changed target price of Rs.548. Stock currently trades at attractive multiple of 11.3x on FY22E. Maintain HOLD.

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