The company witnessed a sharp fall in revenues in Q1FY21 mainly led by Covid-19 related challenges. However, HCL Tech has shown strong resilience in margins despite a sharp fall in revenues. Margins dropped merely 36 bps to 20.5% and was above our expectation of 19%. The company has signed 11 transformational deals in the quarter. HCL Tech has guided revenue will increase by an average 1.5-2.5% QoQ for the next three quarters of FY21E with EBIT margin range of 19.5-20.5% for FY21. The company has declared a dividend of Rs 2/share.
OutlookHowever, recent run up in price factors in most of the positives. Hence, we downgrade the stock from BUY to HOLD with a revised target price of Rs 680/share (~14x FY22E EPS).
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