Hold HCL Technologies; target of Rs 885: ICICI Direct

ICICI Direct's research report on HCL Technologies

HCL Tech has announced its intent to acquire DWS Limited (DWS) for Australian $158.2 million (~Rs 849.2 crore) valuing the company at 0.94x EV/Sales (based on FY20 Sales) and ~21x FY20 EPS. The acquisition is subject to regulatory approvals and is expected completion timeline is by December 2020. The acquisition will add ~1% to company’s top line in FY22E and will also help the company in expanding it’s presence in Australia and New Zealand. The company will also be able to cross sell and up sell to existing clients of DWS. Although DWS’s PAT margins (~4.4%) are lower than HCL Tech’s PAT margins (15.7%), we believe the company’s global model will help DWS improve margins in coming quarters. Strategic acquisition coupled with improving organic growth keeps us positive on the stock from a long term perspective.

Outlook

However, recent run up in price factors in most of the positives and hence, maintain BUY rating on the stock with a revised target price of Rs 885/per share (17x FY22E EPS).

For all recommendations report, click here