Hold HCL Technologies; target of Rs 982: Prabhudas Lilladher

Prabhudas Lilladher's research report on HCL Technologies

HCLT reported largely in-line revenue of USD 3025 mn, +2.7% QoQ CC (PLe: 2.9%, Cons: 2.4%), +1.1% QoQ USD (PLe: 1%, Cons: 0.8%). Growth was led by Products (5.1% QoQ CC), followed by ER&D (3.7% QoQ CC). IT services growth was muted at 2% QoQ CC, as productivity benefits to be provided to clients kicked-in. EBIT margin declined by 100bps QoQ to 17% led by 180bps QoQ decline in IT services margin, due to higher talent costs amidst elevated levels and deal transition costs. Management has retained its margin guidance of 18-20% for FY23, but given headwinds from wage hikes spread across Q2 and Q3, we model EBIT margin at 17.5%/18% for FY23/24. We cut EPS estimates by 5%/2.6% for FY23/24 due to cut in margin estimates.

Outlook

We continue to value HCLT on 17x FY24 EPS to arrive at TP of Rs. 982 (earlier: Rs. 1007). HCLT is currently trading at 19x/16x on FY23/24E EPS of INR 49.8/57.7 respectively with Revenue/EPS CAGR of 9.3%/7.6% over FY22-24E. Maintain ‘HOLD’.