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Buy HCL Technologies Ltd For Target Rs.1,556

Strong operating performance led by ER&D and Product and Platform business

Our view

Overall, strong operating performance led by robust growth in ER&D services and Product and Platform business. The services business constituting 87% of revenue maintained strong growth momentum( up 5.3% QoQ). Deal booking remained strong at $2,145mn, up 64% YoY, proving strong growth visibility.   Trades at attractive valuation at PE of 19.3x on FY24E EPS. We maintain BUY Rating in the stock with revised target price of Rs 1,556

Result Highlights

* Revenue grew by 8.1% QoQ in INR terms( up 6.7% QoQ in USD terms, up 7.6% QoQ in cc terms) led by strong performance in engineering and R&D Services( up 8.3% QoQ) and Products and Platform(up  24.5% QoQ).

* Services revenue grew 5.3% QoQ cc in the quarter compared to 5.2% in Q2FY22. Growth was led by Healthcare( up 21.3% YoY), Technology & Services( up 18.1% YoY)

* EBIT margin was flat QoQ at 19%( slightly below estimate)as positive impact from higher revenue growth got negated by wage hike and other supply side challenges

* Recorded robust deal booking of $2135mn( up 64% YoY). Reported strong client addition across categories; $50mn up by 11 YoY, $20mn up by 13 YoY.

* Added 10,143 employees during the quarter to 197,777 employees. LTM attrition increased by 410 bps QoQ to 19.8% .

* Net cash stands at $2.1bn as of Dec 31. Declared dividend of Rs 10/ share

* FY22 Guidance‐ Reiterated double digit revenue growth in cc terms for FY 22, and also retained EBIT margin band of 19‐21% for FY22.

Valuation

The stock trades at PER of 19.3x on FY24E EPS. Robust deal booking provides strong visibility about revenue outlook It is expected to meet  its FY22 revenue growth guidance of double digit revenue growth(in cc terms) with EBIT margin band of 19‐21% We value the stock at at 22.5x on FY24 earnings, arriving at target price of Rs 1,556/share  

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