Buy HCL Technologies Ltd For Target Rs.1475 - ICICI Direct
Minimum 75% payout for FY22-26…
About the stock: HCL Technologies (HCLT) offers IT, ER&D and products to BFSI, retail, health, telecommunication, manufacturing, media & hi-tech verticals.
* HCL Tech has 250 Fortune 500 and 650 global 2000 clients
* HCL has grown organically and inorganically (14% CAGR over FY18-21)
Q2FY22 Results: HCLT reported strong IT services revenues.
* Revenue increased 3.5% QoQ in CC terms. IT services and ER&D revenues grew 5%+QoQ while P&P declined 8% QoQ
* EBIT margin declined 63 bps QoQ, 50 bps impact from lower P&P revenues
* P&P revenues are expected to be flat this year vs. earlier guidance of low single digit growth
What should investors do? HCLT share price has grown by ~3.5x over the past five years (from ~| 364 in October 2016 to ~| 1,259 levels in October 2021).
* We continue to remain positive and retain our BUY rating on the stock
Target Price and Valuation: We value HCLT at | 1475 i.e. 24x P/E on FY23E EPS
Key triggers for future price performance:
* The company continues to win multiyear deals in Cloud transformation, cyber security, etc
* Expects healthy double digit growth in revenues in FY22E mainly led by improved growth in IT & business services and ER&D
* With improvement in large deal wins, expansion in geographies, investment in sales & capabilities, we expect HCLT to register 13.2% CAGR in FY21-23E
Alternate Stock Idea: Apart from HCLT, in our IT coverage we also like TechM.
* Key beneficiary of uptick communication spend
* BUY with target price of | 1,611
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