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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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