Hold HCL Technologies Ltd For Target Rs.1110 - ICICI Direct
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Revenues impacted by Covid….
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)
Q1FY22 Results: HCLT reported weak Q1FY22 results.
* Revenue increased 0.7% QoQ in CC terms below our estimates
* EBIT margin was at 19.6% below our estimate of 20.5%
* Total net new deal TCV was at US$1664 million
What should investors do?
HCLT’s share price has grown ~3x over the past five years (from ~| 365 in Jul 2016 to ~| 982 levels in Jul 2021).
* However, weak Q1 and run up in price prompt us to downgrade from BUY to HOLD
Target Price and Valuation: We value HCLT at | 1110 i.e. 18x P/E on FY23E EPS
Key triggers for future price performance:
* Plans to tap the US$300 billion cloud opportunity by 2023; considering the company’s expertise in Infrastructure Management Services (IMS) & app modernisation and focus on integrated deals
* Expects healthy double digit growth in revenues in FY22E mainly led by improved growth in IT & business services and ER&D
* Improvement in large deal wins, expansion in geographies, investment in sales & capabilities, we expect HCLT to register 11.7% 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 | 1,120
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