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Guidance of 12-14% CC growth in FY23

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

It has grown organically and inorganically (13% CAGR over FY17-22)

Q4FY22 Results: HCLT reported strong growth in IT services

Revenue in IT services grew 5.2% QoQ in CC terms. That of P&P declined 24% QoQ in CC terms

EBIT margin of services business was up 80 bps QoQ

Dividend for FY22 at |44 per share (88% pay out)

What should investors do? HCLT’s share price has grown by ~2.9x over the past five years (from ~| 376 in April 2017 to ~| 1,101 levels in April 2022).

We maintain HOLD rating

Target Price and Valuation: We value HCLT at | 1220 i.e. 22x P/E on FY24E EPS

Key triggers for future price performance:

The company continues to win multiyear deals in Cloud transformation, cyber security, etc as new deal bookings continue to be strong

Guided for 12-14% revenue growth in CC for FY23E, mainly led by improved growth in IT & business services and ER&D

However, margins are expected to be under pressure for a few more quarters. We expect ~130 bps EBIT margin decline over FY22-24E

With improvement in large deal wins, expansion in geographies, investment in sales & capabilities, we expect HCLT to register 12.9% CAGR in FY22-24E

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 | 1,850

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