Add HCL Technologies Ltd For Target Rs. 1,388 - Yes Securities Ltd
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Mixed operating performance with revenue guidance for FY24 lowered to 5-6% in cc terms
Result Synopsis
HCL Technologies (HCLT) reported mixed performance for the quarter. The revenue growth was below estimates; while EBIT margin was inline with expectation; HCL software segment (9.9% of revenue) increased by 3.6% YoY in cc terms, while ER&D and IT services (90.6% of revenue) decreased by 2.0% YoY in cc terms. Retail & CPG vertical reported highest sequential growth at 7.5% QoQ in cc terms. The overall revenue increased by 1.0% QoQ in cc terms. There was sequential improvement in EBIT margin (up 150 bps QoQ) led by decrease in SG&A. Employee attrition continues to moderate as LTM attrition was down 210 bps QoQ to 14.2%.
The near term demand environment remains challenging as the macroeconomic factors in the US and Europe remain weak and that is reflected in clients being more watchful of the situation and consequently, that continues to impact near term revenue performance. The decline in employee attrition and improving employee pyramid should support margin in FY24. We estimate revenue CAGR of 10.2% over FY23?25E with average EBIT margin of 19.0%. We maintain our ADD rating on the stock with revised target price of Rs 1,388/share at 20.0x on FY25E EPS. The stock trades at PER of 21.0x/17.6x on FY24E/FY25E EPS.
Result Highlights
* Reported revenue of Rs 266.7bn (up 1.4% QoQ in INR terms, up 0.8% QoQ in USD terms). HCL software segment (9.9% of revenue) increased by 3.6% YoY in cc terms, while ER&D and IT services (90.6% of revenue) decreased by 2.0% YoY in cc terms. The revenue increased by 1.0% QoQ in cc terms. Retail & CPG vertical reported highest sequential growth at 7.5% QoQ in cc terms.
* EBIT margin increased by 150 bps QoQ to 18.5% led by decrease in SG&A Expenses (down 7.5% QoQ).
* It reported new deal wins TCV of $3.9bn (vs $1.6bn in Q1FY24).
* Headcount decreased by 2,299 employees QoQ to close at 221,139 employees. LTM attrition decreased by 210 bps QoQ to 14.2%.
* Services Organic Revenue Growth guidance for FY24 between 4.5%-5.5% YoY in cc terms.
* Revenue growth guidance for FY24 between 5.0%-6.0% YoY in cc terms, while
EBIT margin guidance remain unchanged in the range of 18.0%-19.0%.
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