Buy Hcl Technology Ltd for Target Rs.1,750 - Yes Securities Ltd
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Strong operating performance with revenue guidance for FY24 at 5.0%-5.5% in cc terms
Result Synopsis
HCL Technologies (HCLT) reported strong performance for the quarter. Both revenue & EBIT margin was above expectation; HCL software segment (12.3% of revenue) increased by 5.0% YoY in cc terms, while ER&D and IT services (88.2% of revenue) increased by 4.2% YoY in cc terms. Telecommunication, Media and Entertainment vertical reported highest sequential growth at 25.9% QoQ in cc terms. The overall revenue increased by 6.0% QoQ in cc terms. There was sequential improvement in EBIT margin (up 124 bps QoQ) led by decrease in SG&A. Employee attrition continues to moderate as LTM attrition was down 140 bps QoQ to 12.8%.
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 12.5% over FY23?26E with average EBIT margin of 19.1%. We maintain our ADD rating on the stock with revised target price of Rs 1,750/share at 21.0x on FY26E EPS. The stock trades at PER of 21.0x/18.5x on FY25E/FY26E EPS.
Result Highlights
* Reported revenue of Rs 284.5bn (up 6.7% QoQ in INR terms, up 5.9% QoQ in USD terms). HCL software segment (12.3% of revenue) increased by 5.0% YoY in cc terms, while ER&D and IT services (88.2% of revenue) increased by 4.2 YoY in cc terms. The revenue increased by 6.0% QoQ in cc terms. Telecommunication, Media and Entertainment vertical reported highest sequential growth at 25.9% QoQ in cc terms.
* EBIT margin increased by 124 bps QoQ to 19.7% led by decrease in SG&A Expenses (down 1.2% QoQ).
* It reported new deal wins TCV of $1.9bn (vs $3.9bn in Q2FY24).
* Headcount increased by 3,617 employees QoQ to close at 224,756 employees. LTM attrition decreased by 140 bps QoQ to 12.8%.
* Revenue Growth (including ASAP acquisition) guidance for FY24 between 5.0%- 5.5% YoY in cc terms, while EBIT margin guidance remain unchanged in the range of 18.0%-19.0%.
* Declared Dividend of Rs 12/share, payment date: 31st January 2023.
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SEBI Registration number is INZ000185632
