Buy HCL Technologies; target of Rs 1041: Edelweiss

Edelweiss' research report on HCL Technologies

HCL Technologies’ (HCLT) Q2FY18 revenue of USD1,928mn was up 2.3%
QoQ (0.9% in CC terms), but below Street’s 3.8% estimate due to project
ramp‐downs in India. EBITDA margin came in at 22.2%, up 10bps QoQ
and ahead of Street’s 21.6% estimate. Despite tepid revenue growth,
management is confident of meeting lower‐end of 10.5‐12.5% CC revenue
growth guidance owing to robust bookings during H1FY18 and strong
pipeline. The company continued its strong focus on Mode‐3 services,
extending its relationship with IBM and restructuring its joint venture (JV)

with DXC into IP‐partnership. With companies progressing to large ITservice providers from small boutique enterprises to scale up their digital journey, we remain confident on HCLT’s long‐term growth prospects. Maintain ‘BUY’ with a revised TP of INR1,041 (INR1,058 earlier), as we marginally cut our revenue estimates to reflect weak Q2FY18.

Outlook

We like HCLT’s strategy of accelerated transition to platform & product‐led solutions and reiterate our conviction on the company’s long‐term prospects. Considering strong services portfolio‐ supported by ER&D expertise and capabilities and operating excellence, the stock is available at reasonable valuation of 13.1x FY19E EPS. We maintain ‘BUY/SP’ with a revised target price of INR1,041 (15x FY19E EPS).

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