Buy HCL Technologies, target Rs 1182: Anand Rathi

Anand Rathi

HCL Technologies reported good set of numbers for the quarter under review. Revenue from operations improved by 22.6% year-on- mainly led by better performance in Europe followed by North America (geographically).

Among verticals, Telecommunications & Media (35.4% QoQ and 40.3% YoY) and Retail & CPG (8.4% QoQ and 21.5% YoY) led the growth.

On profitability front, the EBITDA from operations for the quarter improved by 30.2% year-on-year at Rs.36,320 million with a margin of 23.1%. The company achieved the reported PAT of Rs.26,050 million, a growth of 25.5% year-on-year with a net margin of 16.6% translating into EPS of Rs 19.1 per share.

The company signed 17 transformational deals during the quarter for another straight quarter driven by financial services, technology & services and manufacturing.

The management said bookings in 9MFY19 were 40% higher than 9MFY18. Further, a qualified deal pipeline is very healthy and is at record level.

The management expects Q4-FY19 to be a healthy quarter on the back of healthy bookings and deal pipeline in 9MFY19.

In December 2018, the company signed a definitive agreement to acquire select IBM software products for $1.8 billion. The process is expected to be completed by mid 2019. We are not incorporating this into our estimates.

With continuity of robust growth across Mode-2 and Mode-3 business (28% of revenue combined) and target of 40% of revenue over medium-to-long term along with limited onsite risk, we expect the growth momentum to continue in the near term supported by strong deal pipeline and ramp up of large deals.

We maintain our buy rating on the stock with a target price of Rs 1182 per share.

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