Reliance Securities has given a buy call on HCL Technologies (HCLT) with a target price of Rs 1,280.
Shares of HCL Technologies traded at Rs 1,089.35 around 12:40 pm on 10 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
March quarter highlights:
- HCLT reported revenue growth of 3.3 per cent in constant currency (CC) terms in Q4FY19, while dollar revenue rose 3.5 per cent quarter-on-quarter QoQ to $2.28 billion led by a robust 7.3 per cent QoQ CC growth in IMS revenue.
- "Impressive growth in IMS is the biggest positive, with YoY growth hitting double-digit for the second successive quarter (21.9 per cent)," the brokerage said.
- On the flip side, ER&D services and business services declined by 3 per cent and 5.8 per cent QoQ, respectively.
- Ebit margin fell by 65bps QoQ to 19 per cent owing to rupee's appreciation and lower product margin on seasonality.
Investment rationale:
HCLT’s organic growth trajectory is likely to improve 7-9 per cent in FY20E against 6.5 per cent in FY19. However, this is still inferior to the larger peers like TCS, but in-line with that of Infosys, the brokerage said.
"We note that despite taking on substantial balance sheet risk and entering into a totally different business of software products more meaningfully, HCLT will still report lower margin in FY20E with minimal EPS accretion," the brokerage said.
At this point, valuation support remains the only positive aspect for the stock, the brokerage said.