Sharekhan's research report on HCL Technologies
For Q3FY2023, HCL Tech reported strong performance across all metrics – revenue growth, margin expansion, booking growth, and people metrics. Revenue in constant currency was up 5% q-o-q and 13.1% y-o-y, beating our estimates of CC growth of 3.6% q-o-q, led by the services business, which grew by 15.4% y-o-y in CC terms. EBIT margin improved by 165 bps to 19.6% in Q3FY23. HCL Tech reported new deal wins worth a total contract value (TCV) of $2.35 billion. The company won 17 large deals, of which seven were in Services and 10 in Software verticals. The company also won a major deal of over $500 million for a US-headquartered Fortune 500 financial services company. HCL Tech, which recently tempered its FY23 growth guidance to the lower end of 13.5-14.5% band, has narrowed its revenue and margin guidance band due to seasonal challenges in the fourth quarter. FY23 revenue growth is now seen at 13.5-14% in constant currency, with EBIT margin at 18-18.5%.
Outlook
Owing to multiple global headwinds, outlook for FY24E looks uncertain, and recovery could be gradual in the coming quarters. However, we believe the structural growth story for the Indian IT sector remains intact. We maintain Buy on HCL Tech with a revised PT of Rs. 1,205, given strong deal pipeline and tailwinds due cloud adoption and vendor consolidation. We advise investors to adopt a staggered approach to invest from a long-term perspective.
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