HCL Technologies Ltd. share price target

The spread of Covid-19 has led to lockdowns in many countries globally and could have adverse economic implications. In addition, the recent fall in crude prices could also have an adverse impact of fiscal health of oil producing countries. As a result, IT companies, which have considerable exposure to verticals such as oil, energy & utilities; banking & capital markets; manufacturing and travel & transport could see an adverse impact from the ongoing crisis. Companies like Wipro, Infosys in large cap and MindTree, NIIT Tech, Sonata software, Cyient, Accelya Solutions among...

The spread of Covid-19 has led to lockdowns in many countries globally and could have adverse economic implications. In addition, the recent fall in crude prices could also have an adverse impact of fiscal health of oil producing countries. As a result, IT companies, which have considerable exposure to verticals such as oil, energy & utilities; banking & capital markets; manufacturing and travel & transport could see an adverse impact from the ongoing crisis. Companies like Wipro, Infosys in large cap and MindTree, NIIT Tech, Sonata software, Cyient, Accelya Solutions among...

...

HCL Technologies Limited provides software development, business process outsourcing, information technology and infrastructure services. The company is spread across 44 countries with 143,900 employees and...

Products Business Continues to Outperform: HCL T reports yet another industry-leading performance with products business largely contributing to incremental revenues.

HCL Tech reported better than expected Q3FY20 numbers on both margin and revenue front. The revenue in constant currency terms grew by 2.1%QoQ and 16.4% on YoY at Rs. 18,135 crs.

HCL Technologies' (HCLT) Q3FY20 revenue growth of 2.1%/16.4% QoQ/YoY in CC was inline with our forecast. EBIT margin improvement of ~30bps QoQ to 20% was higher than our forecast of 20%. Further, EPS of Rs11.2, +14.6%/+19.5% was a beat to our forecast aided by other income. HCLT has narrowed its FY20 revenue growth guidance by to 16.5%-17% vs. 15%-17% earlier. The organic growth guidance now stands at 10.5%-11% vs. 10-11% earlier. HCLT has also increased its EBIT margin guidance to 19%-19.5% vs. 18.5%-19.5% earlier. We largely maintain our FY20/21E revenue but increase EBIT margin by ~20bps to...

Revenues in constant currency grew 2.1% QoQ supported by consolidation of select IBM products acquisition. We believe the revenue run rate of IBM deal will stabilise ($625 million annually) in FY21E. Also, the company is seeing improved traction in its traditional business (Mode 1) where the pricing pressure has eased in renewals. Further, we expect Mode 2 to improve in subsequent quarters. Additionally, easing of seasonality pressure in products & platforms business within IBM driven by renewals would ensure growth. Taking all this into consideration, we believe the...

Despite the organic growth moderation in FY21E as compared to FY20E in the absence of mega deals, HCLT's growth leadership is intact supported by (1) Strongest-ever deal pipeline and improvement in conversions, (2) Enhanced services/product bouquet with large cross-sell opportunities. Superior operating profile and cross-sell synergies, make up to some extent for the capital intensity and longevity concerns of the product business. Expect USD rev/EPS CAGR at 12/9% over FY19-22E. We maintain BUY on HCL Tech (HCLT) following a better than expected rev/margin performance (P&P; led) and ~2% increase in EPS. Traction in P&P; business is encouraging and strong pipeline to support organic growth. Our TP of Rs 665, implies 14x Dec-21E EPS.