HCL Technologies Ltd. share price target

While the jury is out on the acquired IBM products (early days with ~1,500 renewals of the 25,000 base), (1) Services cross-sell & market opportunity, and (2) Superior operating profile justify the increased capital intensity. HCLT's organic growth (highest in tier-1 IT) acceleration from ~5% to >10% has been impressive supported by large deal wins and IMS/ER&D business scale. Expect USD rev/EPS at 12/9% CAGR over FY19-22E. Key risks include escalation in client-specific headwinds impacted by adverse macro and customer attrition in HCL Software division. We maintain BUY on HCL Tech (HCLT) following a margin beat/rev guidance increase and unchanged est. Organic business momentum continues to be strong and IBM integration on track (key monitorable). Our TP is Rs 1,250, at 14x Sep-21E EPS and it is our preferred pick in tier-1 IT.

We largely maintain our FY20/21E revenue but increase EBIT margin by 75bps/80bps to 19.2%/19.4%. We also increase FY20/21E EPS by 2.3%/5.3%. We now forecast FY19-21E revenue (US$)/EBIT/EPS CAGR of 12.2%/11.8%/5.1%. We maintain ACCUMULATE with new TP of Rs1,153 (vs. Rs1,095 earlier) based on PER of 14x FY21E. Key Highlights and Investment Rationale Q2FY20 revenue benefits from consolidation of IBM products Revenue growth of 6% QoQ in CC (+5.2% QoQ in US$) was in-line with our forecast of +6.7% in CC. Mode-3 solutions (14.7% of revenue) led the growth with a 42% QoQ...

Likely to clock upper end of dollar revenue guidance Revenues in constant currency grew 6% QoQ supported by full quarter consolidation of select IBM products acquisition. Though the revenue run rate of IBM deal is expected to be lower than earlier estimates ($625 million annually) in FY20E, this along with other acquisitions is likely to lead to ~6% inorganic growth in the fiscal. The key highlight is ~10-11% growth estimate in organic business for FY20E. This is on the back of ramp up in existing deals and new deal signings (15 in Q2FY20). Additionally, easing of...

overall guidance to 15-17% YoY CC (from earlier 12-14%). estimates (Ple: 6.5%, Cons:6.4%) of which organic growth accounted to 1.5% was led by ERD segment (+5.4% QoQ). IBM products contributed ~US$105mn (~4.4%) in incremental revenues. EBIT margin increased by 286bps QoQ to...

HCL Tech (HCLT) reported an above-expected operating performance in Q2FY20 supported by a margin beat (EBIT margin up 290bps QoQ to 20%).

Robust quarter, revises guidance 100bps+, OPM reversal ensures rerating HCL Tech reported strong performance in Q2 with a 6% CC terms QoQ growth in revenues, despite lower-than-expected inorganic addition. OPM rebounds by 290bps QoQ at 20% against our expectation of...

HCL Technologies (HCL Tech) reported strong revenue growth, higher-thanexpected margin performance and increased revenue growth guidance. Strong revenue growth was driven by healthy performance in financial vertical and additional $100+ million revenue contribution from IBM select products acquisitions (lower-than our estimates). Organic CC revenue growth is at around 1.5%/14% q-o-q/y-o-y, ahead of our estimates. EBIT margin improved 287BPS q-o-q to 20.0%, ahead of our expectations, aided by the improvement in core business as well as integration of high-margin IB products. The margin of ERS business improved significantly on q-o-q...

(Ple:11%) and meet its margin guidance of 18.5-19.5% in FY20E. The company is confident of its ability to win mega deals on a regular basis. HCLT is confident in growth of IMS segment led by integrated full-stack deals due to strengths in implementation of hybrid cloud, automation skillsets, IoT and core engineering capabilities. We believe management is conservative on revenue guidance on account of weak & volatile external environment & have enough cushion to meet any potential slowdown in spending. We believe...

We spoke to the management of HCL Technologies (HCL Tech) to get an update on demand environment, impact from troubled clients, and pace of investments in digital and margin trajectory. Management's commentary remained broadly similar to Q1FY2020, as it has not seen any material changes in the business environment yet, owing to macro uncertainties. Excluding the impact of two troubled client accounts, HCL Tech is expected to maintain its growth momentum across verticals in the remaining quarters of FY2020E. With revenue...