HCL Technologies Ltd. share price target

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...

HCL Technologies (HCLT) which once was on high growth path, having thedifferentiation of identifying the opportunities in new services like InfrastructureManagement Services (IMS) and Engineering and R&D; Services (ER&D;) startedlagging behind due to competitive rebid market for large IMS deals and weak growthin traditional application services business.

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...

the quarter ended June 2019. OPM fell 70 bps to 21.7% which saw OP fall 1% to Rs 3570 crore. Other income fell 9% to Rs 183 crore and interest cost was up 26% to Rs 87 crore. After providing for depreciation (up 35% to Rs 735 crore), PBT fell 8% to Rs 2931 crore. Provision...

While the jury is out on the acquired products of IBM, (1) Synergies with services (product differentiation), (2) Cross-sell/market opportunity, and (3) Better margins justify the increased capital intensity. We are more impressed with the recovery in organic growth trajectory (converged with larger peers), supported by large deal momentum (Nokia, Broadcom, Xerox) and differentiation in IMS (benefiting from vendor consolidation) and ER&D (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 scaling HCL Software division. We maintain BUY on HCL Tech (HCLT) following a strong revenue and tad lower margin performance. Organic growth momentum is strong and integration of IBM products (key monitorable) will keep growth at top-end of guidance and margin at the lower end. Our TP is Rs 1,250 at 14x Jun-21E EPS.

We largely maintain our FY20/21E revenue but moderate our EBIT margin forecast by 35bps/25bps to 18.5%/18.6%. We also factor higher tax rate and cut our FY20/21E EPS by 4.1%/5.4%. We now forecast FY19-21E revenue (US$)/EBIT/EPS CAGR of 11.7%/8.9%/2.4%. We maintain ACCUMULATE with new TP of Rs1,095 (vs. Rs1,158 earlier) based on PER of 14x FY21E. Key Highlights and Investment Rationale Q1FY20 result another quarter of EBIT margin miss Revenue growth of 4.2% QoQ in CC (+3.8% QoQ in US$) was ahead of our forecast of...

Healthy Operating Performance on Strong Deal Execution; FY20 Guidance Maintained HCL Technologies (HCLT) reported robust revenue growth of 4.2% in CC terms in 1QFY20, while USD revenue rose by 3.8% QoQ to US$2,364mn (1.7% above our estimate). This included 50bps growth from acquired entity, Strong-Bridge Envision (SBE). Ex-acquisition, revenue growth came in at 3.3% QoQ in USD terms and 3.7% QoQ in CC terms. Segment-wise, revenue from Products & Platforms business grew by a strong 7.1% QoQ in USD terms, while Engineering and R&D; (ERD) revenue clocked a healthy 5.7% QoQ growth. IT and Business Services, its largest segment, saw a decent 3% QoQ USD revenue growth. EBIT margin declined by 193bps QoQ to 17.1%, below...

HCLT reported strong revenue growth of 4.2% QoQ CC significantly above Change in Estimates | Target | Reco estimates (Ple: 1.5%, Cons: 1.7%) of which organic growth accounted to 3.8% QoQ CC. Strong revenue growth was led by large deal wins won in earlier...

View: Growth traction improves, margin recovery crucial for rerating HCL Tech reported strong revenue performance in Q1FY20 with a 4.2% CC terms QoQ growth in revenues, with almost 88% of the incremental revenue contribution being organic (our estimate at 2.4%). Profitability however was lower than expectation with a 190bps QoQ decline at 17.1% as against our expectations of 90bps cut on account of unexpected hit of ~110bps in the Engg R&D; segment. Despite the slip in OPM performance in Q1, Management has retained its guided band of 18.5%-19.5% as it...