HCL Technologies Ltd. share price target

HCL Tech reported strong Q3FY19 results in terms of revenue and deal pipeline; HCL tech reported revenue growth of 5.6% QoQ and 13% on YoY on constant currency basis.

HCL Technologies Ltd.'s earnings met estimates in the quarter ended December despite facing cross-currency headwinds Sequentially HCL Technologies registered 5.6% rise in consolidated sales to Rs 15699 crore for...

Expect rev/EPS CAGR of 13/10% over FY19-21E factoring USD rev growth at 16.2/10.1% and EBIT% at 20.3/19.7% for FY20/21E, respectively. Valuations attractive at 11.7x FY20E, maintain BUY with TP of Rs 1,260, 14x-Dec-20E EPS. HCL Tech (HCLT) posted robust revenue performance (10-qtr high QoQ) driven by strong uptick in IMS. Revenue came at USD 2,201mn, +5.6/13.0% QoQ/YoY CC, led by IMS (37.5% of rev) posting +10.4% QoQ CC on ramp-up of large deals. Revenue guidance was increased to top-end of 9.5 to 11.5% YoY band (at mid-point earlier) led by traction in organic business. EBIT% stood at 19.7%, -30bps QoQ on wage increase impact. APAT stood at Rs 26.11bn, 2.8/19.0% QoQ/YoY impacted by lower other income (forex loss of Rs 0.54bn), offset by lower ETR.

FY19 guidance revenue growth of 9.5% to 11.5% in CC (7.9% to 9.9% in US$) and EBIT margin of 19.5%-20.5% has been maintained, in-line with our expectation. HCLT now expects FY19 revenue growth at the top-end of the guidance vs. mid-point earlier. We fine-tune our FY19/20E revenue and EPS forecast. We now forecast FY18-20 revenue (US$)/EPS CAGR of 9.9%/11.6%. We maintain ACCUMULATE with new TP of Rs1,099 (vs. Rs1,073 earlier) based on PER of 14x FY20E. Clarity on the ammortisation policy for the acquisition of IBM software products for US$1.8bn remains an important monitorable for us....

ICICI Securities Ltd | Retail Equity Research HCL Tech reported a strong Q3FY19 on the revenue front with constant currency growth of 5.6% QoQ (vs. our estimate of 2.7%)....

HCL Tech (HCLT) reported stellar 10.4% QoQ CC growth in the IMS business, aiding a 4.9% rise in Q3FY19 US$ revenues vs. 2.5% estimated. EBIT margins at 19.7% were a bit softer than estimates. HCLT is trending ahead on organic growth versus its guidance at the start of the fiscal. Robust 9MFY19 new deal bookings (+40% YoY), receding concerns in select European BFSI accounts and likely lower headwinds on IMS contracts support growth visibility....

of 5.6% ahead of our estimate of 4.5%. Organic QoQ CC growth was 4.3%, higher than our estimate of 3.5%, led by ramp-up in large deals and IP 29 January 2019 segments 3Q seasonality (albeit less pronounced). Despite significant growth, EBIT margin shrank 30bp QoQ to 19.6% (marginally below our estimate of 20%) due to planned wage increases, which had an impact of 50bp, partially offset by 15bp tailwind from currency. PAT of INR26.1b came in 10% ahead of our estimate due to a lower tax rate (17.7% v/s our estimate of 21%), lower forex loss (INR540m v/s our estimate of INR2.6b) and higher other income. For YTD FY19, CC revenue/EBIT/PAT is up by 10.7%/18.6%/15.

Maintain BUY. Our TP is Rs 1,255 at 14x Dec-20E EPS (in-line with 5-yr avg multiple). We recently hosted HCL Techs (HCLT) CFO for investor meetings. The discussions covered organic business and Mode-3 strategy (esp. the recent product acquisition). HCLT has under-performed peers ~30% over the last two years on (1) Organic growth slowdown, with IMS slowing from 9% to 4% YoY, and (2) Balance sheet-heavy capital allocation strategy. HCLTs rev/PAT/OCF share in tier-1 IT has been steady at ~15%.

HCL Technologies (HCLT) has announced that it has signed definitive agreement to acquire 7 software products from IBM for US$1,775 mn (including earn-out). HCLT would fund this acquisition largely through internal accruals and debt of US$300 mn. The acquisition is expected to be closed in mid-2019. The acquisition would add an incremental revenue of $625mn-$650mn to HCLT's Mode-3 solutions which currently has run-rate of ~US$1bn. HCLT has not clarified the ammortisation policy for this acquisition. we expect the payback to be in 6+ years. We expect the acquisition to add ~3.4%/6.2% to FY20/21 revenue and ~2%/4% to the...

HCLT has moved beyond partnering with IBM to acquiring some of the latter's product IPs, which it believes are a reflection of its focus on the strategic segments and efforts to expand services to a gamut of clients across industries and markets. In this note, we highlight the key specifics of HCLT's announced deal with IBM.