MOSL: HCL TECHNOLOGIES (Buy)-Growth optionality at attractive valuation
HCL TECHNOLOGIES: Growth optionality at attractive valuation
(HCLT IN, Mkt Cap USD36.2b, CMP INR1000, TP INR1180, 18% Upside, Buy)
- HCLT delivered a growth of 0.7% QoQ (CC), below our estimate of 2.4%, led by weak growth in IT Services (+0.5%) and Products & Platforms (-1%), but partially compensated by better than expected ER&D (+4.5%). Excluding the impact of a one-time bonus in 4QFY21, EBIT margin was down 80bp QoQ and missed our estimate by 130bp due to COVID-related expenses of 90bp. The management reiterated its double-digit USD revenue growth guidance and EBIT margin band of 19-21% for FY22.
- New deal TCV stood at USD1.7b (+37% YoY, eight large deals) in 1QFY22. Deals saw an increase in tenure, with a higher proportion of Cloud-centric Digital transformation programs. While growth in 1QFY22 was impacted by supply-related challenges (60-70bp) and project completion in Europe, we expect HCLT to deliver 11.5% USD revenue growth in FY22, led by a good demand environment and strong deal pipeline in Europe and US. The company should also benefit from a strong rebound in ER&D.
- While its FY22 growth guidance for the Products and Platforms business remains in low single-digits, we remain confident of HCLT growing in low teens on the back of an improvement in IT Services and ER&D verticals. We continue to see higher potential for the Products and Platforms vertical in the medium term and expect it to return to double-digit growth in FY23E (we estimate 13.6% CC USD growth).
HCL Technologies is a global IT services company working with clients in the areas that impact and redefine the core of their businesses. Co. focuses on 'transformational outsourcing', underlined by innovation and value creation, offering an integrated portfolio of services including software-led IT solutions, remote infrastructure management, engineering and R&D services and Business services. Co. leverages its extensive global offshore infrastructure and network of offices in 31 countries to provide holistic, multi-service delivery in key industry verticals including Financial Services, Manufacturing, Consumer Services, Public Services and Healthcare & Life sciences.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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