MOSL: HCL TECHNOLOGIES (Buy)-Buyback a positive, expect price impact to be limited
​HCL TECHNOLOGIES: Buyback a positive, expect price impact to be limited; Valuation uptick to depend on earnings momentum
(HCLT IN, Mkt Cap USD18.6b, INR863, TP INR1000, 16% Upside, Buy)
The HCLT Board approved the buyback of 2.5% of its paid-up equity (35m shares) at INR1,000 - 16% premium to CMP. This implies a total return of INR35b to shareholders following a special resolution through a postal ballot. The buyback has been proposed under the tender offer route.
The proposed return of INR35b amounts to ~27% of the company's INR130b cash balance and ~11% of its net worth.
While the total payout including normalized dividend should be ~85% of PAT, the consequent impact on valuation multiple will be subject to the new normal for payout policy.
Buyback slightly neutral for EPS: The buyback should result in 2.5% accretion to EPS from a reduction in the share count. However, the cash reduction would result in a decline in other income, which is dominated by a yield of 6% on a pre-tax basis on the cash. Other income foregone would be greater than INR2b, which would result in an adverse EPS impact of ~2%, implying net EPS increase of ~50bp.
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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