MOSL: HCL TECHNOLOGIES (Buy)-Growth woes catch up-Advantage ceding as organic growth aligns with industry
​HCL Technologies: Growth woes catch up; Advantage ceding as organic growth aligns with industry
(HCLT IN, Mkt Cap USD18.6b, CMP INR839, TP INR960, 15% Upside, Buy)
- FY17 - mixed year ended on a stable note: FY17 revenue grew 13.7% CC, of which organic CC growth was ~8.7%, as per our calculations. EBIT margin of 20.3% expanded 20bp YoY, and net income of USD1,216.5m (adjusted for one-time tax reversal) rose 8.9% YoY. 4Q organic CC revenue growth of 1.3% QoQ was in line with our estimate of +1%, and including acquisition contributions, it was 3.8% QoQ CC. EBIT margin at 20% was in line, and net income fell 2.2% QoQ to INR20b, a shade above our estimate of INR19.7b.
- FY18 - organic revenue guidance is a dampener: For FY18, HCLT guided for revenue growth of 10.5-12.5% (CQGR of 1.85-2.6%). This was lower than our estimate of 12-14%, which embedded ~4.5pp from acquisitions and 7.5-9.5% organic. However, HCLT's lower guidance came after two incremental contributors (UFS and another IBM partnership). Factoring these, organic growth guidance works out to ~5.5-7.5%. It retained the margin band outlook of 19.5-20.5%, which we note, includes a fairly benign amortization schedule of 15 years for USD600m + investments in IPRs licensed from IBM.
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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