MOSL: HCL TECHNOLOGIES (Neutral)-Signs of organic growth turning the corner evident
HCL Technologies: Signs of organic growth turning the corner evident
(HCLT IN, Mkt Cap USD19.3b, CMP INR988, TP INR1105, 12% Upside, Neutral)
- Strong revenue growth amid confluence of drivers: CC revenue grew 13% YoY (our estimate: +12%), operating profit increased 23% YoY (our estimate: +26%) and PAT grew 19% YoY (our estimate: 8.3%). QoQ CC revenue growth 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 segment's 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%/15.5% YoY.
- Worse in BFSI, IMS behind: A few Europe-based client-specific issues are behind, and outside of them, the momentum in BFSI is very broad-based. HCLT expects much improved BFSI growth in FY20 on the back of deal wins. In IMS, 2017 saw some dip in bookings, which reversed last year. Next quarter is also likely to be good in terms of growth, despite 10% sequential growth in this quarter.
- Deals lend visibility for improved organic growth: Revised guidance for organic growth is 6-6.5% now v/s ~5.25% at the beginning of the quarter. This is because 3QFY19 marked the third peak in five quarters for HCLT in terms of total closures. YTD new bookings are up 40% from last year. Even on the back of that, the pipeline remains the strongest ever. This drives confidence of better times ahead for organic 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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