MOSL: HCL TECHNOLOGIES (Buy)-table outlook despite dip in order booking
(HCLT IN, Mkt Cap USD22.9b, CMP INR599, TP INR720, 20% Upside, Buy)
Operationally in-line quarter
** Seasonality in the Services business translated into tepid growth. Despite positive seasonality, the Products business reported a slight decline on an organic basis. Order booking during the quarter witnessed a dip. However, outlook on both growth and margins remained stable.
** We upgrade our EPS estimates over FY20-22 by 1-4% as we adjust our currency and ETR assumptions. As highlighted in our recent note, we expect HCLT to be the key beneficiary of public cloud repatriation given its higher IMS exposure and stronger hybrid cloud capabilities. Reiterate Buy.
Lower-than-expected incremental sales from IBM
** Revenue growth for 3QFY20 stood at 16.5% YoY CC, EBIT grew by 18.9% YoY, while PAT grew by 16.4% YoY. Organic revenue growth was 0.7% QoQ (CC), slightly lower than our expectation of 0.8%. Incremental inorganic contribution (v/s 2QFY20) from acquired IBM products was ~USD41m (below est. USD50m). Overall revenue in CC terms grew 2.1% QoQ (marginally below est. 2.6%).
** Despite the positive seasonality, Mode-3 reported a decline of 1% QoQ on an organic basis due to weakness in some of the IP partnerships.
** Longer-than-usual furloughs and high base in the Services business due to ramp-up of large deals in 1HFY20 led to tepid sequential organic growth.
** EBIT margins expanded ~30bp QoQ and were marginally higher than our expectations. Key margin movers are (1) Incremental higher margin revenue from Mode-3, (2) salary hikes, and (3) productivity gains.
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.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.