MOSL: HCL TECHNOLOGIES (Upgrade to Buy)- Can it benefit from public cloud repatriation?
HCL TECHNOLOGIES: Can it benefit from public cloud repatriation?
(HCLT IN, Mkt Cap USD21.8b, CMP INR573, TP INR700, 22% Upside, Upgrade to Buy)
- Repatriation of workloads from public cloud to on-premise/hybrid cloud is likely to be a key emerging horizontal theme. Higher IMS exposure and stronger hybrid cloud capabilities make HCLT the biggest beneficiary. We expect up to ~5pp organic growth outperformance versus top 2 over FY21-22.
- Some changes in the organization structure/GTM (e.g. in IMS) are showing early signs of success. Besides, we find comfort in HCLT’s ability to build a completely independent sales team for products avoiding any potential negative synergies with the services business.
- We remain pessimistic on Mode-3 and our conservative estimates (CAGR: -5%, OPM of 21%) adequately capture this view. However, it is comforting that there will be no further capital deployment over the near term.
- Historically, valuations have shown strong correlation with organic growth, except for the recent cycle. As organic growth accelerates further and concerns about Mode-3 recede, we expect a marginal re-rating to 14x. Mode-3 contributes < 10% of our fair valuation arrived at using DCF-based SOTP. We upgrade HCLT to Buy.
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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