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MOSL: MOrning India (13/October/22): 1. HCL Technology (Guidance increase may help drive stock rerating); 2. Wipro; 3. Fund Folio; 4. Oil & Gas; 5. EcoScope

MOrning India (13/October/22): 1. HCL Technology (Guidance increase may help drive stock rerating); 2. Wipro; 3. Fund Folio; 4. Oil & Gas; 5. EcoScope

Today’s top research idea

HCL Technology: Guidance increase may help drive stock rerating

• HCLT delivered a strong revenue growth of 3.8% QoQ in CC terms, led by strong growth in IT services & ER&D verticals.
• Surprisingly, the company increased its revenue guidance to 13.5-14.5% in CC terms from 12-14% earlier. Further, it delivered a strong beat in EBIT margin at 18.0% (+100 bp QoQ). HCLT revised its EBIT margin guidance to 18-19% from 18-20% earlier. Despite the tough demand environment, HCLT maintained its momentum, with strong bookings, by beating our expectations in its both IT services and ER&D verticals. HCLT delivered an exceptional margin improvement in 2Q.
• We expect HCLT to deliver FY23 margin at the lower end of its margin guidance. This strong growth guidance and margin performance in an environment, where the demand for IT services is expected to be incrementally weaker, should help lower the valuation gap with larger Tier 1 IT services peers.

Piping hot news

High food prices push retail inflation to 5-month high of 7.41% in Sept

In a double whammy for the economy, India’s retail inflation rate shot up to a five-month high in September while factory output contracted after a gap of 17 months in August. This could force the Reserve Bank of India to hike the repo rate yet again in December. Data released by the National Statistical Office showed that consumer price index (CPI)-based inflation accelerated to 7.41 per cent in September from 7 per cent in the previous month, driven by a 22-month high food inflation rate of 8.6 per cent.