Result Update: HCL Technologies Ltd - REDUCE - TP Rs.879

HCLT's results were lower than our expectations with CC revenue growth of 3.8% (v/s estimate of 4.9%) and EBIT margins at 20% (estimate at 20.4%). On an organic basis, QoQ growth was likely 1%, we believe. IMS lagged with just 0.8% growth whereas, Application services grew by 1.8% QoQ. We maintain that, the competition in IMS market is set to intensify with several players now focusing more on this segment. HCLT is making efforts to increase its relatively lower presence in the Digital / Platforms & Products space through the IBM IPR deal. We will watch out for sustainability and growth in the same. We also believe that, HCLT continues to face profitability challenges, in a bid to sustain high growth (SG&A spends at about 11.8% and 85.7% employee utilization rates (incl trainees)). HCLT has guided for a 10.5%-125% CC revenue growth in FY18. Organic growth guidance (excluding IBM deals, Geometric, Butler) is about 6.5% - 8.5%, we estimate. EBIT margin guidance stands at 19.5% - 20.5%. We tweak our EPS estimates for FY18 to Rs.64 (Rs.66.3). Our FY19E EPS stands at Rs.69 and our PT stands revised to Rs.879 (Rs.873, earlier), based on target valuations of about 13x FY19 earnings. With limited upsides from current levels, we maintain REDUCE and will wait for better prices to turn buyers in the stock.

Shares of HCL TECHNOLOGIES LTD. was last trading in BSE at Rs.838.65 as compared to the previous close of Rs. 842.3. The total number of shares traded during the day was 252820 in over 4567 trades.

The stock hit an intraday high of Rs. 858.2 and intraday low of 835.4. The net turnover during the day was Rs. 213413664.

Source : Equity Bulls

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