Maintain BUY on HCL Technologies - Growth vectors intact - HDFC Securities

Mr. Apurva Prasad & Mr. Amit Chandra, Institutional Research Analyst, HDFC Securities

We maintain BUY on HCL Tech (HCLT), based on broad-based 2Q performance and multiple growth vectors. HCLT's prowess in cloud infra business is a strong competitive advantage with enterprises accelerating cloud adoption and higher annuity streams supported by P&P upside. The positive outlook is also predicated on (1) strong deal wins with TCV up 35% QoQ, supported by 15 transformational wins (eight in life-science & healthcare vertical) and pipeline at an all-time high, (2) strengthening partner ecosystem with hyperscalers increasing the addressability and client access, (3) continued traction in P&P business with cross-sell opportunities (>12,000 unique customers signings), supported by upgrades/launches (Unica/DRYiCE in 2Q). The absence of large acquisitions and subsequent accretion to FCF/payout are the upside risks to valuations. HCLT is among our top picks in the sector, and our target price of Rs 970 is based on 18x Sep-22E EPS.

2QFY21 highlights: (1) HCLT's revenue came in higher than estimated at 6.4% QoQ (4.5% QoQ CC), supported by +4.9% QoQ CC in IT & BS, +3.6% QoQ in ER&D and +3.1% QoQ in P&P segment. (2) Growth was broad-based across the verticals with LS/Retail/Tech/TME delivering 8.6/8.4/6.3/6.1% QoQ respectively (CC terms). (3) Revenue guidance retained at +1.5% to +2.5% QoQ (CC terms) over 3Q-4QFY21E while EBIT margin guidance is revised upward by 50bps to 20-21% for FY21E.

Outlook: We have factored in USD revenue growth at +1.2/11.8/10.1%, factoring in IT & BS growth at -0.6/+12.4/+10.4%, ER&D growth at - 4.4/+11.4/+10.1% and P&P growth at +20.4/9.3/8.4% over FY21/22/23E respectively. EBIT margins are estimated at 20.6/20.7/20.6% over the same period, translating into an EPS CAGR of 12.4% over FY20-23E (TCS/INFY at 11/14% CAGR).

Shares of HCL TECHNOLOGIES LTD. was last trading in BSE at Rs.827.1 as compared to the previous close of Rs. 859.45. The total number of shares traded during the day was 723337 in over 21298 trades.

The stock hit an intraday high of Rs. 877 and intraday low of 821. The net turnover during the day was Rs. 604908554.

Source : Equity Bulls

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