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This Large Cap IT Stock Gets A ‘BUY’ Call With A Target Price of Rs. 1525

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The brokerage firm IIFL Securities has placed a buy call on the shares of HCL Technologies Ltd. The stock is now trading at a market price of Rs. 1,311 as of 5 January, 3:30 p.m. IST, and the brokerage has set a target price of Rs. 1525 for the stock with a target period of 1-year.

 

The brokerage’s take on HCL Tech
 

The brokerage’s take on HCL Tech

According to the brokerage the company's "Growth of 3.5% cc QoQ was led by Manufacturing (+8.1%) and Life Sciences (+7%), while BFSI (+0.4%) and Retail (+0.9%) were weak. HCL sees a strong demand outlook for digital engineering, application modernisation and cloud transformation. Products & Platforms is expected to grow at 0-1% (from a mid-single-digit) in FY22. HCL expects momentum in the services business to continue and P&P to bounce back due to seasonality and return of deferred revenues in 3Q."

IIFL Securities in its latest research report has said that "EBIT margins at 19.0% (-60bps QoQ) were broadly in line with expectations primarily driven by lower P&P revenues. HCLT reiterated its guidance for margins to be in the 19-21% range in FY22, while quarterly margins could go below the guidance range due to the tight supply-side conditions in the near term.

The brokerage has also highlighted that "HCL Tech's 2QFY22 revenue of USD2.79bn grew 3.5% cc QoQ, below IIFL/consensus expectations of 5.4%/5.0% cc QoQ. Among the different segments, ER&D (+5.4% cc QoQ) and IT & Business Services (+5.2% cc QoQ) were the key growth drivers, buoyed by the Manufacturing and Lifesciences verticals. HCLT is seeing strong demand, particularly in digital engineering, application modernisation and cloud transformation; it expects the momentum to continue over the near term. HCLT is seeing opportunities in integration Application and Infrastructure deals. The Management expects Products & Platforms segment revenues to bounce back in 3Q."

"HCLT reiterated its double-digit revenue growth (in constant currency) guidance for FY22 which implies an ask rate of 2.2% CAGR over the next 2 quarters. HCL signed 14 large deal wins in the quarter, with a total TCV of USD2.2bn (+38% YoY), and also mentioned that its deal pipeline continues to be strong. HCLT added 11.1k+ net employees during the quarter which is its highest historically, on the back of the strong demand it is seeing" further added the brokerage.

Buy With A Target Price of Rs. 1525

Buy With A Target Price of Rs. 1525

IIFL Securities has claimed that "Management is confident about P&P bouncing back in 3Q, as the 2Q decline was due to delay in renewals. Growth in Services was broad-based across geographies, while Manufacturing and Lifesciences led the growth among verticals. EBIT margins at 19% (-60bps QoQ) were also primarily impacted by lower P&P revenues; Services margins were flat despite wage hikes. For FY22, HCLT has reiterated its guidance of double-digit cc revenue growth and EBIT margins to range at 19-21%. Deal wins of USD2.2bn in 2Q (38% YoY) were strong for a 3rd straight quarter. Net employee addition at 11.1k was the highest ever for HCL and 23% YoY growth in headcount should give comfort to the growth outlook. At 22x FY23ii P/E, the stock trades at a 30% discount to peers, though it could rerate if deals and hiring translate into revenues. Thus, we recommend a BUY with a long-term target of Rs. 1525."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of IIFL Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Thursday, January 6, 2022, 8:48 [IST]
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