INSUBCONTINENT EXCLUSIVE:
HDFC Securities has a buy call on HCL Technologies with a target price of Rs 1,255.
The current market price of HCL Technologies is Rs
945.10.
Time period given by brokerage is one year when HCL Technologies price can reach defined target
The discussions covered organic business and Mode-3 strategy
HCLT has underperformed peers nearly 30 per cent over last two years on (1) Organic growth slowdown, with IMS slowing from 9 per cent to 4
per cent YoY, and (2) Balance sheet-heavy capital allocation strategy
However, high investment intensity (USD 1.7bn ex-IBM products in acquisitions and IPP) relative to peers (35 per cent capex share of tier-1
IT) has led to a disproportionate increase in balance sheet size
It has also slowed down core RoCE from 35 per cent to 28 per cent over FY17-19
While integration and cross-sell hold challenge and opportunity here, organic business is also set to benefit from ramp up of large deal
If both engines fire, a re-rating is likely, though investors will wait for sustained evidence
We maintain faith in HCLT based on (1) Organic business recovery, supported by ramp-up of large deal wins, (2) ERD/IMS pedigree (strong
Our target price is Rs 1,255 at 14x Dec-20E EPS (in-line with 5-yr avg multiple).
