Broker's call: HCL Technologies (Buy)

| Updated on March 11, 2020

India Nivesh

HCL Technologies (Buy)

CMP: ₹536.8

Target: ₹700

With regard to the potential coronavirus impact, the management believes it is premature to call out anything specific at this stage. Vertical-wise, travel and hospitality (T&H) will likely be impacted, given cancellation of travel plans across the globe and also cancellation of major conferences such as the Mobile World Congress in Barcelona. HCL Technologies has fairly low exposure to T&H (in low single digits). At a broader level, the IT major views this issue as one of the several additional headwinds in the year, including trade wars, conclusion of BREXIT and upcoming US elections.

We remain positive on HCLT’s business prospects and forecast 11.2 per cent USD revenue CAGR over FY20-FY22E led by Mode 2 services (digital analytics, IoT, security and public cloud). We will continue to watch progress on on-boarding P&P clients and incremental large deal activity, given potentially lower FY20 bookings as compared to FY19. Nonetheless, recent deals such as Fonterra are enthusing.

We believe the coronavirus issue has proved to be a ‘black swan’ for the global economy, and its impact on Indian IT including HCLT cannot be ruled out, especially if it persists in the near term. We will continue to watch developments on this front. At the CMP, the stock trades at a PE of 13.0x/11.7x FY21E/FY22E EPS. We retain our ‘buy’ rating on HCLT with a target price of ₹700.

Published on March 12, 2020

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