HCL Tech on sales front posted 4.9% sequential growth in USD revenues to
US$2,202mn v/s. US$2,099mn in 2QFY2019. In Constant currency terms (CC), the
company posted a 5.6% qoq growth. EBIT margin came in at 19.7% v/s 20.0% in
2QFY2019. Consequently, PAT came in at `2,611cr v/s. `2,540cr in 2QFY2019, a rise of
2.8% qoq. FY2019 revenue guidance is kept at the mid-range of 9.5-11.5% in CC,
while operating margin are expected to be in the range of 19.5-20.5%. We
recommend a Reduce; given that the company is too dependent on the
acquisition as a strategy to grow higher than Industry. This will keep a check on
its business ROIC & hence multiples.

Outlook and valuation: We expect HCL Tech to post a USD and INR revenue CAGR
of 11.6% and 15.2% respectively over FY2018–21E. The growth will be aided by the
acquisitions. However, given its profitability & valuations & given the backdrop that it is
concentrated on few services; we recommend a Reduce stance.

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