Buy HCL Technologies; target of Rs 1030: JM Financial
JM Financial’s research report on HCL Technologies
Our in – depth analysis of the profitability curves of the IP partnerships that HCL has invested in over the last 6 quarters indicate s that while their revenue impact could be low ( c . 3 % over FY18 – 20), their superior profitability provides HCL with an in cremental margin lever (up to c . 50 bps EBIT margin leverage in FY19 – 20 ). We believe t h e market has ignored this given a limited understanding of the economics of these partnerships. We see value in the stock after the c. 6% correction since 2QFY18 results, ostensibly on a weak near – term outlook for the infrastructure services (IMS) business. We believe the slowdown in IMS is transient and at 12. 6 x FY19F EPS (9 % discount to its 3 – year me dian PER), we find the risk – reward attractive. We upgrade to BUY; our revised INR 1,030 (INR 980 earlier) PT implies a 20 % upside.
We upgrade to BUY; our revised INR 1,030 (INR 980 earlier) PT implies a 20 % upside.
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