Good numbers of HCL Tech portend a Buy

HCL Technologies Limited (HCLT IN) reported good set of numbers for the quarter under review. Revenue from operations improved by 6.1% year-on-year to Rs.1,85,940 million on a reported basis. The company reported healthy revenue growth mainly led by better performance in Rest of the World.

On profitability front, the EBITDA from operations for the quarter improved by 20.2% year-on-year at Rs 42,590 million with a margin of 26.6%. The company achieved the reported PAT of Rs 31,430 million, a growth of 15.9% year-on-year with a net margin of 16.9% translating into EPS of Rs 11.58 per share for the quarter.

The company signed 15 transformational deals during the quarter for another straight quarter driven by life sciences and healthcare, public services (energy and utilities) and manufacturing. The management said bookings in Q2FY21 are similar to the same quarter last year, and is 35% higher than the last quarter.

From a pipeline perspective, the company is witnessing good deal creation activity across all verticals and geographies. The company is also witnessing good momentum in the digital foundation and the transformation opportunities. Q2FY21 pipeline grew by 20% QoQ and currently it stands at an all-time high. The company has revised revenue and margin guidance upwards.

Constant currency revenue guidance for Q3 and Q4 is expected to be in the range of 1.5% to 2.5% on an average basis. EBIT guidance stands revised upwards from 20% to 21%. The management has doubled dividend policy to Rs 4 per share per quarter.

With continuity of robust growth across Mode-2 and Mode-3 business (36.7% of revenue combined), we expect the growth momentum to continue in the near term supported by strong deal pipeline and ramp up of large deals.

Overall, the results are above our expectations. We maintain our Buy rating on the stock with a target price of Rs. 931 per share.