Home / Markets / Stock Markets /  Emkay Global Research sees a 22% upside in HCL Technologies, gives 'Buy' rating

IT firm HCL Technologies on Friday delivered a strong broad-based revenue growth in Q2 and beat its mid-quarter revised guidance and consensus estimates. The IT major posted 18.5% rise in September quarter net profit at 3,142 crore. HCL Tech had registered a net profit of 2,651 crore in the July-September 2019 quarter (as per US GAAP), HCL Technologies said in a regulatory filing. Its revenue grew 6.1% to 18,594 crore in the quarter under review, from 17,528 crore in the corresponding quarter last year. HCL Technologies signed 15 new transformational deals in Q2 across Life Sciences & Healthcare, Public Services (E&U), Manufacturing and BFSI. Emkay Global Financial Services gives a buy rating with the target price of 1,010 in the coming 12 months.

The stock is currently trading at 856 on NSE. "HCL Technologies reported a strong rebound in revenue growth with EBITM expansion. Strong deal wins and deal pipeline give confidence on the sustenance of revenue growth momentum," says a report by Emkay Global Financial Services.

The report adds that an uptick in revenues, tighter cost-control measures, better utilization and offshore shift should support margins in H2 despite the planned salary hike in a staggered manner.

HCL Tech has also doubled its quarterly dividend rate to 4 per share from 2 per share on strong FCF generation. " This should partly address investor concerns over payout ratios relative to its peers," says the report.

Deal booking grew 35% quarter-on-quarter, flat year-on-year in Q2. The deal pipeline remained robust and grew 20% QoQ to all-time high levels.

"What we liked is the strong broad-based revenue recovery with 110bps EBITM expansion and healthy cash generation," says Emkay Global Financial Services. The Research house did not like the slow recovery in Europe and public services (exposure to Energy, Travel impacting growth).

The Noida-based IT company also announced on Friday, to roll out salary hikes for its employees. Employees in the E0-E3 band will get hikes, effective October, while increases for E3 and above will be come into effect January 2021.

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