India
NRI
Pick Of the Week – State Bank of India
Every week, we recommend a well-researched fundamental equity investment as our ‘Pick of the Week’. Handpicked after a thorough analysis of the business, industry, and economy, this recommendation has a higher potential of earning good returns over a horizon of 6 - 9 months.
Investment Rationale
Robust business structure in global uncertainties: HCL Technologies may see short term impact of COVID19 outbreak but company can efficiently manage from remote systems to ensure timely delivery of the outsourced business.The management has indicated that 90% of the onsite employees and 72% of offshore employees are working efficiently from home.The COVID impact has been seen majorly on consulting business while outsourcing business and ER&D business still remains robust.HCL tech also has strong product business structure with high profit margins.We believe that large transformational deal wins and ramp up in large deals will help HCL Tech to generate more sustainable revenues as compared to its peers even in Q4FY20.
Digital transformation business is intact for HCL Tech even in global lockdown: IT service provider’s engagement with its partner network has expanded beyond certifications into setup of co-innovation centers, building industry solutions, ISV partnerships and joint sourcing of deals.These partnerships play a ignificant role in implementation, rollouts & upgrades, validation and support services. Recent deal trend continues to be healthy for HCL Tech and is reflective of traction in Retail & CPG, Manufacturing and BFSI verticals. HCL Tech has received various digital transformational deals worth more than $2.4 bn in recent quarter. We believe that COVID outbreak will create huge opportunity across geographies for HCL Tech to post strong organic growth over different verticals.
Healthy growth aided by Product and Platform business: HCL Tech had reported better than expected Q3 FY20 numbers on both margin and revenue front.Strong revenue growth in Mode3 business(72%YoY) helps HCL Tech to achieve higher growth momentum on longer term with more advance technologies.Better business matrix will help to generate higher operating business even if there is pricing pressure across verticals.We believe better business matrix and large long term contracts will make HCL Tech a promising investment as compared to its Indian peers.
We Recommend
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CMP
₹470
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Target Price
₹517
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Potential Upside
10%
* Note: Stock Investment horizon approx. 6-9 months. CMP as on 9th April, 2020.
Please refer the research report disclaimer before making an investment decision.