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Research
HCL Technologies - Company Update - ICICI Securities
Posted On : 2020-09-21 20:09:04( TIMEZONE : IST )
HCL Tech has announced its intent to acquire DWS Limited (DWS) for Australian $158.2 million (~Rs. 849.2 crore) valuing the company at 0.94x EV/Sales (based on FY20 Sales) and ~21x FY20 EPS. The acquisition is subject to regulatory approvals and is expected completion timeline is by December 2020. The acquisition will add ~1% to company's top line in FY22E and will also help the company in expanding it's presence in Australia and New Zealand. The company will also be able to cross sell and up sell to existing clients of DWS. Although DWS's PAT margins (~4.4%) are lower than HCL Tech's PAT margins (15.7%), we believe the company's global model will help DWS improve margins in coming quarters. Strategic acquisition coupled with improving organic growth keeps us positive on the stock from a long term perspective.
Valuation & Outlook
We believe the acquisition of DWS will boost the company's revenue and geographic presence. Further, the acquisition also has scope for margin expansion led by higher offshoring. In addition, the company's recent upward revision in Q2FY21E revenues & margins, coupled with improving organic growth keeps us positive on the stock from a long term perspective. Further, considering opportunities in cloud consumption, cyber Security, automation, app modernisation, we remain optimistic on HCL Tech's revenue trajectory. Further, we expect various cost rationalisation measures of the company to drive margin improvement in coming quarters. This has prompted us to revise our EPS estimates and target price upwards. However, recent run up in price factors in most of the positives and hence, maintain BUY rating on the stock with a revised target price of Rs. 885/per share (17x FY22E EPS).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_HCLTech_Companyupdate_Sept2020.pdf
Shares of HCL TECHNOLOGIES LTD. was last trading in BSE at Rs.802.3 as compared to the previous close of Rs. 811.1. The total number of shares traded during the day was 712919 in over 17520 trades.
The stock hit an intraday high of Rs. 849.7 and intraday low of 794.05. The net turnover during the day was Rs. 591486030.
