HCL Technologies Ltd. is poised to achieve the fastest organic growth as compared with industry peers, according to Macquarie Capital, which has maintained an 'outperform' rating on the stock.
Key drivers for growth include financial services, life sciences and healthcare, and communications verticals, it said in a research report on Thursday.
The company has maintained its revenue growth expectations for FY24 at 6–8% in constant currency terms, the report said. HCL Tech is anticipating double-digit growth over the next five years on account of structural growth opportunities.
The company is aiming to reach a pre-Covid earnings before interest and taxes margin of 19–20%. To achieve this, it plans to leverage the adoption of artificial intelligence at an enterprise level within the next 12–18 months, the report said.
The firm has a pipeline of large-cost takeout deals that could significantly improve growth prospects in the second half of the fiscal. HCL Tech intends to pursue strategic tuck-in acquisitions to enhance its capabilities and contribute to medium-term organic growth, according to Macquarie Capital.
Investor concerns regarding HCL Tech's exposure to infrastructure management services are expected to subside, leading to a potential re-rating of the company, Macquarie Research said. Investors are anticipated to view the company's $1.8-billion investment in the software business in 2019 favourably, it said.
The brokerage's positive outlook on HCL Tech is in contrast to the industry scenario, where lower-than-expected June quarter demand and fears of a potential U.S. recession have impacted the earnings of several Indian IT companies.
The research report highlights a more cautious view of the sector due to the increasing risk of demand recovery in the later half of the year and discretionary IT spending remaining under pressure.
The profit-after-tax margin of all firms has seen steep cuts, including Infosys Ltd., Tech Mahindra Ltd., Wipro Ltd., and Tata Consultancy Services Ltd., according to Jefferies Financial Group Inc.
Despite industry-wide growth estimates being cut down by 50–150 basis points, Macquarie Capital maintains HCL Tech's 'outperform' rating with a 12-month target price of Rs 1,520.
On Friday, HCL Tech was the only gainer in the Nifty IT pack. The stock rose by 0.40% to Rs 1,168 apiece, whereas the Nifty IT fell 0.89% to 28,554.25.
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