Recommendation: Hold On
Current price: Rs 100 (at the time of publshing this tip)
Target price: Rs 150
Key points:
- HCL Technologies has announced that it has signed an information technology outsourcing engagement worth over US$350 million with Reader’s Digest Association spread over seven years. This deal is a part of US$1 billion worth of deals the company had won in Q3FY2009. Though HCL Technologies won record deals of US$1 billion in Q3FY2009, it is likely to incur an upfront transaction cost of US$25 million for clients.
- Further, the rupee has depreciated significantly, close to 5.2%, in the last one month and is expected to remain weak in coming days. The depreciation in the rupee is likely to again expand its unrecognised forex losses. In Q3FY2009, its unrecognised forex losses expanded to US$207 million from US$156 million due to the depreciation in the rupee.
- At the current market price, the stock is trading at 5.5x FY2009 earnings estimate and 5.8x FY2010 earnings estimate. Historically, HCL Tech has traded on an average of 20-25% discount to Infosys.
- I remain positive about HCL Technologies and hence would recommend a strong Buy call with a price target of Rs 150 over next 8-9 months.
