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HCL Tech to grow 30-40 in the next 8-12 quarters

October 18, 2006

The management of HCL Technologies Limited is positive on the prospects of their company. You might have observed, HCL Tech lagged behind its peers in earnings during 2003 through 2005, mainly because of the vertical nice they were into. In the past 2 years they have expanded into every possible domain from Application Development to IT Infrastructure Management(Another big outsourcing opportunity, where HCL Tech is the leader).

HCL Technologies enjoyed poor PE discounting because of the fact their quarterly earnings were not consistent. The restructuring in the past two years has streamlined their earnings and you can expect HCL Tech to report QoQ growth rates just like Infosys or TCS. The stock is likely to be re-rated if it consistently grows over 8-10% QoQ and I expect an EPS of Rs33 for the FY ending June 2007. At current discounting of 20X, the one year price target is Rs660 for the stock. However, on re-rating, I would expect the stock to quote around Rs750, 25% upside from current levels.

Disclosure: I hold HCL Tech in my folio.

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