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HCL Tech on its way to new highs, is it a good buy??

HCL Technologies won a $1.3 billion contract last week from Xerox. This deal will generate $1.3 billion for HCL Tech over a period of 7 years. It will further strengthen their 10 year long relationship with Xerox Corp.
In the last 5-6 quarters, the company has signed a number of large deals including Barclays, Broadcom, Nokia, P&G and now Xerox. In 9MFY19, Total contract value is up by 40% yoy ex renewals. These deals will accelerate growth in FY20.

Recently, the company also announced its plans to acquire Strong-Bridge Envision (SBE) for US $45 million, a digital consulting firm specializing in customer experience strategy, business process optimization, tech implementation and change management. This will strengthen HCL Tech’s digital consulting team.

The company believes that FY19 revenue to grow at 9.5-11.5 per cent in constant currency basis. Even if we take revenue growth at 9.7% (on the conservative side) the stock is trading at 13x FY2020 expected earnings; making it an appealing Buy at this valuation. Large deal wins and the new digital acquisition will drive growth in the future.

Technical View

HCL Tech broke out of the Mar-2015 highs in the month of Apr-18 and then again in Sep-18 but could not sustain above the zone and corrected deeply from the highs.The stock has again moved above the zone this month and looks promising. A close above the 1040 levels will confirm the break. Since the stock has been able to stage a breakout third time around its an indication of strength. A break above the fib confluence zone of 1128-1159 levels will take the stock all the way to 1248 levels. The stock has beautifully taken the trend line support on numerous occasions and that’s an indication of the trend being intact. The stock halted at the 38.2% of the fall from the Mar-15 highs from the larger swing around the 700 levels and that’s again an indication of strength. The RSI is taking a higher support around the 50 levels and that’s again indicating strength. At the highs of 2015 the RSI moved above the 80 levels and took support around the 44 levels on the fall. Hence the RSI is oscillating between the bull zone of 80-40 and that’s an indication of strength. Hence overall the stock is in a strong uptrend and is a good buy for investment purposes.

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