HCL Technologies (HCLT) believes that reach of Indian vendors in the global infra services space is extremely low at 5% vs ~40% in the application services market.
Management believes that deal pipeline is strong and the new focus on this service line from peers is not a concern. HCLT believes its winning edge in the segment is due to the ability of its technical teams and an early lead in the market. Strength in infra services is increasing the annuity-led revenue stream for the company.
Management believes that application services as an end market is not growing as fast as the infra services space and one needs to view growth in this segment in that context.
In addition, the lines between infra services and application services are also blurring. We remain comfortable with the 18.5–19% margin guidance at an exchange rate of 55 to the dollar.
Management intends to use the currency gains in three ways: (a) invest in business by looking to enter new geos/additional sales people; (b) pass on the currency benefits to strategic customers; and (c) take it to the P&L to drive margin expansion.
Fifty per cent of HCLT employees in the US are not under H1/L1 visa and, hence, the company is better placed than Indian peers on the US Immigration Bill. We retain our outperform rating with a 12-month target price of R1,300 based on a PER methodology.