Target Price: Rs1100
* HCLT delivered in-line revenue in Q1FY23; however, margins performance disappointed. Revenue grew 1.1% QoQ to USD3.02bn (2.7% CC). EBITM declined 100bps QoQ to 17.0% due to weakness in the profitability of the Services segment (down ~150bps).
* It signed 7 large services deals and 9 product deals across life sciences and healthcare, technology, manufacturing, and financial services with a total new deal TCV of USD2.05bn. Broad-based demand, robust deal intake (23.4%/17.9% YoY growth in deal TCV/ACV) and a near record-high pipeline augur well for revenue acceleration.
* HCLT has reiterated 12-14% CC revenue growth guidance for FY23, implying a 2.3%-3.5% CQGR over Q2-Q4. Despite weak margins in Q1, it has retained 18-20% EBITM guidance for FY23, factoring in anticipated improvement in margins in coming quarters.
* We cut FY23/FY24/FY25 EPS estimates by 3.2%/2.3/2.5%, factoring in the Q1 miss. Pressure on Services business margins remains a concern, and execution on margin recovery will be key for the stock's performance. We maintain Buy with a TP of Rs1,100 at 18x Jun'24E EPS, considering reasonable valuations and >4% dividend yield.