HCL Tech shares jump after DWS deal!

HCL Tech shares jump after DWS deal!

Last updated: 23 Sep, 2020 | 10:56 am

HCL Tech shares jump after DWS deal!

HCL Technologies shares have soared to a 52-week high of ₹847.90 on BSE, after the company said on 21st, Sep. Monday that it will acquire Australian IT solutions firm DWS.

HCL’s deal with DWS

  • HCL Technologies said the total equity value for the deal with DWS would be 158.2 million Australian dollars (about ₹850.33 crore) after considering a total number of shares at 131.83 million on a fully-diluted basis.
  • DWS is a provider of IT, Business, and Management Consulting services in Australia and New Zealand. The suite of solutions provided by DWS covers Digital Transformation, IT, Business and Management Consulting services, Data and Business Analytics, and Robotic Process Automation services.
  • “The deal with DWS will help HCL to expand its business in New Zealand and Austrailia. HCL currently employs 1600 people in major cities, including Canberra, Sydney, Melbourne, Brisbane, and Perth.”
  • The transaction is expected to close in December 2020, subject to closing conditions, including regulatory approvals

INDmoney Analysis

In the last financial year, the DWS group had reported overall revenues of AUD $167.90 million or about ~₹876 crore. This represents about 1.5% of HCL Tech’s revenues in FY20. Hence, we could expect this deal to add about 1.5-2% to its overall revenues. Thus, the deal augurs well for the company to expand its reach across geographies. 

While the pandemic has hurt businesses in most other industries, the IT sector has remained relatively resilient. HCL Tech has also reported robust results in Q1FY21 due to cost avoidance measures, favourable currency movements, and large deal wins. Going forward, the company has provided a robust growth outlook. HCL Tech’s revenue growth for the current quarter is expected to exceed 3.5% QoQ in constant currency, significantly higher than the 1.5-2.5% average they projected just 2 months ago. The EBIT% for the current quarter is expected to be between 20.5% and 21.0%. 

Consensus recommendation: Buy (based on views of 44 analysts from external institutions)