HCL Technologies is my top pick in the IT space. The other day I shared my dislike for Infosys as a stock investment and today Im telling you what exactly I like in this space if not Infosys. HCL Technologies has been doing really good lately and is expected to continue the similar growth momentum going forward. Recently HCL has been beating the IT majors in terms of growth by a decent margin and thus I believe that a consistent growth from HCL would put some trust into investors and more and more investors would get into this stock. Currently HCL is trading at a huge discount to TCS or Infosys but that discount should come down marginally if HCL consistently delivers the growth we’re looking for. The management looks confident of maintaining that growth as well.

HCL Technologies posted revenues of 4,138 cr up 6.5% QoQ and 31.5% YoY. Net profit stood at 468 cr up 17.1% QoQ and 33% YoY. Q3 results had beaten Analysts’ estimates by a big margin and thus we saw brokerages upgrading the earnings estimates for future. The estimated EPS for FY11 is around 24 – 25 which relates to a P/E of 20. Brokerages estimate a 30-35% growth in FY12 which means an EPS of 33 – 34 and the relevant one year forward P/E about 15. One year forward P/E of 15 in an IT services company that is growing at such a fast pace is definitely looking interesting.

If we take a look at FY13 estimates, then brokerages believe that HCL Tech is supposed to grow another 23 – 25% growth that relates to an expected EPS of 40 – 42 and a P/E of about 12. Yet another interesting figure. You would be shocked if I say TCS on the other hand that is growing at a lesser rate is trading at a P/E of 23 one year forward and at a P/E of 20 two year forward. HCL Tech is trading at a discount of almost 40% to TCS as per FY13 estimates. I’ll be looking at my targets from one year perspective only. I’m valuing HCL at a P/E of 20 from FY12 earnings.

Buy HCL Technologies (cmp: 515) with a target price of 675 from 12-15 months perspective.

Related posts:

1. Why I Don’t Prefer Infosys Stock