HCL Technologies Ltd.

The stable outlook on HCL Tech reflects our view that the company will maintain its good market position and strong operating cash flows over the next 12-24 months. We expect HCL Tech to remain prudent in its growth spending and shareholder distributions, and maintain adequate surplus cash over this period. We are likely to lower our rating on HCL Tech if: (1) the company's EBITDA margins deteriorate to below 20%, possibly due to higher investments in new products and platforms business than we anticipate; or (2) it faces significant pricing pressures, resulting in slower revenue growth than our forecast. Though unlikely, we may also lower our rating if HCL Tech's financial policies become more aggressive, resulting in its leverage (ratio

...HCL Technologies Ltd.'s strategic investments in digital products and platforms will support growth. HCL Tech's focus on strengthening its intellectual property rights and software products portfolio augurs well for growth. In fiscal 2019 (year ending March 31, 2019), the company announced the acquisition of seven software products from International Business Machines Corp. (IBM) for US$1.7 billion. Though a sizable investment, these products give HCL Tech access to a large customer base (more than 5,000) and enhance its earnings stability, given the high annuity-based subscription revenues from these products. Global service delivery capabilities and access to a large low-cost workforce in India underpin its strong profitability. We expect HCL Tech to continue to leverage its significant presence in India and established offshoring capabilities to sustain healthy margins. Given protectionist sentiment in key client markets, we expect localization of onsite resources to result in higher...

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