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ICICI Direct Report
HCL Technologies Ltd. has announced its intent to acquire DWS Ltd. for Australian 158.2 million dollar (approximately Rs 849.2 crore) valuing the company at 0.94 times Enterprise /Sales (based on FY20 Sales) and approximately 21 times FY20 earning per share.
The acquisition is subject to regulatory approvals and is expected completion timeline is by December 2020.
The acquisition will add approximately 1% to company’s top line in FY22E and will also help the company in expanding it’s presence in Australia and New Zealand.
The company will also be able to cross sell and up sell to existing clients of DWS.
Although DWS’s profit after tax margins (approximately 4.4%) are lower than HCL Tech’s profit after tax margins (15.7%), we believe the company’s global model will help DWS improve margins in coming quarters.
Strategic acquisition coupled with improving organic growth keeps us positive on the stock from a long term perspective
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