HCL Tech vs Wipro vs Tech Mahindra: What should investors buy after Q3 results?
HCL Tech reported slightly better Q3FY24 earnings, while Wipro and Tech Mahindra had weak numbers. Experts suggest investors consider HCL Tech and Wipro over Tech Mahindra due to brighter growth outlooks.
The December quarter earnings of IT players have come mixed. While HCL Tech reported slightly better than expected Q3FY24 earnings, the numbers of Wipro and Tech Mahindra were weak.
The road ahead for them also looks hazy, with key Western markets experiencing a downturn in demand. Elevated interest rates add to the challenge, and the anticipated rate cuts, scheduled to commence only after May, dim the prospects of a rapid rebound in profitability for IT players.
We gathered expert opinions to identify the most favourable stock among these three for investors to consider post their Q3 earnings.
HCL Tech Q3 result
HCL Tech posted a consolidated net profit of ₹4,350 crore, growing 6.2 per cent year-on-year (YoY) and 13.5 per cent sequentially.
The revenues from operations for the IT major at ₹28,446 crore also grew 6.5 per cent YoY and 6.7 per cent sequentially. The constant currency revenue growth was at 6 per cent sequentially and up 4.3 per cent YoY.
Also Read: HCL Tech Q3 Results: Revenue guidance to rise in profit — 5 key highlights from IT major's earnings
Wipro Q3 result
Wipro's consolidated profit stood at ₹2,700.6 crore, up 1.2 per cent QoQ but down 11.9 per cent YoY. Its consolidated revenue from operations declined 4.4 per cent YoY and 1.4 per cent QoQ to ₹22,205.1 crore.
Also Read: Wipro Q3 result: Revenue from operations, profit decline YoY, announces dividend - 10 key highlights
Tech Mahindra Q3 result
Tech Mahindra reported a 61 per cent YoY decline in its net profits which plunged to ₹510.4 crore in the December 2023 quarter from ₹1,296.6 crore in the year-ago period. The revenue from operations of the company came down 4 per cent YoY from ₹13,734.6 crore in Q3FY23 to ₹13,101.3 crore during the period under review.
Also Read: Tech Mahindra Q3 Results: Net profit falls 61% YoY to ₹510.4 crore, revenue at ₹13,101 crore
What should investors buy?
Analysts appear to be favouring HCL Tech and Wipro over Tech Mahindra at the current juncture as they believe the growth outlook of these firms is bright in comparison to Tech Mahindra.
CA Vatsal Vinchhi, Equity Analyst - IT sector at Choice Equity Broking observed that the discretionary spends are soft and the overall demand environment remains cautious, however, HCL Tech and Wipro are witnessing green shoots in demand and seeing signs of stabilisation in the near-to-medium-term.
"The consultancy business is expected to bounce back first with double-digit growth when demand stabilises. Tech Mahindra is in the process of turnaround and is yet to announce its long-term strategies. We suggest accumulating HCL Tech and Wipro on dips keeping in mind robust growth in FY25 on a low base of FY24 and decent margin expansion as well," Vinchh said.
Dhruv Mudaraddi, a research analyst at StoxBox said after considering the recent financial results and future growth prospects of HCL Tech, Tech Mahindra, and Wipro, we lean favourably towards HCL Tech.
"Our preference for HCL Tech is grounded in its diverse revenue streams, strategic acquisitions, and efficient operational management, creating a positive outlook for sustained growth. The company's focus on innovation, hyper-automation, and strong financial performance positions it as a favourable choice among the three," Mudaraddi said.
Motilal Oswal Financial Services has a buy call on HCL Tech with a target price of ₹1,880.
Motilal Oswal said higher exposure to 'cloud', which comprises a larger share of non-discretionary spending, offers better resilience to HCL Tech's portfolio in the current context, with higher demand for cloud, network, security, and digital workplace services.
"Given its capabilities in the IMS and digital space, along with strategic partnerships and investments in cloud, we expect HCL Tech to emerge stronger on the back of healthy demand for these services in the medium term," Motilal Oswal said.
On the other hand, the brokerage firm has a 'neutral' view of the stock with a target price of ₹520.
Motilal Oswal said that given Wipro’s weak Q3FY24 revenue growth and muted 4Q guidance, it expects the IT firm's FY24 revenue growth rate to be one of the lowest among tier-1 IT services peers, with a margin below the management’s medium-term guided range of 17-17.5 per cent.
"We maintain our neutral rating as we await (1) further evidence of the execution of Wipro’s refreshed strategy, and (2) a successful turnaround from its struggles over the last decade before turning more constructive on the stock," said the brokerage firm.
Motilal Oswal Financial Services has a neutral view on Tech Mahindra as well with a target price of ₹1,360.
The brokerage firm said although Tech Mahindra's Q3 performance was weak, it was better than its estimates.
"Tech Mahindra's high exposure to the communications vertical offers a potential opportunity, as a broader 5G rollout will likely result in a new spending cycle in this space," Motilal Oswal said.
"Near-term growth remains weak and we await greater comfort on margins. We value the stock at 20 times FY26E EPS. We maintain our neutral rating on the stock," the brokerage firm said.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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