HCL Technologies share price jumps over 2% after Q2 results; should you buy, sell or hold? Here’s what analysts suggest
- HCL Technologies reported 8.55% QoQ growth in Q2FY24 net profit at ₹3,833 crore. Its consolidated revenue for the quarter rose 1.4% QoQ to ₹26,672 crore.
HCL Technologies share price rallied over 2% in the early trade on Friday after the company reported its earnings for the second quarter of FY24. The stock rose as much as 2.77% to ₹1,258.00 apiece on the BSE.
HCL Technologies, the third largest IT services company in India, reported 8.55% QoQ growth in Q2FY24 net profit at ₹3,833 crore. Its consolidated revenue for the quarter rose 1.4% QoQ to ₹26,672 crore. In constant currency (CC) terms, the revenue grew 1% QoQ.
The IT major cut its YoY organic revenue growth guidance in CC terms for FY24 to 4-5% from 6-8% previously.
Read here: HCL Tech Q2 Results: Net profit rises 9.8% to ₹3,832 crore, revenue up 8% YoY; dividend declared
The company also declared an interim dividend of ₹12 per equity share of ₹2 each for fiscal 2023-24.
Here’s what brokerages have to say on HCL Technologies Q2 results and stock:
Morgan Stanley
Morgan Stanley said the cut in revenue guidance by HCL Tech was a negative but largely anticipated. Investors’ key focus would be on the company's ability to deliver a better H2 as compared to muted outlook shared by peers.
Despite cutting estimates, the brokerage expects HCL Tech’s revenue and EBIT growth in FY24 to be better than larger peers.
It has an ‘Overweight’ call on the stock and cut the target price to ₹1,400 per share from ₹1,450 earlier.
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Kotak Institutional Equities
According to Kotak Institutional Equities, HCL Technologies reported muted albeit in-line revenue growth. Its EBIT margin was significantly ahead of its estimate.
“On expected lines, HCLT cut FY2024E organic revenue growth guidance to 4-5% from 6-8%. Even the revised guidance seems aggressive at the upper end of the band. Record TCV of US$4 bn will ramp up in 2HFY24 and provide revenue acceleration. The company’s deal pipeline remains strong, albeit heavy on cost takeout deals,” the brokerage said.
It expects HCL Tech to be a beneficiary of vendor consolidation initiatives and cost optimisation deals. The brokerage maintained a ‘Buy’ rating on the stock with unchanged target price of ₹1,410 per share.
Motilal Oswal
Brokerage firm Motilal Oswal believes HCL Technologies reported a weak Q2FY24, but the stock’s valuations offer a margin of safety.
Higher exposure to Cloud, which comprises a larger share of non-discretionary spending, offers better resilience to its portfolio in the current context amid higher demand for Cloud, Network, Security, and Digital Workplace services, Motilal Oswal said.
“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,” it added.
As per the brokerage, the stock is trading at ~18.6x FY25E EPS, which offers a margin of safety.
It reiterated ‘Buy’ rating on the stock with a target price of ₹1,410 per share.
JM Financial
“HCL Technologies’ Q2 organic cc QoQ revenue growth of 0.5% cc was on expected lines. So was the guidance cut. We now expect 4.6% organic and 5.7% reported USD revenue growth for FY24, within the guided band. This places HCL Tech’s growth at the top-end of the peer set. We therefore reduce its multiple discount to Infosys, valuing the stock at 18x forward EPS (from 16x earlier), at a 10% discount to Infosys’ target multiple,” JM Financial said.
The brokerage maintained ‘Hold’ on the stock and raised its target price to ₹1,250 per share from ₹1,070 earlier.
An uncertain environment and a still steep, though achievable ask, could keep the stock range-bound, it said.
Antique Stock Broking
HCL Technologies' results missed expectations on the revenue front, while the EBIT margin was better than expectations. Despite the scaling down, the new guidance implies strong organic growth of 2.7%-4.0% CQGR in 2H, which improves the visibility of achieving industry-leading growth in FY25, the brokerage said.
“We now forecast CC growth of 10.0% for HCL Tech in FY25 versus 7.8%/ 9.1% for Infosys/ TCS aided by a strong exit rate. Margin came in better than expected, the 154 bps improvement was due to productivity and utilization benefits, reduction of sub-contracting costs, discretionary cost optimization, and reduction in overheads,” it said.
The brokerage reiterated ‘Buy’ rating with a target of ₹1,475 per share.
Sharekhan
HCL Tech’s Q2FY24 numbers were healthy with broadly in-line CC revenue growth of 1% QoQ and a beat of 78 bps in EBIT margin at 18.5%. Revised revenue growth guidance implies 3.3-4.5% CQGR for Q3/Q4 of FY24. Services CC revenue growth will be in 2.6-3.8% range for Q3/ Q4 of FY24, it said.
The brokerage firm estimates healthy revenue/PAT CAGR of 8%/9% over FY23-26E. The stock trades at a reasonable valuation of 19.4x/17.5x its FY25E/26E EPS, it said.
Hence, it maintains ‘Buy’ on HCL Technologies and raised the target price to ₹1,400 per share.
At 9:20 am, HCL Technologies share price was trading 2.32% higher at ₹1,252.40 apiece on the BSE.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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