Shares of HCL Technologies increased by more than 3 percent in early trading on April 21, 2023, after the company reported improved quarterly results.
HCL Technologies reported a fourth-quarter net profit of Rs 3,981 crore on April 20, up 10.61 percent from Rs 3,599 crore a year ago. The company’s revenue from operations for the quarter increased by 17.74 percent, from Rs 22,597 crore to Rs 26,606 crore, according to an exchange filing.
The profit figure exceeded expectations, while revenue lagged behind projections. The constant currency revenue was down 1.2% sequentially and up 10.5% annually. The dollar-based revenue reached $3.235 billion, up 8.1% year-over-year. The company’s EBIT was Rs 4836 crore, which represented 18 percent of revenue.
Here is what brokerages have to say about the company’s stock and earnings for the March quarter:
Nomura has assigned the stock a ‘neutral’ rating and reduced its price target to Rs 1,100 per share. The Q4 FY23 results were in accordance with expectations, while the outlook for FY24 reflects a challenging macro environment.
Nomura has reduced its EPS forecast for FY24–25 by 4%, citing lower revenue and margin projections as well as higher tax rates.
The brokerage firm has maintained its ‘outperform’ rating and target price of Rs 1,580. According to the report’s projections, the company is a growth leader among its competitors.
The rupee revenue was 1% below projections, but the management reaffirmed its medium-term EBIT margin objective of 19–20%. The company’s service revenue guidance of between 6.5% and 8.5% for FY24 suggests greater revenue growth than Infosys.
JPMorgan has maintained its ‘underweight’ rating and reduced its target price for the stock from Rs 920 to Rs 880. Due to cutbacks in discretionary expenditure, the fourth-quarter services business was below expectations. The project scale-downs and postponements also resulted in a failure to meet its FY23 CC guidance.
The report notes that the telecom, manufacturing, and high-tech sectors were under pressure, but a BFSI deal increase in a frontier market led to out-of-character growth.
The FY24 CC guidance of 6–8 percent and 6.5–8.5 percent for services is lacklustre, 200 basis points below the consensus, and essentially in accordance with JPMorgan’s projections. It has reduced its revenue forecast by 1% and its margin forecast by 20–30 basis points, resulting in a 3–5 percent decrease in EPS for FY24–25.
The international research firm Morgan Stanley has maintained its ‘Overweight’ rating and Rs 1,160 price target. The performance of the company’s primary services in Q4 fell short of expectations. Given the macroeconomic conditions and the feeble ACV growth in FY23, the revenue guidance for FY24 also seems aggressive.
The company reduces its EPS estimates by 2 to 3 percent.
Jefferies has maintained its ‘hold’ rating and Rs 1,125 price target on the stock. Although the decline in ER&D revenue was disappointing, the Q4 results did not contain any significant negative surprises. However, BFSI and North American expansion exceeded expectations.
The report emphasises that the FY24 growth forecast of 6–8 percent and the FY25 margin forecast of 18–19 percent were in accordance with expectations. On account of a higher tax rate, the report has reduced its estimates by 2 percent and anticipates a 10 percent EPS CAGR between FY23 and FY25.
The company offers a 5% yield at 17x P/E, which should limit further de-rating.
Although the near-term outlook for FY24 is uncertain due to a challenging macroeconomic environment, HCL Tech is well positioned to navigate the uncertainty due to its resilient model, diversified portfolio blend, strong client additions, robust deal pipeline, and adequate staffing.
HCL Tech is trading at a discount to its competitors, and reasonable valuations lead us to maintain our Buy rating with a revised price target of Rs 1175. At CMP, the stock trades at 18.7x its EPS for FY2024 and 16.9x its EPS for FY2025.
HCL Technologies was trading at Rs 1,051.45, an increase of Rs 13.90, or 1.34 percent, at 09:22 on the BSE.
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