A notable uptick in the shares of HCL Technologies was observed, with a surge of 3.5% to reach the day’s high of Rs 1,266.50 on the National Stock Exchange (NSE) during early trading on Friday. This surge followed the release of financial results for Q2FY24 by the IT giant, which exceeded market expectations for both profit and revenue.
HCL Technologies reported a 10% growth in its consolidated net profit for the quarter ending September 2023, amounting to Rs 3,832 crore compared to Rs 3,489 crore in the same period the previous year. Simultaneously, revenue from operations during the same period also displayed an 8% increase to Rs 26,672 crore, as opposed to Rs 24,686 crore in the corresponding quarter of the previous year.
However, despite HCL Tech’s robust Q2 results that were in line with predictions, concerns were raised among analysts from prominent brokerages due to the company’s decision to lower its FY24 revenue outlook, aligning with its larger rival, Infosys. HCL Tech adjusted its constant currency growth guidance from 6-8% to 5-6%, a move that sparked apprehension However, the business decided to stick with its 18–19% EBIT margin target.
Here’s what brokerages had to say:
UBS, Kotak Institutional Equities, Motilal Oswal, Nuvama, and Choice Broking offered favorable outlooks on the stock, with UBS maintaining a ‘Neutral’ view on HCL Tech shares and raising the target price to Rs 1,350. They noted that while a guidance cut was expected, the company’s ability to surpass margin estimates was unexpected.
Goldman Sachs also maintained a ‘Neutral’ stance and increased the target price to Rs 1,180. The company reported EBIT figures that exceeded estimates and adhered to its FY24 margin guidance. They observed lower FY24-26 revenue forecasts by up to 1% and higher EBIT estimates by up to 1% due to better-than-expected cost control.
JP Morgan, on the other hand, continued to maintain an ‘Underweight’ stance on HCL Technologies with a target price of Rs 1,070. While the guidance cut was not a surprise, JP Morgan suggested that it may not be the last. The firm acknowledged impressive margin expansion, cash conversion, and HCL Software’s recovery to 16%. However, it adjusted FY24/25/26 revenue forecasts by 1-2% while increasing margins, leading to a 0-1% increase in EPS.
