 "HCL Tech, HCL")
HCL Tech, HCL(Photo: Reuters)
Brokerages said that the company beat street estimates, reporting stellar financials with revenue growing 1.6 per cent in constant currency (CC) quarter on quarter (Q-o-Q) with broad-based growth across service lines driven by IT Services (1.8 per cent CC QoQ) followed by Product and Platforms (1.4 per cent CC QoQ) and ER&D (1.1 per cent CC QoQ).
All verticals, excluding BFSI and Telecom saw over 3 per cent Q-o-Q growth, said analysts at Nuvama Institutional Equities. BFSI managed to be flat Q-o-Q despite headwinds from the planned State Street divestment in the UK.
The management, however highlighted headwinds in the automotive and aerospace clients, which was partially offset by strong ramp up in the SAP business. New deal-wins were recorded at 2.22 billion up 13 per cent Q-o-Q but down 44 per cent Y-o-Y. The company headcount reduced by 780 employees and attrition was recorded at 12.9 per cent versus 12.8 per cent QoQ.
The management also highlighted wage hike impact of 65–80 basis points (bp) in Q3 and 50–60 bp in Q4.
On the upside, HCL Tech upgraded the lower end of its FY25 revenue growth guidance to 3.5 per cent–5 per cent from 3–5 per cent YoY earlier. It also maintained its FY25 margin guidance of 18–19 per cent. During the quarter under review, earnings before interest and tax (Ebit) margin improved by 150 bp to 18.6 per cent.
Brokerages hike EPS target
Going forward, analysts at HDFC Securities factor in the Ebit margin at 18.6 per cent for FY25 and improvement to 19.3 per cent and 19.5 per cent in FY26 and 27, respectively, translating into EPS CAGR of 12 per cent over FY 24-27.
“We are tweaking earning per share (EPS) by over 1 per cent. We now value HCL Tech at 28x its Sep-26 earnings and price to earnings (earlier 27x) on better-than-expected performance; maintain ‘Buy’ with a revised target price of Rs 2,125 (earlier Rs 2,020),” Vibhor Singhal, Nikhil Choudhary, and Yukti Khemani of Nuvama wrote in a result review note.
Analysts at Emkay also tweaked their FY25-27E EPS target by 0.9-1.3 per cent factoring in the Q2 beat. However, analysts at the brokerage cautioned on the management’s refrain from affirming the acceleration in demand, given false signals experienced in the past, macro uncertainties, and geopolitical concerns.
“After the strong rally and outperformance over the Nifty IT index, we expect the stock to consolidate. We increase target multiple to 26x (earlier 25x) on strong execution and retain ‘Add’ with target price of Rs1,950 at 26x Sept-26E EPS,” Dipeshkumar Mehta, senior research analyst at Emkay Global Financial Services said.
Those at HDFC Securities, also maintained an ‘Add’ rating on the stock with a target of Rs 1,900.
Globally brokerages gave mixed calls on HCL Tech, with Jeffries maintaining its ‘Hold’ call on HCL Tech with a target price of Rs 1,770. The brokerage highlighted that while outperformance in Q2 is noteworthy, the stock has limited opportunity to rerate, given the current valuation.
On the other hand, Japanese brokerage Nomura reiterated its ‘Buy’ call with a target of Rs 2,000, pumping hopes for the company’s GenAI business that will drive demand in legacy tech modernisation, data & cognitive infrastructure, it said.
Q2 financial print
In the second quarter of FY 2024-25, HCLTech reported a net profit of Rs 4,235 crore, reflecting a 10.5 per cent year-on-year growth, though remaining flat compared to the previous quarter.
Revenue for the quarter stood at Rs 28,862 crore, up 8.2 per cent year-on-year and 2.9 per cent sequentially. This performance surpassed Bloomberg’s consensus estimates, which had projected revenue at Rs 28,637 crore and net profit at Rs 4,061.6 crore.
First Published: Oct 15 2024 | 9:51 AM IST
