In the past six trading days, HCL Tech’s stock has rallied nearly 9 per cent after the company extended its agreement with Xerox “to drive innovation with AI and digital engineering”.
The stock of the information technology (IT) company has bounced back 46 per cent from its June-month low of Rs 1,235, on the BSE.
At 11:58 AM, with the stock up 3 per cent, the market cap of HCL Tech stood at Rs 4.9 trillion, which was 2 per cent away from the Rs 5-trillion-mark, data from the exchanges showed.
Currently, a total of 11 listed companies, including two IT firms, Tata Consultancy Services (Rs 16.49 trillion) and Infosys (Rs 8.19 trillion), have a market cap over Rs 5 trillion.
HCL Technologies is a next-generation global technology firm that helps enterprises reimagine their businesses for the digital age. HCL offers an integrated portfolio of products and services through its three business units: IT and Business Services (ITBS), Engineering and R&D Services (ERS), and Products and Platforms (P&P).
According to the company’s annual report for FY24, the current economic landscape signals favorable market opportunities across industries for technology companies. Amidst cautious optimism, enterprises are focusing on strategic priorities, such as modernisation, cloud, engineering, FinOps, AI, GenAI, digital and sustainability, the company said in its FY24 annual report released on July 22.
Moreover, the IT services market is projected to grow at 6.1 per cent globally over the next one year by industry analysts. Despite the potential impact of macro events on certain sectors and near-term uncertainties, the technology industry is poised for long-term growth, the company stated.
Analysts at Nuvama Institutional Equities maintain a ‘Buy’ rating on HCLTech, with a target price of Rs 2,020 (earlier Rs 1,800). “HCL Tech’s sharp re-rating has been driven by higher growth than peers and rectification of its capital allocation policy— fundamentals that we believe shall sustain in FY25 too. We are upgrading target valuation to 27x Sep-26 PE (earlier 24x) on better growth visibility,” the brokerage firm said in a research note.
As a scale player, HCL Tech is expected to gradually increase its share of the total IT pie, largely through its rapidly growing infrastructure management practice and robust order book. HCL Tech has been aggressively pursuing large deals over the past few quarters.
However, the company has followed a more efficient capital allocation policy, promising to return 75 per cent of the earnings to shareholders. Nuvama expects HCL Tech to continue on this trajectory while maintaining caution on big-ticket acquisitions.
HCL Tech’s strong growth in the services business, lower exposure to the troubled BFSI (Banking, Financial Services and Insurance) segment, and a stable margin profile imply a high probability of a stable earnings growth profile. Inexpensive valuations and a high dividend yield provide a floor to the stock price, Nuvama noted.
Brokerage firm Sharekhan believes the company is well-placed to maintain growth leadership given its diversified offerings across IT services and ER&D, coupled with strong execution and supported by improvement in demand. The brokerage firm maintained a ‘Buy’ rating on the company, with a revised target price of Rs 2,000 (valued at 27x Sep2026E EPS).
After delivering industry leading growth in FY24, HCL Tech is expected to maintain the growth leadership owing to huge opportunities across Data and AI, SAP Cloud platform, Cloud migration, ER&D, and Business process services.
“We believe the company is well placed to maintain growth leadership given its diversified offerings across IT services and ER&D segment coupled with strong execution and supported by improvement in demand environment,” Sharekhan stated in its research note.
First Published: Sep 02 2024 | 1:04 PM IST
