HCL Technologies gains 3% in a weak market post stellar Q4 results

Shares of HCL Technologies were up 3 per cent to Rs 1,135 on the BSE in Friday’s intra-day trade in an otherwise weak market. The rally comes after the IT major delivered revenue growth of 1.1 per cent quarter-on-quarter (QoQ) in constant currency terms in March quarter (Q4FY22), with a strong growth in services, which was up 5 per cent QoQ in CC terms. Meanwhile, earnings before interest and tax margin (EBITM) declined by 110 basis points to 17.9 per cent.

The stock rebounded 5 per cent from its intra-day low of Rs 1,083.55 on the BSE. At 09:43 am; it traded 2.8 per cent higher at Rs 1,130 as compared to 0.90 per cent decline in the S&P BSE Sensex. The stock has underperformed the market by falling 5 per cent in the past one month, as compared to 1 per cent decline in the S&P BSE Sensex. Earlier, it had hit a record high of Rs 1,377 on September 24, 2021.

HCL Tech has guided for revenue growth of 12-14 per cent CC in FY23 on the back of continued traction in the services business, healthy deal intake and deal pipeline (close to all time high). The management guided for 18-20 per cent EBITM for FY23, considering supply-side challenges, planned investments in Mode 2 capabilities and markets.

“The company has signed 6 large services and 4 product deals across technology & services, life sciences & healthcare and public services verticals for a total new deal total contract value of USD2.3 billion (6 per cent QoQ). Broad-based demand, robust deal intake and pipeline augur well for revenue acceleration”, analysts at Emkay Global Financial Services said.

However, the brokerage firm has cut FY23/FY24 EPS estimates by 2.7 per cent-3 per cent, factoring in Q4 performance and FY23 guidance. "Revenue growth momentum is encouraging; however, pressure on services margin led to earnings cut, "the brokerage firm said with a ‘buy’ rating on the stock and target price of Rs 1,400 per share.

On the contrary, analysts at Motilal Oswal Financial Services (MOFSL) believe that higher exposure to cloud, which comprises a larger share of non-discretionary spend, offers a better resilience to its portfolio in the current context. "The strong sequential growth within services, robust headcount addition, healthy deal wins, and a solid pipeline indicates an improved outlook," MOFSL added.

The brokerage firm also expects the IT services firm to emerge stronger on the back of increased enterprise demand. “Given its deep capabilities in the IMS space and strategic partnerships, investments in cloud, and digital capabilities, we expect HCL Tech to emerge stronger on the back of an expected increase in enterprise demand for these services,” the brokerage firm added.