The company on April 21 reported a consolidated net profit of ₹3,593 crore for Q4FY22, up 226 percent from a year ago. The net profit was ₹1,102 crore in the corresponding quarter of the previous financial year.
Revenue from operations rose 15 percent year-on-year to ₹22,597 crore for the same quarter. For FY23, the company has given margin guidance between 18-20 percent, while the revenue is expected to grow between 12 percent to 14 percent in constant currency.
Brokerages largely positive
Most brokerages are positive on the stock after the March quarter scorecard and have maintained their view on it underscoring the prospects of strong growth in services. However, weakness in the products segment of the company can weigh on the stock's performance.
Global brokerage firm Jefferies has maintained a 'buy' call on the stock with a target price of ₹1360 and said while the company's Q4 revenue beat estimates, the 110 bps quarter-on-quarter fall in margin was disappointing.
"HCL Tech's FY23 growth guidance of 12-14 percent was the key positive from Q4 which implies a strong 14-16 percent growth in its services businesses," said Jefferies, as per CNBC-TV18.
Another global brokerage firm Nomura has also maintained a 'buy' call on HCL Tech with a target price of ₹1,370. However, it said it sees strong growth in services to be offset by weakness in products and platforms.
As per CNBC-TV18, Nomura said the company's FY23 revenue guidance was reasonable but the margin guidance disappointed it.
Among the domestic brokerage firms, Motilal Oswal Financial Services has a 'buy' call on the stock with a target price of ₹1,310.
"We are encouraged by its strong performance in services (IT + ER&D) as this is the third straight quarter of strong revenue growth in this segment. With organic growth of over 5 percent quarter-on-quarter (QoQ) in IT Services, we believe HCL Tech will outgrow its largecap peers in Q1FY23," said Motilal Oswal.
"We continue to expect services to gain from the strong momentum in Cloud migration and R&D outsourcing. Strong hiring of nearly 11.1K (up 5 percent QoQ) indicates better demand visibility. Strong sequential growth within services, robust headcount addition, healthy deal wins, and a solid pipeline indicates an improved outlook," Motilal Oswal added.
Brokerage firm Axis Securities also has a 'buy' call on the stock with a target price of ₹1,345 as it said that HCL Tech's Q4FY22 performance stood in line with its expectations.
"HCL Tech has built a resilient business model by securing multiple and high-value long-term contracts with the world’s leading brands. Furthermore, a strong deal pipeline and superior service mix will help the company attain leading growth in FY22 as well as in FY23," said Axis Sec.
Kotak Securities also has maintained a 'buy' call on the stock but cut the target price to ₹1,380 from ₹1,420 earlier, citing that the company's revenue guidance is significantly better even while its margin guidance band revision is on expected lines.
"We cut FY23-24E products revenue estimates by 6-10 percent but raise overall revenue estimates by 0-2 percent. We forecast IT services growth of 10-12.8 percent. The increase is largely driven by strong growth in application services, an aspect that can sustain noting improved digital competencies. ETR for FY2023-24E could be in the 24-26 percent range as compared to our estimate of 22-23 percent. This drives cut in FY23-24E EPS by 1-3 percent," said Kotak.
Brokerage firm ICICI Securities is, however, slightly cautious on HCL Technologies as it has a 'hold' call on the stock with a target price of ₹1,150, slightly lower from the last target price of ₹1,177.
"HCL Tech trades at 21 times/18 times PE on EPS of ₹52/ ₹61 for FY23/24. HCL Tech’s pre-covid (FY18-20) average PE multiple stands at 13.4 times versus 20 times the average PE multiple for FY20-24 – a premium of 43 percent but EPS CAGR stands at 12 percent for FY22-24 versus 14 percent for FY18-20. We believe that HCL Tech’s underperformance in growth and margins with respect to its peers will continue, but risk-reward looks favourable to us," said ICICI Securities.
An average of 41 analysts polled by MintGenie have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint Genie.