Shares of HCL Tech fell more than 2% to hit their fresh 52-week low of ₹905.20 in trade on BSE on July 13, a day after the company released its June quarter scorecard.
As Mint reported earlier, HCL Technologies posted a sequential drop of 8.6% in the consolidated net profit to ₹3,283 crore for the quarter ending June 30, 2022 (Q1FY23) period. However, the PAT recorded a growth of 2.4% on a year-on-year (YoY) basis.
Consolidated revenue stood at ₹23,464 crore rising by 16.9% YoY and 3.8% QoQ. In dollar terms, revenue was at $3,025 million up by 1.1% QoQ and 11.2% YoY. The constant currency revenue growth stood at 2.7% QoQ and 15.6% YoY in the Q1 of this fiscal. Meanwhile, in the quarter, services revenue (ITBS and ERS) climbed 2.3% QoQ and 19% YoY in constant currency.
EBITDA margin was at 21.2%, while EBIT margin came in at 17% in the quarter under review.
Brokerages highlight headwinds, cut EPS estimates
HCL Tech's Q1 numbers failed to cheer brokerages and analysts. Even as most brokerages have maintained their previous view on the stock, they highlight the company may find it difficult to maintain guidance due to elevated supply-side issues and a weak start to FY23.
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Domestic brokerage firm Motilal Oswal Financial Services has maintained a buy call on the stock with a target price of ₹1,110, but it has trimmed its FY23and FY24 estimate by 1% and 3% respectively. Nevertheless, it expects HCL Tech to emerge stronger on the back of an expected increase in enterprise demand for these services. The stock is trading nearly 16 times FY24E earnings per share (EPS), which offers a margin of safety, Motilal Oswal said.
Kotak Securities also has a buy call on the stock with a target price of ₹1,165. The brokerage firm expects moderation in growth in FY24.
"We cut FY23-25E EBIT margin assumption by 30-70 bps capturing higher-than-expected talent retention costs. We cut FY23-25E EPS by 2-4% to capture a lower margin profile," Kotak said.
The brokerage firm added that it is impressed with the company's consistent healthy growth in the services business backed by growth in the applications layer, a historical weak area. The portfolio of business is a lot more balanced as opposed to infracentric in the past. The stock trades at inexpensive 16 times FY2024E EPS with a good dividend yield of 5%, Kotak said.
JM Financial has maintained a buy rating on the stock with a target price of ₹1,070. It has cut FY22-25E EPS by 3-4% driven by further cross-currency headwinds and lower margins.
ICICI Securities has maintained a 'hold' call on the stock with a target price of ₹894. It has cut HCL Tech's EPS estimates by 2% for FY24E while the brokerage firm is already below 10% consensus estimates.
Among the global brokerages, Credit Suisse has maintained an 'outperform' call on HCL Tech with a target price of ₹1110. As per CNBC-TV18, Credit Suisse expects macro headwinds to delay demands while it said the stock is more than pricing growth and margin headwinds. The brokerage firm has cut FY23-25 EPS estimates by 8-14%.
Morgan Stanley has maintained an 'equal-weight' on the stock with a target price of ₹1,300. As per CNBC-TV18, Morgan Stanley sees consensus FY23/24 margin coming down which may result in a cut in EPS estimates.
Nomura has maintained a 'neutral' call on the stock with a target price of ₹1,000 and said the company may miss its margin guidance in FY23. It has lowered HCL Tech's FY23-24 EPS estimates by 7-9%, reported CNBC-TV18.
Citi, as reported by CNBC-TV18, has maintained a 'neutral' call on the stock with a target price of ₹910. It has lowered HCL Tech's FY23/24 EPS estimates by 3% each.
Goldman Sachs has also maintained a 'neutral' call on the stock with a target price of ₹976. As per CNBC-TV18, Goldman Sachs highlighted soft headcount growth implies weakening growth. It has cut EPS estimates by 4% for FY23.
Jefferies has maintained a 'hold' call on the stock with a target price of ₹980. Jefferies sees risks to its FY23 margin guidance of 18-20% and expects further cuts to consensus EPS, reported CNBC-TV18.
According to a MintGenie poll, an average of 41 analysts has a ‘buy’ call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.
