HCL Technologies share price jumps over 2% after Q2 results: Analysts' verdict

Shares of HCL Technologies rose over 2% in early trade on Friday after the company reported its earnings for the second quarter of FY24. The stock rose as much as 2.77% to ₹1,258.00 on the BSE. HCL Technologies, the third largest IT services company in India reported a net profit of ₹ 3,833 crore in Q2FY24, registering a growth of 8.55% QoQ. Its consolidated revenue for the quarter rose 1.4% QoQ to ₹26,672 crore. In constant currency (CC) terms, revenue rose 1% QoQ. The IT major lowered its annual organic revenue growth guidance in CC terms for FY24 to 4-5% from 6-8% previously.
The company also declared an interim dividend of ₹12 per equity share of ₹2 each for the financial year 2023-24. Here's HCL Technologies Q2 results and what brokerages are saying on the stock:
Morgan Stanley
Morgan Stanley said the decline in revenue guidance by HCL Tech was negative but largely expected. Investors' main focus will be on the company's ability to deliver a better H2 compared to the muted outlook shared by peers.
Despite lowering estimates, the brokerage expects HCL Tech's revenue and EBIT growth to outperform larger peers in FY24.
He has an 'overweight' call on the stock and cut the target price to ₹1,400 per share from ₹1,450 previously. Kotak Institutional Equities
According to Kotak Institutional Equities, HCL Technology reported muted despite in-line revenue growth. Its EBIT margin was significantly ahead of its estimates.
“On expected lines, HCLT lowered FY2024E organic revenue growth guidance to 4-5% from 6-8%. Improved guidance also sounds aggressive at the top end of the band. A record TCV of US$4 billion will grow in 2HFY24 and provide revenue acceleration. The company's deal pipeline remains strong, although costs are heavy on takeout deals," the brokerage said.
It expects HCL to be a beneficiary of tech vendor consolidation initiatives and cost optimization deals. The brokerage maintains a 'buy' rating on the stock with an unchanged target price of ₹1,410 per share.
Motilal Oswal
Brokerage firm Motilal Oswal believes that HCL Technologies has reported a weak Q2FY24, but the stock's valuation offers a margin of safety.
High exposure to cloud, which has a large share of non-discretionary spending, provides better resilience to its portfolio in the current context amid high demand for cloud, network, security and digital workplace services, Motilal Oswal said.
"Given its capabilities in the IMS and digital space, along with strategic partnerships and investments in cloud, we expect HCL Tech to grow stronger in the medium term on the back of healthy demand for these services," it added.
As per the brokerage, the stock is trading at ~18.6x FY25E EPS, which gives a margin of safety.
It reiterated a 'buy' rating on the stock with a target price of ₹1,410 per share.
JM Financial
“HCL Technologies' Q2 organic cc QoQ revenue growth of 0.5% cc was on expected lines. So guidance was cut. We now expect 4.6% organic and 5.7% reported USD revenue growth for FY24, within the guided band. This puts HCL Tech's growth at the top-end of the peer set. We therefore reduce Infosys' multiple discount to a 10% discount to Infosys' target multiple, valuing the stock at 18x forward EPS (previously 16x),” JM Financial said.
The brokerage maintained 'hold' on the stock and raised its target price to ₹1,250 per share from ₹1,070 earlier.
An uncertain environment and steady, though achievable, ask could keep the stock range-bound, he said.
Antique Stock Broking
HCL Technologies' results missed expectations on the revenue front, while EBIT margin was better than expected. Despite scaling down, the new guidance suggests robust organic growth of 2.7%-4.0% CQGR in 2H, improving visibility of achieving industry-leading growth in FY25, the brokerage said.
“We now forecast CC growth of 10.0% for HCL Tech in FY25 against 7.8%/9.1% for Infosys/ TCS driven by strong exit rates. Margins came in better than expected, the 154 bps improvement was due to productivity and utilization gains, reduction in sub-contracting costs, discretionary cost optimization and reduction in overheads,” it said.
The brokerage reiterates 'Buy' rating with a target of ₹1,475 per share.
Sher Khan
HCL Tech's Q2FY24 numbers were healthy with broadly in-line CC revenue growth of 1% QoQ and a beat of 78 bps in EBIT margin at 18.5%. Revised revenue growth guidance suggests a CQGR of 3.3-4.5% for Q3/Q4 of FY24. Services CC revenue growth for Q3/Q4 of FY24 will be in the 2.6-3.8% range, it said.
The brokerage firm estimates a healthy revenue/PAT CAGR of 8%/9% during FY23-26E. The stock trades at a fair valuation of 19.4x/17.5x its FY25E/26E EPS, it said.
Hence, it maintains 'Buy' on HCL Technologies and raises the target price to ₹1,400 per share.
At 9:20 am, shares of HCL Technologies were trading 2.32% higher at ₹1,252.40 on BSE.