Shares of IT major HCL Tech dropped by nearly six percent on January 17, in the first session following the release of its Q3 results. The company's share valued at Rs 1,258.75 at closing hours, which marked a plunge of 5.87 percent.
The stock hit a low of Rs 1,255.10 on the BSE, down 6 percent, intraday.
The Q3 numbers, released by HCL Tech on January 14, were largely in line with the expectations. Brokerages, however, raised concern towards the weak margin outlook. In terms of revenue, the company clocked an 8 percent sequential growth at Rs 22,331 crore, whereas, profit grew 5.4 percent QoQ to Rs 3,442 crore.
Here's what brokerages have to say:
Credit Suisse
The brokerage has an ‘outperform’ call on the IT stock and has raised its target price to Rs 1,650 from Rs 1,450. The IT company reported solid revenue growth but margin performance was disappointing, it said. The brokerage believes HCL Tech is well-positioned for a stronger FY23 and has a positive view on the stock because valuations are relatively attractive. Baking in Q3 results, Credit Suisse has increased EPS estimates for FY22-24 by 1-8 percent.
CLSA
The brokerage has an ‘outperform’ rating on the stock but has cut its target price to Rs 1,450 from Rs 1,470. Even as the revenue growth and deal momentum is strong, the margin outlook appears weak, CLSA noted. The brokerage has cut EPS estimates for FY23 and FY24 by 2 percent each. However, improved revenue growth visibility and attractive valuation and capital allocation have kept the brokerage engaged. CLSA said that the near-term prognosis for HCL Tech is weak as its margin could weigh on the stock performance.
Morgan Stanley
While raising the target price on the IT company’s stock to Rs 1,450 from Rs 1,360, the brokerage has maintained its ‘equal-weight’ call on HCL Tech’s shares. The brokerage believes that the lack of positive revisions to product revenue guidance has to some extent offset the solid revenue performance. Sustainable re-rating will wait until clarity emerges in Q4, on the margin front, Morgan Stanley pointed out.
Nomura
The brokerage has a ‘buy’ call on HCL Tech’s shares and raised its target price to Rs 1,580. Nomura noted that revenue surprised positively but margin performance was weaker than expected. Deal wins were healthy which sets the stage for strong growth, the brokerage said raising FY22-24 EPS estimate By 0.2-1.6 percent mainly led by higher revenue estimates.
JP Morgan
HCL Tech's growth has taken off but margin trade-off needs watching, according to the brokerage. JP Morgan has maintained its 'overweight' rating on shares of HCL Tech and hiked its target price to Rs 1,500 from Rs 1,400 while upgrading its revenue estimate by 1-3 percent. The brokerage cut margin by 20-60 bps and trimmed EPS estimates by 1-3 percent for FY22-24.
UBS
The brokerage has a 'sell' call on HCL Tech shares. UBS believes strong beat and total contract value wins could be offset by lack of assurance on FY23.
Citi
With a ‘neutral’ rating and cut in target price to Rs 1,385 from Rs 1,400 and trimming of FY23-24 estimates, Citi said products or platforms and margin outlook needs to be closely watched. The brokerage noted that the IT company reported a largely in-line quarter on the EBIT front.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
