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HCL Technologies raises FY20 revenue guidance; what should investors do with stock?

Credit Suisse maintained outperform call on the stock and raised price target to Rs 700 (from Rs 665) as it feels Q3 was an all-round beat with yet another guidance raise.

January 20, 2020 / 01:39 PM IST
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HCL Technologies share price rallied more than 3 percent to hit a record high of Rs 618.90 on January 20 after company reported slightly better than expected revenue and margin in Q3 with revision of lower end of full year guidance, but the stock wiped out those gains to trade lower followed weakness in equity market.

It was quoting at Rs 595.05, down Rs 3.75, or 0.63 percent on the BSE at 1210 hours IST. However, it rallied 25 percent in last one year.

The country's third largest technology company reported a 14.6 percent sequential growth in Q3 profit on revenue of Rs 18,135 crore that increased 3.5 percent QoQ.

Dollar revenue grew by 2.3 percent QoQ and constant currency revenue growth stood at 2.1 percent in Q3. Company raised its full year constant currency revenue growth forecast to 16.5-17 percent from 15-17 percent and margin to 19-19.5 percent from 18.5-19.5 percent earlier.

Most brokerages remained positive on the stock and also raised price target, citing inexpensive valuations.

While having a buy call on the stock and raising price target to Rs 685 (from Rs 660 per share), Citi said while EBIT was in-line, revenue was slightly lower than estimates.

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"Performance was reasonable given the sluggish performance for Tier-I names and valuations are reasonable at current levels," the brokerage said, adding it revised EPS estimates by 3-4 percent.


Credit Suisse maintained outperform call on the stock and raised price target to Rs 700 (from Rs 665) as it feels Q3 was an all-round beat with yet another guidance raise.

"It should be the fastest organically growing large cap IT company in FY20. Concerns over high IMS exposure were overdone and hence, we raised EPS estimate by 2-3 percent," said the brokerage, adding the outperform call was on the back of growth revival and undemanding valuations.

At operating level, company's earnings before interest and tax (EBIT) grew by 4.5 percent QoQ to Rs 3,670 crore and margin expanded 25bps QoQ to 20.2 percent in quarter ended December 2019.

While having add rating on the stock and revising target to Rs 650 (from Rs 615), Kotak Institutional Equities retained its revenue growth estimate and raised EPS estimate by 3-6 percent.

"Company traded at inexpensive valuation of 14x FY21 earnings. Valuations are attractive even after recognising product execution risks," said the global brokerage.

ICICI Direct has upgraded the stock to buy recommendation with a target of Rs 700 per share as HCL Tech reported a healthy quarter from the perspective of margin expansion and organic growth guidance.

The brokerage expects the company to continue to report healthy growth in organic revenues in coming quarters. Further, it expects Mode-2 to improve in subsequent quarters.

"Additionally, easing of seasonality pressure in the products & platforms business within IBM driven by renewals would ensure growth. Further, we expect margins to improve gradually in FY19-22E," it said.

Motilal Oswal reiterated a buy call on the stock with a target of Rs 720 and upgraded its EPS estimates over FY20-22 by 1-4 percent. "HCL Tech to be the key beneficiary of public cloud repatriation given its higher IMS exposure and stronger hybrid cloud capabilities."

"Despite positive seasonality, the products business reported a slight decline on an organic basis and order booking during the quarter witnessed a dip. However, outlook on both growth and margins remained stable," said the brokerage.

However, Morgan Stanley is the only brokerage which has an underweight call on the stock, but raised target price to Rs 580 (from Rs 545) as revenue growth was in-line with additional revenue coming in from IBM IP business.

Key highlight was margin improvement driven by better productivity and the management is hopeful about growth given a strong pipeline, said the brokerage which raised its FY20, FY21 & FY22 EPS estimates by 8 percent, 5 percent and 4 percent.

Disclaimer: The above report is compiled from information available on public platforms. advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jan 20, 2020 01:39 pm

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