Information technology services company HCLTech fell a tad short of the Street's expectations in the March quarter bit it is weak growth guidance that came as a bigger disappointment for brokerages.
Shares of the company also dropped 5 percent on April 29 as investors reacted to the development. At 09.23 am, shares of HCLTech were trading at Rs 1,422.90 on the NSE, slightly recouping from its opening low of Rs 1,399.05
The IT services major recorded an 8.4 percent sequential decline in net profit to Rs 3,986 crore but revenue rose 0.2 percent to Rs 28,499 crore. Regardless, the topline as well as the bottomline were below Moneycontrol's estimate of Rs 4,054.71 crore and Rs 28,552.64 crore.
Operating margin in also declined 220 basis points sequentially and came at 17.6 percent. The March quarter is seasonally a weaker one for IT services companies.
One basis point is one-hundredth of a percentage point.
Going ahead, HCLTech slashed its constant currency revenue growth guidance for FY25 to between 3-5 percent, down from 5-5.5 percent guided for FY24. The margin is expected to remain in the range of 18-19 percent.
It is this lower-than-expected guidance that emerged as the biggest dampener. Not only is it below the Street's expectations but it also hints at near-term pain.
Morgan Stanley sees the weak guidance as a negative, especially in the context of a strong exit rate in FY24. The brokerage has an “overweight” call on HCLTech with a price target of Rs 1,730.
Brokerage JPMorgan was disappointed with the growth guidance and said it suggested weakness in the first half of FY25. HCLTech's ask rate for the last two quarters of FY25 is also higher than usual, JPMorgan said.
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It also said HCLTech's growth may slow down to 4 percent in the mid of FY25, lower than the 5 percent in FY24. This means that the company is unlikely to enjoy potential tailwinds of a recovery in the BFSI compared to its larger peers.
JPMorgan has a “neutral” call on the stock with a price target of Rs 1,470.
Similar to most brokerages, Kotak Institutional Equities also said the weak growth guidance suggests near-term headwinds. The brokerage slashed its FY25-26 EPS targets for HCLTech by 3-4 percent but also lowered the price target for the stock to Rs 1,600. Kotak, however, retained its “add” call on the stock.
Like Kotak, Nuvama Institutional Equities also cut its FY25E/26 EPS estimates by 3.5-4.4 percent. It also slashed the price target by around 4 percent to Rs 1,700 but retained “buy” rating.
Nuvama, however, still remains hopeful of HCLTech, saying the company's sharp re-rating has been driven by its higher growth than peers and rectification of its capital allocation policy. According to Nuvama, these fundamentals will sustain HCLTech in FY25 as well, though growth might not be highest within the IT pack.
MC Pro Quick Take | HCL Tech Q4 FY24: In-line revenue, but weaker margin and guidance
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