HCL Tech shares slide over 2% post Q1; what should investors do?

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It has been a subdued Q1 for IT major HCL Technologies as the company on Monday reported softer than expected earnings. There was a 9.4% rise in consolidated net profit at Rs 3,213 crore for the quarter ended June. The IT services firm had reported net profit of Rs 2,935 crore in the year-ago period. While the company’s consolidated net profit met Street estimates, the topline fell little short. Revenue for the quarter came in at Rs 20,068 crore, up 12.5% y-o-y. Revenue in constant currency (CC) terms grew 0.7% QoQ and 11.7$ YoY.

New deal wins stood healthy at $1664 million, up 37% y-o-y. Deal wins growth enabled by 8 Large Services deal wins and 4 significant product wins.

Despite the slow start, HCL Technologies said its revenues will grow in double digits in the current financial years aided by a strong order book and retained EBIT margin guidance of 19% to 21% for FY22. “We remain very confident of a good q-o-q growth for the rest of this year,” said Chief Executive Officer C Vijaykumar.

HCL Technologies on Monday said its founder Shiv Nadar will take on the role of Chairman Emeritus and Strategic Advisor to the company’s board. The company also declared a dividend of Rs 6 per share.

What should investors do with the stock post Q1 ?

Brokerage houses suggest that the company has posted weak revenue growth in constant currency terms amounting to only 0.7% sequentially. The believe normal services to resume from September 2021 quarter. Growth in the near term will be aided by demand for digital foundation and cloud IMS where HCL Tech is well-positioned and modern apps where positioning has improved.

They however believe that despite the lower growth profile HCL stock still is attractive as they see the strong deal pipeline, aggressive net employee addition, healthy deal bookings and strong demand creating a solid platform for HCL Tech to deliver revenue growth in FY2022E.

Kotak Securities : Target: 1,125

We maintain revenue and EPS estimates and raise fair value to Rs 1,125 on rollover. Maintain ADD.

Macquarie: Target 1,250

Have an outperform rating on the stock with a target price of Rs 1250.

Sharekhan: Target: 1200

We maintain a Buy on HCL Technologies with a price target of Rs 1,200, given consistent wins in integrated deals, strong deal pipeline and reasonable valuations.

Morgan Stanley: Target: 1065

Maintain an equal-weight rating on HCL Tech with a price target of Rs 1065. Results were not a positive surprise, margins look weak on a year on year basis.

UBS: Target: Rs 855

Concerns of the company not revising the revenue guidance upward even as the peers and industry look upbeat.