HCLTech May Meet Annual Revenue Guidance, Says Morgan Stanley; Shares Gain
The software service provider has expanded its contract with Germany's largest cooperative bank, Deutsche Apotheker- und Ärztebank eG, or apoBank.
Shares of HCL Technologies Ltd. rose to the highest level in over one month on Wednesday after Morgan Stanley said the expansion of its deal with its existing partner will aid the company in achieving its revenue guidance for fiscal 2025.
Morgan Stanley has maintained its 'buy' rating and kept the target price unchanged at Rs 1,650 apiece, implying an upside of 15.5% from Tuesday's closing price.
The software service provider has expanded its contract with Germany's largest cooperative bank, Deutsche Apotheker- und Ärztebank eG, or apoBank. The contract value is Rs 27.8 crore over 7.5 years, which infers an annual contract value of Rs 3.7 crore, according to Morgan Stanley.
HCLTech will be able to significantly expand the relationship in infrastructure cloud services and services around Avaloq implementation with the new contract, the brokerage said in a note on Tuesday. The company has been collaborating with apoBank since 2021.
Morgan Stanley said that the deal win is showing continued momentum in the financial services vertical in the first quarter of FY25. In the absence of a rise in discretionary spending, this will support HCLTech in achieving full-year revenue guidance.
Sharp depreciation of the Indian currency, further deal wins, and better-than-expected margins will make a case for upside risk, according to the brokerage.
Regarding downside risks, Morgan Stanley has identified the escalation of tensions in geo-political situations, the impact of rising inflation on the global macroeconomy, and the lackluster commentary surrounding deal wins.
In addition to that, HCLTech has also expanded its contract with Tokyo-based Olympus Corp. in the engineering, research, and development space, the company said in an exchange filing on Tuesday.
Key Takeaways From Morgan Stanley's Note
Maintains 'overweight', with a target price of Rs 1,650 apiece, implying a potential upside of 15.5%.
HCLTech has expanded its relationship with Deutsche Apotheker, Germany's largest cooperative primary bank.
The total estimated total contract value for this deal would be $278 million over 7.5 years. This implies an annual contract value of $37 million.
HCLTech has been working with this client since 2021, providing application services.
This should result in an expansion in the relationship between infrastructure and cloud services and services around Avaloq implementation.
The announcement signifies continuing large-deal-win momentum in the financial services vertical in Q1 FY25.
Significant expansion of an existing client relationship beyond just application to cloud and infrastructure services.
There are no signs of a surge in discretionary spending.
Announcements of large deals provide incremental comfort in the ability of a company to achieve full-year revenue guidance.
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Shares of HCL Technologies rose as much as 3.02% to Rs 1,472.00, the highest level since April 26. It was trading 1.26% higher at Rs 1,446.80 as of 11:11 a.m., compared to 0.63% advance in the NSE Nifty 50 index.
The stock gained over 26.95% in 12 months, but declined 1.27% on year to date basis. Total traded volume so far in the day stood at 2.5 times its 30-day average. The relative strength index was at 64.98.
Out of 43 analysts tracking the company, 21 maintain a 'buy' rating, 15 recommend a 'hold,' and seven suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies an upside of 4.8%.
