HCLTech Q1 Results Review: Road To FY25 Revenue Guidance Intact, Say Brokerages
Nomura raised target price to Rs 1,720 apiece from Rs 1,560 earlier, implying a potential upside of 10.3% from the previous close.
HCL Technologies Ltd. is on track to achieve the guidance in revenue growth for the current financial year as discretionary demand may have bottomed out, but it is too early to call with certainty and the recovery is still slow, according to brokerages.
Jefferies India Pvt. sees limited scope for rerating with the stock trading at 24 times its one-year forward multiple implying a 26 times the price-to-earnings ratio for its services business, in line with Infosys Ltd. Hence, the brokerage maintains a 'hold' rating on HCLTech with revised target price of Rs 1,630 apiece, based on a 23 times P/E ratio, according to a note.
HCLTech's comment on up to a 50% efficiency advantage from GenAl on existing testing and business process outsourcing engagements is expected to spark a debate about Al's impact on the sector's growth prospects, according to the brokerages.
The IT services firm's bottom line increased nearly 7% sequentially, exceeding market estimates, driven by gains on divestment. HCLTech posted a net profit of Rs 4,259 crore for the April–June quarter, compared to Rs 3,995 crore in the preceding quarter, according to its statement to the exchanges. Analysts tracked by Bloomberg had estimated a net profit of Rs 3,846.1 crore.
Jefferies On HCLTech
Maintains a 'hold' rating on the stock and a target price of Rs 1,630 apiece, implying a potential upside of 4% from the previous close.
Revenue declined across key markets due to productivity benefits being passed.
Management highlighted that spending continues on cost-efficiency programmes.
Seen some weakness in the auto segment in Europe.
Expects HCLTech to deliver at midpoint of guided range in FY25.
Expects HCLTech to deliver 18% margins in FY25.
Sees limited scope for re-rating as the stock is trading at 26 times the price to earnings multiple for its services business.
Nomura Research On HCLTech
Nomura maintains a 'buy' rating on the stock and raised target price to Rs 1,720 apiece from Rs 1,560 earlier, implying a potential upside of 10.3% from the previous close.
Reiteration of FY25 guidance does not factor in improvement in discretionary demand.
Seeing signs that discretionary demand may have bottomed out, but it is too early to call with certainty.
Downside risks include unexpected ramp-downs hurting revenue.
Expects growth in Q2 across verticals and geographies to be better than Q1, except financial services
Citi On HCLTech
Maintains a 'neutral' rating on the stock and a target price of Rs 1,545 apiece, implying a potential downside of 1% from the previous close.
Unchanged guidance for FY25 is positive.
Total contract value was weaker than expected.
The two largest verticals—financials and manufacturing—reported revenue declines.
Business is gradually bottoming out but recovery is still slow.
Management highlighted competitive intensity driving irrational behaviour in deal renegotiations.
