HCL Technologies share price now up 27% from recent lows, should investors buy or sell?

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Published: May 8, 2020 12:22:46 PM

HCL Technologies posted strong March quarter numbers with revenue increasing by 16% on-year basis and PAT jumping 22.7% in the same time period. The stock has surged 27% from recent lows and is now down just 10% year-to-date.

HCL Tech Q4 net, HCL Technologies, US GAAP,  COVID-19 pandemic,  Wipro, HCL Technologies, HCL global employees, latest news on HCLAlthough the IT firm has followed some peers and refrained from formal guidance for the fiscal, growth for HCL Technologies is likely to pick up in the second half of the fiscal after registering a weak first half.

Information Technology major HCL Technologies posted strong March quarter numbers with revenue increasing by 16% on-year basis and profit after tax (PAT) jumping 22.7% in the same time period. The stock has surged 27% from recent lows and is now down just 10% year-to-date. Brokerage firms are bullish on the stock, expecting it to continue marching upwards. Although the IT firm has followed some peers and refrained from formal guidance for the fiscal, growth for HCL Technologies is likely to pick up in the second half of the fiscal after registering a weak first half. What impressed analysts was the EBIT margin of HCL tech, which bettered the top end of the full-year guidance.

“Though HCL Technologies (HCLT) did not provide a revenue or margin guidance for FY21, strong execution in Q4FY20 and FY20 should reinforce that the company is likely to remain a net share gainer in the medium term,” said analysts at ICICI Securities in a research note. The brokerage firm has revised the target price on the scrip to Rs 590 per share from Rs 530. Organic revenue growth for HCL Technologies was better than peer at 10.7% in CC terms for the previous fiscal. The coronavirus outbreak has not dealt a blow to the transition and onboarding of employees on large deals, which is broadly happening as per schedule, according to ICICI Securities. 

IT and Business services led growth for HCL Technologies in the March quarter with on-quarter growth in CC terms of 1.6%. Engineering along with R&D services witnessed a sharp decline of 1.8% on-quarter with products and Platforms being broadly flattish. 

Despite not providing formal guidance, HCL Technologies, suggested that it expects to benefit from the increased market share over the next few years, supported by a strong commitment to client relationships, said brokerage and research firm Emkay Global. The brokerage has revised its target price to Rs 600 per share, impressed with the 0.8% on-quarter revenue growth which makes HCL Technologies best among Tier-1 ITfirms. “The company suggested that the order bookings in Q4 was the strongest on a quarterly basis during FY20 and the transitions of the deals won during the December 2019 quarter were also proceeding on track,” Emkay Global said.  

HCL Technologies sees the impact of coronavirus on the Products & Platforms segment to be minimal as the business is seeing strong velocity and volume of renewals and new license sales. Emkay Global said that the company has successfully addressed supply side issues but demand side problems are emerging. These were in the form of manpower/volume based billing relevant for the Infra business, clients deferring discretionary spending, sporadic price discount requests, and delays in decision making on new engagements/extensions with existing clients as well as payment deferment requests.

“While we retain our revenue growth estimates broadly, we raise our margin assumptions to 18.7%/19.5% (vs. 18.1%/18.9% earlier) for FY21/22, driving a 2.4%/1.8% raise in our earnings estimates to Rs39.1/45.7,” said Emkay Global. ICICI Securities revised its target price based on 14x March 2022E EPS  from the earlier 13x March 2022E EPS.

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