HCL Technologies, India’s third-largest IT company, saw its shares leap over 5% and hit a 52-week high on the NSE after reporting strong Q3 earnings that surpassed estimates. The company’s net profit increased to Rs 4,350 crore for the December 2023 quarter, up from Rs 4,096 crore a year prior. Revenue also grew by 6% to Rs 28,446 crore during this period, topping analysts’ predictions.
Amid this financial success, a mix of buy, sell, and hold recommendations have been issued by top brokerages. Jefferies advises holding with a target of Rs 1,500, considering the Q3 results beat their estimates due to unexpected margins in the software segments. However, they noted a downgrade in the growth guidance of the company to 5-5.5%. Kotak Equities suggests adding the stock, citing moderate upside after a strong run, while Nuvama recommends buying with a price target raised to Rs 1,780 on the back of ‘strong’ Q3 numbers. Conversely, Ambit recommends selling, citing that valuations are keeping them at bay, and raising their target to Rs 1,360 from Rs 1,330.
Analysts observed the company’s solid performance, particularly noting the profit growth of 13.5% QoQ to Rs 4,350 crore for the quarter ended December FY24, with revenue expanding by 6.7% sequentially to Rs 28,446 crore. Brokerages have reacted by adjusting their earnings estimates upward for FY24, FY25, and FY26 following the Q3 outperformance. Motilal Oswal raised its EPS estimates by 3-4%, retaining a strong buy rating with a target price of Rs 1,880. Nuvama incremented its EPS projections by up to 2.7% and continues to value HCL at 23x FY26 PE, proposing a target price of Rs 1,780.
The growth in revenue was attributed to seasonal gains in HCL’s Software segment, which rose 34% sequentially. While they reduced the revenue growth guidance slightly for FY24, the margin guidance remains steady at 18-19%. With an eye to the future, management positions GenAI at the forefront of its growth strategy, having already signed 31 deals in this segment, despite seeing no uptick in discretionary spending. Over the past year, HCL Tech stock has outperformed most of its peers with gains exceeding 42%.
Investment experts have expressed varied views on HCL Technologies, with some pointing to its superior Q3 performance as a basis for optimism, and others suggesting caution. This divergence underscores the complexities of analyzing the tech sector, which often yields mixed sentiments among market watchers. Users and potential investors are advised to conduct thorough research or consult certified experts before making any investment decisions, as the market holds different prospects for each stakeholder.