HCL Tech share hits 52-week low on disappointing margin; what should investors do? Here’s what brokerages recommend

Shares of HCL Technologies dropped more than two per cent in Wednesday’s intraday trade after the company missed profit estimates and witnessed pressure on margins in the quarter ended June 30, 2022.

The IT counter declined 2.4% to hit 52-week low of Rs 905.20 per share on the BSE in early trade on Wednesday, a day after the software and consulting company announced its result on Tuesday.

Meanwhile, domestic and global brokerage houses remained divided on HCL Tech post q1FY23 result.

Among the global brokerages, JP Morgan, which slashed target price of HCL Tech from Rs 850 to Rs 800 and gave an underweight call, remained most bearish on the counter, while Macquarie gave the most aggressive target on the IT stock. Macquarie maintained the outperform rating with a target price of Rs 1430.

Likewise, Morgan Stanley maintained an ‘Equal Weight’ with target price of Rs 1300.

Though Credit Suisse maintained an outperform rating, the brokerage firm slashed target price from Rs 1450 to Rs 1110.

HSBC maintained a ‘Buy’ with a reduced target price of Rs 1180. The previous target price pegged by the brokerage was Rs 1250.

Nomura, CITI maintained a neutral rating with Rs 1000 and Rs 910 target prices respectively. The former had earlier estimated the target at Rs 1100 and the latter pegged it at Rs 990.

“One of our core thesis in our sector downgrade (Brace up for slowdown ahead) was margin disappointment in FY23F given supply side challenges (besides revenue slowdown in FY24F due to macro uncertainties),” Nomura said in its note.

However, domestic brokerage Motilal Oswal feels current valautions offer a margin of safety.

Strong sequential growth within Services, robust headcount addition, healthy deal wins, and a solid pipeline indicates an improved outlook, it said.

“Given its deep capabilities in the IMS space and strategic partnerships, investments in the Cloud, and Digital capabilities, we expect HCLT to emerge stronger on the back of an expected increase in enterprise demand for these services,” said Motilal Oswal.

Though it tweaked down FY23 / FY24 estimate by 1% / 3%, it maintained a ‘Buy’ with a TP of Rs 1,110 per share.

As per ICICI Securities, HCL Technologies’ (HCLT) revenue growth in Q1FY23 exceeded its estimate slightly but disappointed on the margin front, thereby posing a downside risk to its guidance.

The brokerage maintained a hold rating. “INR weakness is upside risk to EPS, continued macro weakness downside risk to valuation. Slowdown in revenue momentum will continue to restrict upside for stock,” it added.

Earlier, HCL reported revenue at Rs 23,464 crore, nearly 17 per cent higher than the year-ago period. For the fiscal’s first quarter ended June 30, 2022, the net profit at Rs 3,283 crore was 2.4 per cent more than in the year-ago period. Seen sequentially, however, the net profit was 8.6 per cent lower compared to the March quarter.

“Our operating margin came in at 17 per cent. We have put in place the right measures that will improve our profitability going forward,” HCL Tech CEO and Managing Director C Vijayakumar had said.

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