HCL Tech posts better-than-expected results in Q3: Should you buy now?

Updated : January 18, 2021 01:47 PM IST

CLSA and Credit Suisse both were positive on the stock and raised their target prices.

Domestic brokerages ICICI Direct, Edelweiss, Sharekhan also maintained 'buy' calls on the stock.

Brokerages are bullish on India's third-largest software services provider, HCL Technologies, after the firm reported better-than-expected December quarter results.

CLSA and Credit Suisse both were positive on the stock and raised their target prices. Domestic brokerages ICICI Direct, Edelweiss, Sharekhan also maintained 'buy' calls on the stock.

The company posted a 31 percent jump in consolidated profit in Q3 at Rs 3,982 crore versus Rs 3,037 crore in the year-ago quarter. On a sequential basis, HCL's profit grew 26.7 percent.

Consolidated revenue for the quarter rose over 6 percent YoY to Rs 19,302 crore in the quarter driven by broad-based growth across all segments and geographies. Dollar revenue during the December quarter stood at $2,617 million, up from $2,507 million in the second quarter of FY21.

"We posted a strong financial performance in Q3 FY''21 with a constant currency revenue growth of 3.5 percent sequentially and 1.1 percent year-on-year and an EBIT of 22.9 percent. This solid performance was driven by robust momentum in our Mode 2 and Mode 3 businesses led by Digital, Cloud and Products & Platform segments," HCL Technologies President and CEO C Vijayakumar said.

Here is what brokerages have to say about the stock and the company after December quarter earnings:

CLSA

The software business gains traction with a strong deal pipeline, said the brokerage, adding that it has reported healthy revenue and margin beats in Q3. The company expects the order book to scale further after a 13 percent YoY jump in Q3.

It maintained a 'buy' rating and raised the target to Rs 1,180 from Rs 1,120. It also increased FY22/23 EPS estimates by 3 percent and noted that the firm is its top pick in the space.

Credit Suisse

Credit Suisse, on the other hand, has an 'outperform' rating on the stock and raised its target to Rs 1,325 per share.

The outlook on-demand environment remains positive with scope for further re-rating, it said and raised FY21-23 earnings estimates raised by 5-9 percent. It also increased P/E multiple to 22.5x from 18.5x. The slower-than-expected growth & a sharp rupee appreciation are the key risks, added CS.

ICICI Direct

The brokerage believes the IT major is in a sweet spot to capture demand traction in the cloud and cloud-related services considering its strength in IMS business and partnership with hyperscalers. In addition, better capital allocation and a healthy margin trajectory make it positive on the stock from a long-term perspective. It has a 'buy' call on the stock with a target price raised to Rs 1150 from Rs 1105 earlier.

Edelweiss

Strong growth in key areas such as digital, cloud and Product & Platforms further reaffirms its faith in the firm. It added that HCL Tech continues to be one of its top picks in the space. It maintains a 'buy' call on the stock with a revised target of Rs 1,616 from Rs 1,481 earlier based on its bright growth prospects and rollover to Q1FY23E.

HDFC Securities

The brokerage maintains 'buy' on HCL Tech based on solid Q3 and a strong outlook across multiple growth vectors. Large deal momentum and pipeline at nearly an all-time high also supports the growth outlook, it added. It has a target price of Rs 1,110 per share for the stock.

Sharekhan

The brokerage has a 'buy' call on the stock and raised its target to Rs 1,250 per share.

It also raised earnings estimates for FY21, FY22, and FY23 to factor in strong all-around Q3 results, strong deal wins, robust deal pipeline and improving spends on digital transformation. It believes HCL Tech’s capabilities in infrastructure and application are expected to support its growth in a strong cloud adoption environment.

"We believe HCL Tech would return to the industry-level growth trajectory in the next few years on the back of capabilities in the digital foundation, consistent deal wins and traction for its products portfolio," it noted.

Prabhudas Lilladher

As per the brokerage, HCL’s unique capabilities should see accelerated growth from the increasing demand for hybrid cloud adoption and large digital transformation deals. It has also increased its estimates for FY22/23 led by a strong revenue growth trajectory & consistent margin performance.

HCL Tech posts better-than-expected results in Q3: Should you buy now?

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