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HCL Tech shares tank 5% post Q3 results; Here's what brokerages say

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HCL Technologies share price: Shares of HCL Technologies as much as 5 percent on Monday after the technology company reported its quarterly earnings. At 9:17 am, shares of the company were down 4.6 percent at Rs 1,276 on BSE. It was the biggest drag on Nifty50. This is what brokerages say:

HCL Tech shares tank 5% post Q3 results; Here's what brokerages say
Shares of HCL Technologies fell as much as 5 percent on Monday after the technology company reported its quarterly earnings. At 9:17 am, shares of the company were down 4.6 percent at Rs 1,276 on BSE and were the biggest drag on Nifty50.
HCL Tech reported a net profit at Rs 3,442 crore, which was up 5.4 percent QoQ and revenue came in at Rs 22,331 crore, up 8.1 percent QoQ. This was in comparison to the CNBC-TV18 poll of a net profit of Rs 3,390 crore and revenue of Rs 21,674 crore.
In dollar terms, the IT services company's revenue ($2,977 million) grew 6.7 percent YoY and QoQ, while the constant currency (CC) revenue witnessed 7.6 percent QoQ and a 15% YoY increase.
The company said that stellar revenue growth at 7.6 percent QoQ in constant currency terms is the highest in the last 12 years. This comes at the back of an all-around strong double-digit growth across verticals and geographies on a YoY basis, HCL Technologies added in the press release.
The total contract value of new deal wins stood at $ 2,135 million registering 64 percent YoY growth.
Further, the company witnessed strong client addition across all categories and cash generation also remained robust.
On the guidance front, the IT company expects revenue to grow in double-digits in constant currency in Q4 FY22 and said its EBIT margin would be between 19 percent and 21 percent for the rest of the fiscal.
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Here's what brokerages say:
Credit Suisse
The brokerage has an ‘outperform’ call on the IT stock and has raised its target price to Rs 1,650 from Rs 1,450. The IT company reported solid revenue growth but margin performance was disappointing. The brokerage believes HCL Tech is well-positioned for a stronger FY23 and has a positive view on the stock because valuations are relatively attractive. Baking in Q3 results, Credit Suisse has increased EPS estimates for FY22-24 by 1-8 percent.
CLSA
The brokerage has an ‘outperform’ rating on the stock but has cut its target price to Rs 1,450 from Rs 1,470. Even as the revenue growth and deal momentum is strong, the margin outlook appears weak, CLSA noted. The brokerage has cut EPS estimates for FY23 and FY24 by 2 percent each. However, improved revenue growth visibility and attractive valuation and capital allocation have kept the brokerage engaged. CLSA said that the near-term prognosis for HCL Tech is weak as its margin could weigh on the stock performance.
Morgan Stanley
While raising the target price on the IT company’s stock to Rs 1,450 from Rs 1,360, the brokerage has maintained its ‘equal-weight’ call on HCL Tech’s shares. The brokerage believes that the lack of positive revisions to product revenue guidance has to some extent offset the solid revenue performance. Sustainable re-rating will wait until clarity emerges in Q4, on the margin front, Morgan Stanley pointed out.
Nomura
The brokerage has a ‘buy’ call on HCL Tech’s shares and raised its target price to Rs 1,580. Nomura noted that revenue surprised positively but margin performance was weaker than expected. Deal wins were healthy which sets the stage for strong growth, the brokerage said raising FY22-24 EPS estimate By 0.2-1.6 percent mainly led by higher revenue estimates.
JP Morgan
The brokerage said HCL Tech's growth has taken off but margin trade-off needs watching. JP Morgan has maintained its 'overweight' rating on shares of HCL Tech and hiked its target price to Rs 1,500 from Rs 1,400 while upgrading its revenue estimate by 1-3 percent. The brokerage cut margin by 20-60 bps and trimmed EPS estimates by 1-3 percent for FY22-24.
UBS
The brokerage said 'sell' HCL Tech shares. UBS believes strong beat and total contract value wins could be offset by lack of assurance on FY23.
Citi
With a ‘neutral’ rating, cut in target price to Rs 1,385 from Rs 1,400 and trimming of FY23-24 estimates, Citi said products or platforms and margin outlook needs to be closely watched. The brokerage noted that the IT company reported a largely in-line quarter on the EBIT front.
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