How HCL Tech shares are likely to perform tomorrow after Q2 results

Market


HCL Technologies beat analysts’ estimates during the quarter ending September 30, 2022. The IT major registered a 6% growth in the bottom-line front, while revenue climbed by 19.5% year-on-year. Margins were above expectations, while the company continued to post strong growth in order books with 11 large deals won in Q2. Further, HCL Tech raised its guidance outlook indicating its optimism about its growth going forward. Additionally, the company has announced a third interim dividend of 10 per equity share for its investors. Post Q2 results, HCL Tech shares are likely to react positively on exchanges on Thursday.

In Q2FY23, HCL Tech posted a consolidated net profit of 3,489 crore up by 6% yoy, while revenue surged by 19.5% yoy to 24,686 crore. In constant currency, HCL Tech’s revenue growth came in at 15.8% yoy and 3.8% qoq. In dollar terms, HCL Tech’s revenue stood at $3,082 million higher by 10.4% yoy and 1.9% qoq.

For the entire fiscal FY23, HCL Tech expects services revenues to be 16%–17% YoY in constant currency, while revenue guidance increased to 13.5%–14.5% YoY in constant currency. EBIT margin guidance has been revised to 18%–19% for the current fiscal.

HCL Tech is among dividend king stocks and has a robust track record of paying dividends to its investors. For the current fiscal, on Wednesday, HCL Tech announced a third interim dividend of 10 per equity share. For the third interim dividend, the company has fixed a record date of October 20 to determine eligible shareholders. While the company plans to pay the dividend by November 2. So far in FY23, HCL Tech has now announced a total dividend of 38 per share.

On BSE, HCL Tech shares jumped by 1.39% to close at 951.65 apiece. The company’s market cap is around 2,58,245.94 crore.

Should you invest in HCL Tech shares post-Q2?

Stock brokerage Emkay Global Financial Services expects HCL Tech shares to likely react positively on exchanges tomorrow. Among the key positives are – broad-based growth, upward revision in revenue growth guidance, healthy deal intake (new deal TCV at $2.38 billion, 16% QoQ), and strong margin recovery. The company’s Q2 results beat estimates overall.

In its first cut note, Emkay said, “HCL reported revenues of $3.08 billion, up 1.9%/10.4% QoQ/YoY (CC 3.8%/15.8% QoQ/YoY), above our estimates of $3.06 billion. (TCS Q2FY23 revenues were $6.88 billion, 4.1% CC QoQ; Wipro Q2FY23 IT Services revenues were $2.8 billion, 4.1% CC QoQ). EBITM grew by ~90bps QoQ to 17.9%, 60 bps above our expectations of 17.3% (TCS IT services EBITM grew ~90bps QoQ to 24%; Wipro IT Services EBITM grew ~10bps QoQ to 15.1%).”

Further, Emkay’s note added, “Adj. Profits at Rs34.9bn (6.3% QoQ, 6.9% YoY) was above our expectations of Rs33.9bn, due to all round beat” adding, “TCV of New Deal wins at $2,384 mn, up 16% sequentially. HCL Technologies won 11 large deals – 8 in Services and 3 in Products.”

Further, Mitul Shah, Head of research at Reliance Securities said, “HCLT reported a strong performance across the parameters in 2QFY23 with EBIT margin coming in at 17.9%, 65bps above our estimate of 17.3%.”

Shah added, “Revenue grew by 2% QoQ/10% YoY in USD to $3,082 million, 0.7% above our estimate of $3,060 (consensus $2,966). Sequential constant currency growth came in at 3.8% vs. our estimate of 2.8%. EBIT grew by 11% QoQ (up 12% YoY) to Rs44.3 billion while EBIT margin stood at 17.9% (up 92bps QoQ /down 116bps YoY), 65bps above our estimate of 17.3%. Its net income stood at Rs34.9 billion (up 6% QoQ/up 7% YoY), while adjusted net margin came in at 14.1% vs. our estimate of 13.8%.”

On the valuation, Shah said, “HCLT reported strong results for the quarter with margins above our expectations. Services business revenue (~89.8% of topline) grew 5.3% QoQ and 18.9% YoY in constant currency, which we consider is healthy. We expect HCLT to report a healthy revenue, driven by consistent transformation deal wins, increasing focus on ER&D services and rising share of Mode 2 business. At present, we have a HOLD recommendation on the stock with a 1-year target price of Rs1,000, while earning upgrade and TP revision is on card.”

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