HCL Technologies Surges Nearly 4% After Profit Rises In Q2. Should You Buy, Sell Or Hold?

Shares of the Noida-based IT company HCL Technologies rose as much as 3.79 per cent to hit an intraday high of Rs 987.75 a day after it reported September quarter earnings. HCL Technologies on Wednesday posted a 7 per cent rise in its consolidated net profit for September quarter at Rs 3,489 crore, topping street expectations, and raised the full year revenue guidance citing strong demand and deal pipeline despite macro concerns.

Amid widespread fears of global recession, HCL Tech said it clinched a "stellar quarter on all fronts", delivering strong performance in top line. The IT services firm exuded confidence about its near term and the medium term growth, as it upped revenue guidance to 13.5-14.5 per cent for the full year, against the 12-14 per cent growth band projected earlier.

"We remain very positive of near term growth and medium term growth. This confidence is coming from the booking that we had in the first half of this year and also the quality of pipeline that we have for the remainder of the year," HCL Tech CEO C Vijayakumar told reporters at a briefing.

The confidence is in line with the spending patterns and trends that the company sees in the market, Vijayakumar said, adding that typically during difficult economic environment, technology is seen as an "enabler" and mission critical and transformation deals that reduce costs are prioritised.

"Even the concerns around recession is actually enabling a lot more transformation deals from our clients. A lot of our customers who are preparing for some kind of slowdown are accelerating some of the things they want to do, so they are prepared for it. So we find that the pipeline is at the highest," the HCL Tech top honcho said.

The revenue for the three months ended September 30, 2022 came in at Rs 24,686 crore, 19.5 per cent higher than the same period previous year and 5.2 per cent higher sequentially.

In dollar terms, the revenue of $3,082 million was 1.9 per cent higher quarter- on-quarter and 10.4 per cent year-on-year. The services revenue rose 5.3 per cent sequentially and 18.9 per cent year-on-year in constant currency.

The company won 11 large deals -- eight in services and three in products.

Among other headline metrics, the total contract value bookings (new deal wins) at USD 2,384 million was up 16 per cent over June quarter and 6 per cent higher than the year-ago period.

"We won a mega deal this quarter. There will be minimal impact of this deal in FY23. We expect this deal to give us an average ACV of $125 million per year from FY24," HCL said in a statement but did not divulge details about the client.

The board declared an interim dividend of Rs 10 per equity share for the financial rear 2022-23.

HCL Tech, which competes in the IT services market with larger rivals Tata Consultancy Services and Infosys, expects its services revenue to grow 16–17 per cent in constant currency for the full fiscal (FY23).

HCL Technologies: Should You Buy, Sell Or Hold?

Brokerage firm Motilal Oswal has buy rating on the stock for target price of Rs Rs 1,240, indicating upside of 32 per cent from its previous close of Rs 939. 

"Higher exposure to Cloud, which comprises a larger share of non-discretionary spends, offers a better resilience to its portfolio in the current context, with higher demand for Cloud, Network, Security, and Digital workplace services," Motilal Oswal said.

“Strong sequential growth within Services, robust headcount addition, healthy deal wins, and a solid pipeline indicate an improved outlook. Given its capabilities in the IMS and digital space and strategic partnerships, investments in Cloud, we expect HCLT to emerge stronger on the back of an expected increase in enterprise demand for these services,” Motilal Oswal added.