Major international brokerages have cut their EPS estimates for the IT major thanks to the pressure on the margin front. However, their estimates suggest an up to 45 per cent upside potential in the counter.
On Wednesday, shares of HCL Technologies dropped more than 2.4 per cent to Rs 905.20, before making a marginal recovery to Rs 912.20 at 9.40 am. The scrip had settled at Rs 928.05 on Tuesday.
Morgan Stanley, which has a target price of Rs 1,300, is equal weight on the IT bluechip as it believes that earnings risk is likely to keep a check on the re-rating prospects of the company.
“Consensus FY23 and FY24 margins are coming down, leading to cuts in the EPS estimate,” said the global brokerage firm.
HCL Technologies reported a 2.4 per cent year-on-year(YoY) rise in consolidated net profit at Rs 3,283 crore in the June quarter compared with Rs 3,205 crore in the same quarter last year.
Revenue for the quarter rose 16.92 per cent YoY to Rs 23,464 crore compared with Rs 20,068 crore in the same quarter last year. The company retained its constant currency FY23 revenue guidance in the 12-14 per cent range, in line with the expectations.
Credit Suisse has maintained its outperform rating on HCL Technologies but slashed its EPS estimates for FY 23-25 by 8-14 per cent. It is pricing growth and margin headwinds for the stock. This brokerage has a target price of Rs 1,110 on the counter.
HCL Technologies stock has tanked about 30 per cent in 2022 so far amid a selloff in IT counters.
Another foreign firm CLSA maintained outperform rating, with a target price of Rs 1,000 as it sees revenue growth ahead of estimates but believes margins are likely to disappoint.
It has also slashed its EPS estimates for FY23 and FY24 by 2 per cent and 4 per cent, respectively. Service revenue should remain strong in FY23, it said, adding that inexpensive valuations and dividend yield add to the attraction of the stock.
Among domestic brokerages,
Securities has a positive view on HCL Technologies and a target price of Rs 1,351. “We expect to report a healthy revenue, driven by consistent transformation deal wins, increasing focus on ER&D services and rising share of Mode 2 business,” it added.
On the other hand, Nirmal Bang has a ‘sell’ tag on the counter with a target price of Rs 866, hinting at a 7 per cent fall. It believes that lack of clarity in the medium-term may keep valuations subdued.
“HCL Tech’s management gave granular details, it did not give a road map of where this business is headed in the medium term,” it said. “No separate guidance on revenue and margins have been given for this business for FY23”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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