HCL Tech slips 2% on profit booking after September quarter results

Shares of HCL Technologies (HCL Tech) fell 2% to Rs 1,225 on BSE earnings booking on Monday in an otherwise strong market after management reiterated its forecast for double-digit revenue growth in USD and 19-21% earnings before interest tax (EBIT) margin for FY22, although it reduced its product and platform (P&P) growth to 0-1% compared to numbers below single digits.

HCL Tech has announced a payout policy, which sets payouts at a minimum of 75% of cumulative net income over the next five years, i.e. FY22-26. In line with this policy, the company declared a dividend of Rs 10/- per share for July. – September Q2 quarter, up from Rs 7 per share in previous periods.

With today’s decline, the stock has now corrected 11% from its all-time high of Rs 1,377 reached on September 24, 2021. Over the past three months, HCL Tech has outperformed the market by surging 23 %, against 16%. rise in the S&P BSE Sensex. TCS and Infosys grew 14% over the same period.

Also Read: Here’s How HCL Tech Looks on the Chart After Q2 Results

Information technology (IT) services company HCL Tech on Thursday reported a profit of 3.9% in the second quarter (Q2) ended in September. The IT company’s forecast for double-digit growth in constant currency for the current fiscal year remains unchanged. HCL said its second-quarter revenue was Rs 20,655 crore, up 2.9% sequentially and 11.1% year-on-year. Net profit for the quarter was Rs 3,265 crore, up 1.6% QoQ and 3.9% YoY.

The company continues to expect 2021-22 (FY22) revenue to grow in double digits in constant currency, while earnings before interest and tax (EBIT) margin is expected to be between 19-21% for FY22 . The September quarter EBIT margin fell 0.4% to 19%. CLICK HERE FOR THE FULL REPORT.

Brokerage firm Motilal Oswal Securities said: “We are encouraged by the strong performance of the Services business, particularly the ER&D vertical, where the demand environment remains supportive. With management expressing confidence in the continued growth momentum of the business in 2H, this should drive growth in FY22.”

A higher exposure to IMS (around 37% of revenue), including a higher share of non-discretionary spending, provides better resilience to its portfolio in the current environment, with increased demand for cloud, network, safety and digital work.

Strong sequential growth in services, strong headcount growth, healthy contract wins and a solid pipeline point to an improving outlook. While the Products business will be weak in FY22E, we expect high single-digit growth for FY23E, driven by HCL Tech’s abilities to properly align and sell these products over the long term, a the brokerage firm said while maintaining the “buy” rating on the stock.

The P&P business has been under pressure in recent quarters, forcing the company to lower its growth forecast from sub-single digit growth to flat growth in FY22. We believe it there is no risk to their overall double-digit FY22 revenue guidance as well as EBIT margin guidance due to i) continued growth in IT services and ER&D ii) disciplined pricing, as the company has mentioned that it is pushing for a price increase and some additional offers come at higher prices. The stock is at a valuation discount to its larger peers and we believe the valuation will catch up soon, ICICI Securities said in a note.

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