This IT stock is down 6% to be among top two Nifty 50 losers after Q4 results

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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HCLTech shares declined as much as 6% in early trade on April 29, after the result for the January to March 2024 quarter came in largely below expectations, especially margin and missed revenue guidance.

HCLTech share price dropped 5.9% to ₹1,386.45 on NSE at 10:42 am. The IT stock, which was among the top two Nifty 50 losers, has increased investors’ wealth by 30% in the past year compared to the benchmark Nifty 50 which has risen 24% during the period.

Monday’s fall in the stock price comes after India’s third largest IT company reported a flat year-on-year growth in net profit in the fourth quarter of the fiscal while it was down 8.4% on a sequential basis amid rising employee cost and tightening IT spends around the world.

The Noida-based company described the performance as “decent” in view of the global macroeconomic conditions. It gave a guidance of 3-5% growth in revenue in constant currency terms for FY25 and an EBIT margin of 18-19%.

Here’s what brokerages make of HCLTech’s Q4 results

HCLTech’s weaker guidance should disappoint bulls while the firm should expect growth to slow down to 4% at midpoint in FY25 versus 5% in FY24, brokerage firm JPMorgan said. JPMorgan believes the revenue guidance disappointed despite a strong exit from company-specific weakness in the quarter under review.

It said that the company continues to benefit from a non-discretionary heavy portfolio, however, it is unlikely to enjoy potential tailwinds of BFS recovery as much as larger peers.

Motilal Oswal noted that the company’s FY25 guidance is disappointing but remains ahead of the peer set. In a post-earnings chat with CNBC-TV18, the IT services company’s management also said they are confident the company will maintain its growth leadership in FY25.

Brokerages, however, have a mixed stance.

Morgan Stanley, meanwhile, expects HCLTech’s shares to surge 17% from the closing price of April 26, as it sees a slight beat on services revenue in Q4 results. However, it said that FY25 revenue growth guidance of 3-5% YoY CC for both consolidated and services business compares to its estimate of 5-7% YoY.

Kotak has cut its target price on the IT stock to ₹1,600, which still implies a potential upside of 8.5%. It believes the company reported a robust Q4 driven by mega-deal ramp-ups and growth in IT services even as EBIT margin was a “tad weaker.”

According to the brokerage, the firm missed growth guidance due to muted deal wins ex-Verizon and that there will be an anniversary impact of certain large deals in the first quarter of FY25.

The analyst is of the view that the firm faces near-term headwinds and has cut FY25-26 earnings per share (EPS) estimates by 3-4%.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow