HCL Technologies, one of the leading IT services firms, saw a 2% decline in its share price following weak Q1 results. The company reported muted earnings for the quarter ended June 2023, falling short of Street estimates.
In Q1FY24, HCL Technologies’ consolidated net profit rose by 7.6% YoY to ₹3,534 crore. However, on a sequential basis, the net profit declined by 11.27% compared to the March quarter. Similarly, the consolidated revenue experienced a growth of 12.06% to ₹26,296 crore during the quarter, but it registered a 1.2% fall QoQ. The company’s dollar revenue stood at $3,200 million as compared to $3,235 million in the previous quarter.
Despite the disappointing results, HCL Technologies maintained its constant currency revenue growth guidance of 6-8% for FY24 and operating margin guidance at 18-19%. The company expressed confidence in its capabilities in the IMS and Digital space, along with strategic partnerships and investments in Cloud services, which are expected to drive healthy demand in the medium term.
Brokerage firms weighed in on HCL Technologies’ Q1 performance. JPMorgan maintained an ‘Underweight’ rating on the stock, citing missed estimates and discretionary tech spend cuts as the reason for negative surprises. Jefferies maintained a ‘Hold’ rating, highlighting unexpected revenue declines in both services and software segments. However, they noted that the company expects stronger deal wins in Q2 and is still on track to meet its guidance on CC growth and margin. Motilal Oswal, a domestic brokerage, reiterated a ‘Buy’ rating, emphasizing the company’s defensive business profile and its potential for stable earnings growth. Nuvama Institutional Equities acknowledged HCL Technologies’ weak Q1 performance but highlighted its strong growth in services and lower exposure to the troubled BFSI segment, which implies a high probability of stable earnings growth.
HCL Technologies’ shares have seen a significant rally of over 21% in the past year, with a 7% increase YTD. Despite a slight increase in share price during the trading hours, the company’s weak Q1 performance poses a challenge for meeting its FY24 guidance. However, it remains one of the fastest-growing large-cap IT services companies, thanks to its robust services growth and limited exposure to the BFSI segment.
In conclusion, while HCL Technologies’ Q1 results fell short of expectations, various brokerages still see potential in the company due to its strategic positioning, partnerships, and investments. Investors should carefully consider the views of analysts and their risk appetite before making decisions about buying, selling, or holding the stock.
