HCL Technologies share price rose two percent in early trade on April 22 a day after the company reported its March quarter earnings.
On April 21, HCL Technologies reported 226 percent year on year growth in consolidated profit after tax (PAT) at Rs 3,593 crore.
The adjusted profit after tax for the quarter grew 21.3 percent year on year. Sequentially, profit rose 4.4 percent.
The brokerage has kept a buy rating on the stock with a target price at Rs 1,370.
The product business dragged the performance while FY23 revenue guidance is reasonable but the margin disappoints.
Strong growth in services was offset by weakness in products & platforms. The margin miss was led again by products & platforms.
The deal wins were healthy and set the stage for strong growth in services business, CNBC-TV18 reported.
The research firm has maintained a buy rating on the stock but cut the target price to Rs 1,360.
While revenue beat estimates, a 110 basis point sequential fall in margin has disappointed. PAT beat estimates due to forex gains and lower tax rate.
FY23 growth guidance of 12-14% was the key positive which implies strong 14-16% growth in services business.
The broking firm has cut EPS (earnings per share) estimates to 6-7% on higher tax rates and margin guidance, CNBC-TV18 reported.
"We downgrade HCL Tech to ‘accumulate’ (from buy) as we cut DCF based target price to Rs 1169 (earlier Rs 1295) led by decline in margin profile, volatility in products & platforms revenue dragging down overall revenue growth, increase in risk free rate and moderation in terminal growth rate.
"We cut EPS estimates by 4/5% for FY23/24 led by cut in EBIT margin estimates by 50-70 basis points."
"The company’s strength in digital foundation and application modernisation, investments in building capabilities, strong deal intake, record hiring and leadership in the fast-growing ERD segment would help HCL Tech to accelerate its revenue growth in FY23.
"Margin is expected to remain under pressure given higher investments and wage inflation in developed markets.
"We maintain a buy on the stock with a revised price target of Rs 1,400."
"Higher exposure to cloud, which comprises a larger share of non-discretionary spend, offers better resilience to the firm's portfolio in the current context, with higher demand for cloud, network, security, and digital workplace services.
"Strong sequential growth within services, robust headcount addition, healthy deal wins, and a solid pipeline indicates an improved outlook.
"Given its deep capabilities in the IMS space and strategic partnerships, investments in cloud, and digital capabilities, we expect HCL Tech to emerge stronger on the back of an expected increase in enterprise demand for these services. We maintain our buy rating."
At 09:16 hrs HCL Tech was quoting at Rs 1,117.00, up Rs 17.40 or 1.58 percent on the BSE.