How HCL Tech’s shares are likely to perform tomorrow after Q2 results

In Q2FY23, HCL Tech Posted consolidated net profit of 3,489 crore up 6% year-on-year, while revenue grew 19.5% year-on-year 24,686 crores. In constant currency, HCL Tech’s revenue growth came in at 15.8% year-on-year and 3.8% quarter-on-quarter. In dollar terms, HCL Tech’s revenue grew 10.4% year-on-year and 1.9% quarter-on-quarter to $3,082 million.

For the full fiscal 2013, HCL Tech expects services revenue to grow 16% to 17% annually in constant currency, while revenue guidance increased by 13.5% – 14.5% in constant currency. The EBIT margin guidance for the current fiscal has been revised to 18%-19%.

HCL Tech is among them Dividend King Stock and has a strong track record of paying dividends to its investors. HCL Tech on Wednesday announced the third interim dividend of Rs. 10 per equity share. The company has set October 20 as the record date for determining the eligible shareholders for the third interim dividend. While the company is planning to pay dividend by November 2. HCL Tech has declared total dividend so far in FY23 38 per share.

Shares of HCL Tech closed up 1.39 per cent on BSE 951.65 each. The market cap of the company is approx. 2,58,245.94 crores.

Should you invest in HCL Tech shares after Q2?

Stock brokerage Emkay Global Financial Services expects HCL Tech shares to react positively on the exchanges tomorrow. Among the key positives are broad-based growth, upward revision in revenue growth guidance, healthy deal intake (new deal TCV at $2.38 billion, 16% QoQ), and strong margin recovery. The company’s Q2 results beat estimates overall.

In its first cut note, Emkay said, “HCL reported revenue of $3.08 billion, up 1.9%/10.4% QoQ/YoY (CC 3.8%/15.8% QoQ/YoY), up from our estimate of $3.06 billion. (TCS Q2FY23 revenues were $6.88 billion, 4.1% CC QoQ; Wipro Q2FY23 IT services revenue was $2.8 billion, 4.1% CC QoQ. EBITM increased ~90bps QoQ to 17.9%, 60 bps from our expectations of 17.3% ( TCS IT Services EBITM grew ~90bps QoQ to 24%; Wipro IT Services EBITM grew ~10bps QoQ to 15.1%).

Further, Emkay’s note said, “Due to the all-round beat, profit at Rs 34.9 billion (6.3% QoQ, 6.9% YoY) exceeded our expectations of Rs 33.9 billion”, adding, “The TCV of the New Deal was $ 2,384 million, up 16% sequentially. HCL Technologies won 11 big deals – 8 in services and 3 in products.”

Further, Mitul Shah, Head of Research, Reliance Securities said, “HCLT reported a strong performance across parameters in 2QFY23, with EBIT margins at 17.9%, 65bps higher than our estimate of 17.3%.”

Shah said, “Revenue increased 2% QoQ/10% YoY in USD to $3,082 million, 0.7% higher than our estimate of $3,060 (consensus $2,966). Sequential constant currency growth at 3.8% versus our estimate of 2.8% I. EBIT grew 11% QoQ (up 12% YoY) to Rs 44.3 billion, while EBIT margin was 17.9% (92bps QoQ / down 116bps YoY), 65bps higher than our estimate of 17.3%. Its net income stood at Rs 34.9 billion (6% QoQ / up 7% YoY), while adjusted net margin came in at our estimate of 14.1% versus 13.8%.”

On valuation, Shah said, “HCLT reported strong results for the quarter with margins exceeding our expectations. Services business revenue (~89.8% of topline) grew 5.3% QoQ in constant currency and 18.9% year-on-year, which we expect to see.” We expect HCLT to report a healthy revenue, driven by consistent transformation deal wins, focus on ER&D services and growing share of Mode 2 business. Presently, we have Rs.1,000/- Hold recommendation is on the stock with a target price of 1 year, while upgradation and TP revision is on the cards.”