HCL Tech stages a mixed Q2 show, trims FY24 revenue guidance; should you buy, sell or hold shares?

HCL Technologies—the country's third largest IT firm by market value—took centre stage on Dalal Street on Friday, a day after the Noida-based company reported a mixed set of results for the quarter ended September 30 and trimmed its revenue guidance for the full financial year despite strong deal wins. The HCL Tech stock gained by as much as Rs 42, or 3.4 per cent, to Rs 1,266 apiece in intraday deals before settling at Rs 1,255.3 apiece on BSE. 

The IT major missed analysts' estimates on the revenue front though its margin managed to exceed expectations.

HCL Tech Q2 results: A summary

After market hours on Thursday, HCL Technologies (HCLTECH) posted an 8.4 per cent sequential decline in consolidated net profit to Rs 3,832 crore over revenue growth of 1.4 per cent to Rs 26,672 crore for the second quarter of the current financial year. In dollar terms, its revenue increased 0.8 per cent on a quarter-on-quarter basis to $3,225 million, according to a regulatory filing.  

According to Zee Business research, the IT firm's quarterly net profit was pegged at Rs 3,800 crore, and revenue at Rs 27,000 crore or $3,255 million.

The company's revenue growth in constant currency terms came in at one per cent for the July-September period compared with the previous three months. The analysts had expected the growth rate at 2.2 per cent. 

The company registered Rs 4,919 crore in earnings before interest and taxes (EBIT) for the September quarter as against Rs 4,438 crore for the previous three months. Its margin—a key measure of profitability—improved by 150 bps sequentially to 18.4 per cent. Zee Business analysts had estimated HCL Technologies' EBIT at Rs 4,725 crore and margin at 17.5 per cent. 

EDITOR'S TAKE | HCL Tech Q2 results in line, margin better 

Zee Business Managing Editor Anil Singhvi sees support for HCL Technologies futures coming in at Rs 1,170-1,180 levels.

He expects a higher range for the futures in the Rs 1,230-1,255 zone. 

HCL Tech revenue guidance

The company's management brought down its revenue growth guidance in constant currency for the year ending March 2024 to 5-6 per cent from 6-8 per cent. It, however, maintained its EBIT guidance at 18-19 per cent for the fiscal year.

Deal wins at record high

HCL Tech registered new bookings of a record $4 billion during the quarter under review, driven by a mega deal. 

Here's what brokerages make of HCL Tech after the IT major's Q2 results announcement: 

Morgan Stanley maintained an 'overweight' call on HCL Tech after the release of the IT company's financial results, and reduced its price target for the stock by Rs 50 to Rs 1,400—suggesting upside potential of more than 14 per cent from Thursday's closing price. The brokerage pointed out that the cut in revenue guidance by HCL Tech, though a negative, was largely as anticipated. 

According to the brokerage, investors' key focus will now be on the ability of the IT company to deliver a better second half of the financial year. Morgan Stanley expects HCL Tech to fare better than its larger peers in terms of revenue and EBIT growth for the year ending March 2024. 

According to Citi, which maintained a 'neutral' rating on HCL Tech with a target of Rs 1,295, the IT company's performance was decent as the guidance cut was along the expected lines. 

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