HCL Tech slips after it sells 49% stake in its UK subsidiary

HCL Tech Share: HCL Tech shares started the trading session on Tuesday (November 5, 2023) on a lower note after the tech firm announced it would sell a 49 per cent stake in its UK subsidiary.
The shares were trading down by 1.74 per cent, or Rs 23.20, at Rs 1,313.50 each on BSE at 9:36 am.

In an announcement post market hours on Monday, HCL Tech said that it would sell its 49 per cent stake for USD 170 million, or Rs 1411 crore. 

HCL Tech said in a statement, HCL Investments UK Limited, ('HCL UK') a company incorporated in the UK and a step-down wholly owned subsidiary of the Company has entered into a Memorandum of Understanding with its Joint Venture (JV) partner, State Street International Holdings, a US corporation (State Street), pursuant to which HCL UK is entering into discussions to finalize modalities for State Street to exercise its right of Call Option in the JV and acquire HCL UK’s entire 49% equity stake in the JV that was formed in the year 2012 to provide business operations services.

What is HCL Tech deal all about?

• JV State Street will sell entire 49% stake in HCL Services
• HCL Tech UK will sell its entire 49% stake
• State Street exercised its call option under MoU
• Transaction expected to be completed by Q1FY25
• JV was started in 2012
• Deal Value: The deal at an enterprise value of Rs 1411 crore (USD 17 crore)

What brokerages say about reasons for HCL Tech decline

The company to see revenue of Rs 805 crore ($9.7 crore) or 0.8% decline, says Nomura

JP Morgan says State Street JV's in-sourcing may impact the company's growth. The brokerage also said that further de-rating is possible due to a weak growth situation.

Transaction transacted at affordable an valuation multiple of 1.8x EV/Sales (2.3x EV/Sales other BPO companies)
 

Brokerages' ratinngs and targets for HCL Tech

• JP Morgan maintains an underweight rating with a target of Rs 1,070
• Nomura maintains a neutral rating with target of Rs 1200
• Morgan Stanley maintains an overweight rating with a targetof Rs 1400