IT major HCLTech’s (HCLT) shares surged to a 52-week high during the intra-day trade today after robust Q3 (October-December 2023) financial results. HCL's net profit for the said quarter surged to ₹4,350 crore, up 6.2% on a year-on-year basis, while its revenue came in at ₹28,446 crore, up 6.5% YoY.

Shares of the software & consulting firm opened a gap up and zoomed to one year at ₹1,617.65 on the BSE, up 37.1% from ₹1,016.45 touched on April 17, 2023. At the current share price of ₹1,581.90, HCLTech's m-cap stands at ₹4,29,274.68 crore.

The stock has surged 44.53% in the past year; 8.11% in the year 2024 so far; 36.97% in the past six months; 5.85% in the past month; and 8.24% in the past week alone.

Noida-based tech major says its EBIT margin in the quarter was 19.8%, an expansion of 126 bps QoQ, underscoring strong execution and cost efficiencies. The services revenue grew 3.1% QoQ in constant currency and crossed an annual run rate of $12 billion. HCLSoftware's revenue surged 5% year-on-year, with an annual recurring revenue of over $1 billion.

“HCLSoftware’s performance was another bright spot and we are excited about its strategic progress over the last year,” says C Vijayakumar, CEO & managing director, HCLTech.

Region-wise, HCLTech's revenues from Europe grew 5% QoQ (CC) and from Americas at 3.1% QoQ. Industry-wise, the vertical growth was led by telecom and media, followed by manufacturing, retail and CPG. The engineering and R&D services business (ERS) grew 8.7% QoQ, with a strong contribution from the company’s recent acquisition of ASAP, based in Europe.

In its guidance for the next quarter, HCLTech has given constant currency revenue guidance of 5%-5.5% for FY24 and retained its EBIT margin guidance of 18-19% for the fiscal year.

According to Prateek Aggarwal, chief financial officer, HCLTech, the tech major's services revenue crossed a significant milestone of $12 billion on a run rate basis in Q3 FY24.

In terms of attrition, the rate in Q3 moderated to 12.76% from 14.2% in Q2 FY24 and 21.7% YoY. The company added over 3,600 people in Q3, taking its total headcount to over 224,700 across 60 countries.

Brokerages on HCLTech Q3 result

YES Securities has maintained its 'add' recommendation on the stock after its "strong performance" for the quarter. The brokerage says the near-term demand from the US and Europe remains challenging but margins will get needed support after a dip in attrition and improving employee pyramid. "We estimate revenue CAGR of 12.5% over FY23‐26E with an average EBIT margin of 19.1%. We maintain our ADD rating on the stock, with a revised target price of ₹1,750/share at 21.0x on FY26E EPS."

HDFC Securities has also maintained its 'add' rating to the stock while revising the price target to ₹1,700 from ₹1,515 earlier. The brokerage says the key positives for HCLT include sustainable recovery in ER&D services; steady deal flow; uptick in fresher addition and positive headcount adds; and improvement in the recurring revenue profile of the software segment rendering stability; and margin upside. "We maintain ADD on HCLT with TP of INR 1,700 based on 22x FY26E," says the brokerage.

Motilal Oswal has reiterated its 'buy' rating on the stock, saying HCLT remains its "top pick" in the IT services coverage for 2024. "After the strong 3Q results and beat, we have raised our FY24-26E EPS (earning per share) by 3-4%. We reiterate our BUY rating with a TP (target price) of INR1,880, as we roll forward our P/E-based valuation to FY26 and assign a multiple of 24x."

Nirmal Bang says HCLTech delivered "great" even though its analysts expected "good" results. However, the brokerage maintains "sell" ratings on the stock on weakening service business margins. "We have tweaked EPS up for FY24-FY26 based on the 3QFY24 performance. We maintain a SELL on HCLT with TP of ₹1,245, which is based on a target PE multiple of 17x (15% discount to TCS, discount reduced from 25% due to the solid performance on revenue in FY24) on Dec’25 EPS.” The discount of 15% is due to weakening of margins in the services business and lower ROIC compared to the benchmark."

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