HCL Tech share hits 52-week low post Q1; should you buy, hold or sell?

Shares of HCL Technologies fell over 2% to hit a record low in intraday trade on Wednesday after IT major reported lower-than-expected earnings in April-June quarter of the financial year 2022-23 (Q1FY23). The IT heavyweight has posted a sequential drop in net profit, while revenue rose amid broad-based growth across verticals.

Reacting to Q1 results, HCL Technologies share price opened marginally lower for the fourth straight session at ₹925.1 as compared to the previous closing price of ₹928.05 on the BSE. Extending opening losses, the stock declined as much as 2.46% to touch a 52-week low of ₹905.2, weighed down by a surge in selling activities. On the volume front, 2.7 lakh shares changed hands over the counter against a two-week average volume of 1.57 lakh stocks, while market capitalisation dropped to ₹2.5 lakh crore.

The IT stock has fallen 34% in the past ten months, from its 52-week high of 1,377 on August 24, 2021, to a fresh 52-week low of ₹905.2 intraday today. It has lost 30% in the current calendar year 2022 and nearly 5% in the past one year. In the last one month, the stock has dipped more than 7%, while it tumbled nearly 8% in the past one week.

HCL Technologies on Tuesday reported a consolidated net profit of ₹3,283 crore for the first quarter ended June 30, 2022, down by 8.6% quarter-on-quarter (QoQ) as compared to ₹3,593 crore in the March quarter of 2022. On a year-on-year (YoY) basis, the Noida-headquartered company posted a 2.4% growth in consolidated net profit compared with ₹3,205 crore in the year-ago period.

The IT major’s consolidated revenue stood at ₹23,464 crore, up 16.9% YoY and 3.8% QoQ. The constant currency revenue growth stood at 2.7% qoq and 15.6% yoy in the Q1 of this fiscal. On the operating front, Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 1.7% to ₹4,975 crore during the quarter under review, compared with ₹5,062 crore in the corresponding period of the previous fiscal. EBITDA margin slipped to 21.2% from 25.3% during this period.

The company has announced an interim dividend of ₹10 per equity share of ₹2 each for fiscal 2023. The management of the company has retained its revenue guidance of 12-14% YoY constant currency for FY23 driven by a strong deal pipeline, deal win momentum, and no signs of slowdowns as of now. It mentioned that the deal pipeline is near record-high and is confident on bookings in Q2FY23.

The company also reported a big drop in headcount from a net addition of an average of around 9.6k per quarter in FY22 to just 2k in Q1FY23. This was despite high attrition at 23.8% (+190 bps QoQ), which indicates moderation in demand momentum ahead. The IT firm added 6K freshers during the quarter and plans to add 10K in Q2 and nearly 30k for full-year FY23.

Post Q1 results, domestic brokerage ICICI Securities has maintained “HOLD” rating on HCL Tech with a target price of ₹928. The agency has cautioned that weakness in rupee is upside risk to earning per share (EPS), while continued macro weakness possesses downside risk to valuation. Slowdown in revenue momentum will continue to restrict upside for stock, it added.

Analyst at HDFC Securities has given a “ADD” call to the stock, with a target price of ₹1,125, 21% upside from Tuesday’s closing price of ₹928. Time period given by analyst is one year.

Global brokerage Morgan Stanley is equal weight on the IT bluechip with a target price of Rs 1,300, while Credit Suisse has maintained its outperform rating but lowered its EPS estimates for FY23-25 by 8-14%.