HCL Tech Q3 Results: Brokerages Raise Target Price As Profit Beats Estimates

Most analysts raised their target price for HCL Technologies Ltd. after the software services firm’s third-quarter profit beat estimates.

Net profit rose 14.6 percent sequentially to Rs 3,037 crore in the quarter ended December, according to the information technology company’s exchange filing.

The company also raised its revenue growth guidance to 16.5-17 percent in constant-currency terms for the financial year ending 2020. Margin guidance was also hiked to 19-19.5 percent from 18.5-19.5 percent earlier.

Here’s what brokerages had to say on HCL Tech’s third-quarter earnings:

Citi

• Raise target to Rs 685 from Rs 660; Maintain ‘Buy’.
• Revise earnings per share by 3-4 percent as performance is reasonable in sector context.
• Improvement in margins and strong cash conversion are key positives.
• Management commentary on pipeline and fourth-quarter outlook was positive.

Edelweiss

• Raise target to Rs 704 from Rs 694; Maintain ‘Buy’
• HCL’s organic growth outlook for FY20 beats most peers.
• Healthy margin performance should deliver excellent earnings growth.
• The company is well-placed to grow on a par with industry leaders over FY21.

Emkay

• Raise target to Rs 700 from Rs 675; Maintain ‘Buy’.
• HCL raised its FY20 guidance for the second time in a row.
• HCL remained optimistic about growth prospects, citing significant conversion.
• HCL remains lone ‘Buy-rated’ stock in our Tier-I universe.

Goldman Sachs

• Raise target to Rs 496 from Rs 493; Maintain ‘Sell’.
• Above expectations on margins; IMS and IBM growth risks remain.
• IMS business facing pricing pressure and seeing tepid growth.

• Significant investments may be required for product refresh in IBM business.

Kotak

• Raise target to Rs 650 from Rs 615; Maintain ‘Add’.
• Product-led outperformance while services business growth moderates.
• Increase EPS estimate by 3-6 percent on lower ETR and higher margin.
• HCL trades at inexpensive valuation of 14x FY2021E earnings and is attractive.

Macquarie

• Raise target to Rs 690 from Rs 670; Maintain Outperform.
• Guidance lifts for revenue and EBIT margin levels for FY20 reflect underlying business momentum.
• Strong deal pipeline and ramp-ups led to revenue guidance raise.
• Further improvement possible in margins.
• HCL Tech is our top large-cap pick in the Indian IT space.