Shares of HCL Technologies jumped on Friday after the software exporter’s quarterly profit beat Street estimates. HCL Tech shares rose 3.2% to Rs 1,135 apiece on BSE, after Jefferies said the company forecasts growth of 12-14% for the year ending March 2023 are the main positive, although the brokerage lowered its earnings per share estimate for the stock.
On Thursday, after hours trading, the company reported a 4.4% sequential increase in net profit to Rs 3,593 crore.
Its revenue rose 1.2% in rupees on a quarterly basis and 0.5% in dollars, according to a regulatory filing.
HCL Tech CEO C Vijayakumar told CNBC-TV18 that the company expects product and platform business to be volatile going forward. It will take time to start seeing incremental growth in this strategic gamble, he said.
The company expects its services business to grow at a faster rate than the product unit at this time, he said.
HCL Tech has several margin optimization levers, CFO Prateek Aggarwal CNBC-TV18. He also said that attrition within the company is beginning to level off and is expected to decrease over the next several quarters.
Nomura maintained its “buy” rating on HCL Tech with a target price of Rs 1,370.
Jefferies retained a “buy” call on the stock but reduced its target price to Rs 1,360. According to the brokerage firm, the company’s earnings exceeded its estimates, but the fall in margin was disappointing .
However, he lowered his earnings per share (EPS) estimate for the company to 6-7% due to higher tax rates and margin expectations.
What analysts say
The good thing about the software sector is that FY23 visibility is great, Nirav Sheth, CEO of Emkay Global-Institutional Equities, told CNBC-TV18. However, he worries about what earnings will look like in the fiscal years ending in March 2024 and March 2025 if a recession were to occur.
“I still think IT is probably a place to hide. We love Infosys,” he said.
HCL Tech and Infosys are JM Financial Institutional Securities’ top picks in the Tier I tech space, IT sector research analyst Manik Taneja told CNBC-TV18.
“In the Tier II space, our preference has been with Mphasis and Persistent Systems for the past 18 months and it continues. Although valuations have also deteriorated for some other names and there may be some tactical trading these names,” he said.
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