HCL Tech drops 1% after JPMorgan puts it on negative catalyst watch

HCL technologies traded 1 percent lower on Wednesday after foreign brokerage firm JPMorgan placed it on its negative catalyst watch ahead of the Q4FY23 earnings likely to be released on April 20.

The brokerage has cited high, near-term risks for the company and expects it to negatively surprise analysts. The brokerage remains cautious on the overall IT sector and sees downside risks to earnings and multiples from the weak fourth quarter prints and FY24 guidance.

Also Read: Q4FY23 preview: Indian IT services to see muted revenue growth due to global banking turmoil

“For Q4FY23, we expect HCL results to be the weakest in our coverage universe in terms of CC QoQ growth at just -1.9 percent due to weak seasonality at product and platform business,” says ICICI Securities which has a ‘hold’ rating on the company.

Stock broking firm Asian Market Securities also expects HCL Tech to show the weakest growth at 1.6 percent quarter-on-quarter (QoQ) decline in constant currency (CC) terms among its large-cap universe and also sees margin contraction of 130 bps QoQ due to steep decline in the higher margin P&P revenues.

It also prefers HCL Tech as one of the large-cap stocks under its coverage and believes it to be attractively priced at the current valuations of 16xFY25.

In Q3FY23, the company reported a 20 percent YoY growth in revenue at Rs 26,700 crore, sequentially it was up 8.2 percent. In CC terms, growth came at 5 percent QoQ and 13.1 percent YoY in Q3FY23. The company’s consolidated net profit stood at Rs 4,096 crore in Q3FY23, up by 19 percent YoY and 17 percent QoQ.

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HCL’ market capitalisation has declined around 8 percent in the last one year. It has, however, gained 14 percent in the last six months. As per Bloomberg Data, it currently has 26 ‘buy’, 16 ‘hold’ and four ‘sell’ tags at an average 12-month target price of Rs 1,172.27.

At 10.16am, the scrip was trading 0.11 percent higher on the NSE at Rs 1,099.40 with the benchmark Index Nifty IT trading 0.49 percent higher at 28,772.05 points.

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