With a dividend of 500% HCL Tech to turn ex-dividend next week: Buy?

HCL Tech has said in a stock exchange filing that “The Board of Directors has declared an Interim Dividend of Rs.10/- per equity share of Rs.2/- each of the Company for the Financial Year 2022-23. The Record date of January 20, 2023, fixed for the payment of the aforesaid interim dividend has been confirmed by the Board of Directors. The Payment date of the said interim dividend shall be February 1, 2023.”

HCL Tech will trade ex-dividend next week on January 19th, 2023, per BSE, with a 500% dividend. HCL Tech announced excellent outcomes for Q3FY2023, with revenue growth, margin expansion, booking uptick, and workforce metrics all showing solid growth. A Fortune 500 financial services corporation headquartered in the US has also recently handed the organization a significant agreement for over $500 million.

Based on the impressive results of HCL Tech, the research analysts of the broking firm Sharekhan said in a note that “For Q3FY2023, HCL Tech’s revenue in constant currency was up 5% qoq and 13.1% yoy, beating our estimates of CC growth of 3.6 % qoq, led by the services business, which grew by 15.4% yoy in CC terms. EBIT margin improved by 165 bps to 19.6% in Q3FY2023, beating our estimates of 18.5%. Management has revised its FY2023 growth guidance to 13.5-14.0% with services growth guidance of 16.0-16.5% as Q4FY23 is expected to be weak due to seasonality in HCL Software, while IT Services should see better growth. HCL Tech has narrowed its EBIT margin guidance to the lower side at 18-18.5% from 18-19%. Deal wins were healthy with TCV Bookings at US$2,347 million, up 10% yoy; ACV was up 1.9% qoq. The company won 17 large deals, of which seven were in Services and 10 in Software verticals. The company has also won a major deal of over $500 million for a US-headquartered Fortune 500 financial services company.”

They further said that “With respect to geographies, Europe registered 7.2% sequential growth on CC basis, while North America grew 0.5% qoq on CC basis. In terms of industry verticals, on a CC basis, manufacturing grew 4.9% qoq and 21.8% yoy, while Financial Services and Retail & CPG witnessed a degrowth of 1.7% and 0.6% qoq respectively. HCL Tech’s attrition rate eased to 21.7% in Q3 from 23.8% in Q2. Management cited decision delay in Europe, but it stated that the deal pipeline in Europe is good. Increased vendor consolidation deals, strong pipeline of cost takeout deals, and favorable pricing should assist the company in facing macro challenges. Owing to multiple global headwinds, FY24E looks uncertain, and recovery could be gradual in the coming quarters. However, we believe the structural growth story for Indian IT sector remains intact. We maintain our Buy rating on HCL Tech with a revised PT of Rs. 1,205, given the strong deal pipeline and tailwinds due to cloud adoption and vendor consolidation. We advise investors to adopt a staggered approach from a long-term perspective.”

“Owing to multiple global headwinds, FY2024E outlook looks uncertain and recovery could be gradual in the coming quarters. However, we believe the structural growth story for the Indian IT sector remains intact. We maintain a Buy on HCL Tech with a revised PT of Rs. 1,205, given strong deal pipeline and tailwinds due to cloud adoption and vendor consolidation. We advise investors to adopt a staggered approach to invest from a long-term perspective,” claimed the research analysts of Sharekhan.

Motilal Oswal has given a buy rating for HCL Tech with a target price of INR1,270 (20x FY24E EPS). The brokerage has said that “Given its capabilities in the IMS and Digital space and strategic partnerships and investments in Cloud, we expect HCLT to emerge stronger on the back of an expected increase in enterprise demand for these services. The stock is trading at ~15x FY24E EPS, which offers a margin of safety. Our TP is based on 20x FY24E EPS. We reiterate our Buy rating.”

“The stock is trading at 17.8x/16.2x FY24E/FY25E EPS. Given its deep capabilities in the IMS space and strategic partnerships alongside continued investments in cloud/digital capabilities, we expect HCLT to emerge stronger on the back of rising demand from enterprises. Strong sequential growth within IT services, robust headcount addition, healthy deal wins and a solid pipeline indicate an improved outlook. We retain BUY and continue to value the stock at 18.7x FY25E EPS, translating to an unchanged TP of ₹1,240,” said the research analysts of BOB Capital Markets Ltd.

“Management expects revenue growth in Q4 to be weak QoQ due to seasonality in the software business. However, management remains confident about the medium-term growth outlook due to market share gain, strong deal intake, and deal pipeline. HCLT has narrowed its overall revenue growth guidance to 13.5-14.0% CC (earlier 13.5-14.5%) and EBITM guidance to 18.0-18.5% for FY23 (earlier 18-19%). HCLT has also narrowed down its services revenue growth guidance to 16.0-16.5% CC for FY23 (earlier 16-17%), implying 1.0-2.5% QoQ growth in Q4. We raise our earnings estimates by 1.4-1.8% for FY23E-25E, factoring in Q3 performance. We maintain BUY with a TP of Rs1,125/share at 17x Dec-24E EPS (earlier Rs1,100),” said the research analysts of Emkay Global.

On the NSE, the shares of HCL Technologies Ltd closed on Friday at ₹1,077.00 apiece level, up by 0.50% from the previous close of ₹1,071.65. The stock recorded a total volume of 8,253,765 shares compared to the 20-Day average volume of 2,467,887 shares.

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