Shares of HCL Technologies are poised for continued gains as analysts raise their earnings estimates for the company following its strong performance in the third quarter of fiscal year 2024. HCL Tech reported a 6.23 percent year-on-year growth in net profit at Rs 4,351 crore ($589 million) and a 6.54 percent year-on-year increase in consolidated revenue at Rs 28,446 crore ($3.86 billion) for the December quarter, surpassing expectations. This solid beat has led brokerages to revise their earnings projections for the company for fiscal years 2024 to 2026.
HCL Tech’s stock had already gained 4 percent ahead of the results announcement on January 12, driven by anticipation of strong results resulting from its ASAP acquisition and Verizon deal. Unlike other Indian IT services companies, HCL Tech performed well in the seasonally weak December quarter due to its strong products vertical.
Analysts at Motilal Oswal Financial Services noted that the growth in revenue was driven by a 34 percent sequential increase in HCL Software (products and platform). In light of these results, Motilal Oswal raised its earnings per share (EPS) estimates for fiscal years 2024 to 2026 by 3-4 percent and reiterated its BUY rating with a target price of Rs 1,880 ($25.47). Nuvama Institutional Equities also upgraded HCL Tech’s EPS estimates for fiscal years 2024 to 2026 by 0.6-2.7 percent and maintained its BUY rating with a revised target price of Rs 1,780 ($24.12).
The management of HCL Tech expressed aspirations to achieve and sustain a 20 percent margin trajectory in the long term. The company is betting on its GenAI initiative and has already signed 31 deals in this area, with most valued at under $1 million. While there has not been a significant uptick in discretionary spending yet, HCL Tech remains optimistic about the growth momentum in its engineering and research and development (ER&D) business. Cloud and analytics services also continue to perform well for the company.
Over the past year, HCL Tech’s stock has outperformed many of its larger peers, posting a gain of over 42 percent. The company has slightly reduced its revenue growth guidance for fiscal year 2024 from 5-6 percent year-on-year in constant currency terms to 5-5.5 percent but maintained its margin guidance of 18-19 percent.
In conclusion, HCL Technologies has exceeded expectations with its strong performance in the third quarter of fiscal year 2024. Analysts have responded by raising their earnings estimates for the company and expressing optimism about its future growth prospects. Investors are eagerly watching to see if HCL Tech can maintain its upward trajectory and sustain its competitive edge in the IT services industry.
