HCL Tech Share Price Soar 5% as Strong Q1 Earnings Prompt Brokerage Price Target Hikes

HCL Tech shares surged nearly 5% following the company's June quarter earnings, prompting several brokerages, including Nomura, Kotak Institutional Equities, and Citi Research, to increase their target prices for the stock.

These brokerages noted that HCL Tech's Q1FY25 results were stable and met expectations. They emphasized that continued deal wins and efficient execution are crucial for future growth.

As of 9:20 AM IST, HCL Tech share price had risen by 4.3%, trading at ₹1,627, positioning it as the top gainer in the Nifty 50 index. Despite this rise, the stock has only increased by 2.2% over the past six months, underperforming the Nifty 50, which has climbed over 11% during the same period.

Nomura, Kotak Institutional Equities, and Citi have adjusted their target prices for HCL Tech to ₹1,720, ₹1,650, and ₹1,545 respectively, citing the company's net profit beat as a significant factor. Nonetheless, Citi maintains a 'Neutral' rating due to a 3.5% quarter-on-quarter decline in the ER&D segment and a lower-than-expected total contract value (TCV) of $1.96 billion.

Jefferies holds a 'Hold' rating on HCL Tech, while JPMorgan continues to rate it as 'Neutral', pointing out that cautious remarks, signings, and guidance indicate persistent challenges for the company. Conversely, CLSA downgraded its rating on HCL Tech to 'Hold'.

HCL Tech announced its June quarter earnings on June 12 after market hours, reporting a 6.7% quarter-on-quarter increase in net profit to ₹4,257 crore. The net profit beat was significantly influenced by gains from the State Street JV's divestiture, as highlighted by multiple brokerages.

However, the company’s revenue decreased by 1.6% sequentially to ₹28,057 crore. This decline was attributed to the offshoring of a significant BFSI contract and productivity benefits passed on to large customers.

According to an average of 10 estimates compiled by Moneycontrol, the company's revenue was expected to drop by 1% quarter-on-quarter to ₹28,094 crore, with a projected net profit decrease of 3.7% quarter-on-quarter to ₹3,838 crore.

The EBIT margin for the June quarter was 17.1%, aligning closely with Moneycontrol's estimate of 17.2%.

Brokerages generally agree that HCL Tech's FY25 growth guidance of 3-5% in constant currency and margin guidance of 18-19% are achievable.