HCL Technologies share: HCL Tech market-cap tops Rs 5 trn for 1st time; stock up 50% from June low

The stock of the information technology (IT) company has bounced back 50 per cent from its June-month low of Rs 1,235 on the BSE.

Currently, a total of 10 listed companies, including two IT firms — Tata Consultancy Services (Rs 15.14 trillion) and Infosys (Rs 8.03 trillion) — have a market cap of over Rs 5 trillion.

HCL Technologies is a next-generation global technology firm that helps enterprises reimagine their businesses for the digital age. HCL Technologies offers an integrated portfolio of products and services through its three business units: IT and Business Services (ITBS), Engineering and R&D Services (ERS), and Products and Platforms (P&P).

Meanwhile, the board of directors of HCL Tech is scheduled to meet on Monday, October 14, 2024, to consider un-audited financial results of the company for the quarter ending September 30, 2024 (Q2FY25).

The board will also consider the payment of a third interim dividend for the financial year 2024-25 (FY25).

In three months post the April-June quarter (Q1FY25) earnings, HCL Tech shares have rallied 22 per cent, as against 2.1 per cent rise in the BSE Sensex.

HCL Tech would most likely outperform its peers on growth. Further, its free cash flow (FCF) metrics have meaningfully improved recently and are now comparable to both TCS and Infosys, said analysts at Motilal Oswal Financial Services (MOFSL). They believe its current performance warrants a multiple premium to Infosys.

The brokerage firm, in a recent stock update report, said that it believes HCL Tech’s go-to-market (GTM) strategy, which is a combination of IT Services, and Engineering Research and Development (ER&D) business offerings, gives HCL Tech an edge over its peers.

The brokerage firm said it has also witnessed signs of improvement in the demand environment in financial services. Thus, MOFSL reiterated its ‘Buy’ rating on HCL Tech stock with a revised target price of Rs 2,000 (based on 27x Sep’26E EPS).

As HCL Tech is coming off from weak last two quarters, analysts at BNP Paribas see the worst in terms of revenue growth to be behind the company.

“Over the last year, HCL Tech’s year-on-year (Y-o-Y) constant currency (CC) revenue growth outperformance has consistently expanded relative to its larger peers, helped by mega deal wins and swift revenue conversion. This also highlights the company’s solid execution and ability to win mega deals even in verticals where it has traditionally been weak, such as telecommunications,” BNP Paribas said.

HCL Tech has made a remarkable journey from being a predominantly infrastructure management company to a well-diversified IT services firm. We think HCLT’s diversified service capabilities are still underappreciated, especially its progress in cloud computing. HCL Tech’s FY25 revenue growth and margin guidance hinges on a strong H2FY25 performance. With Q1 weakness less than feared and assurance of return to growth from Q2, meeting FY25 guidance has started looking achievable. An attractive dividend yield (c4 per cent), solid execution track record, and strong digital capabilities make HCL Tech an attractive pick for the IT Services demand recovery, analysts said.

“As demand recovery gets underway, we see HCL Tech benefiting from its solid capabilities in digital technologies. Accordingly, we cut our weighted average cost of capital (WACC) by 50bp to reflect this superior execution and improving growth outlook of the company. Our WACC assumption for HCL Tech is now similar to that of Infosys and above that of TCS,” the brokerage firm said in its sector update report with a target price of Rs 2,000 per share.

HCL Tech FY24 Annual Report

According to the company’s annual report for FY24, the current economic landscape signals favorable market opportunities across industries for technology companies. Amidst cautious optimism, enterprises are focusing on strategic priorities, such as modernisation, cloud, engineering, FinOps, AI, GenAI, digital and sustainability, the company said in its FY24 annual report released on July 22.

While discretionary spending is yet to rebound, overall enterprise IT spending is expected to remain healthy, the company stated, while adding that large and mega deals are gaining traction as enterprises focus on cost optimization and vendor consolidation.

Moreover, the IT services market is projected to grow at 6.1 per cent globally over the next one year by industry analysts. Despite the potential impact of macro events on certain sectors and near-term uncertainties, the technology industry is poised for long-term growth, the company stated.

First Published: Oct 11 2024 | 10:38 AM IST