INSUBCONTINENT EXCLUSIVE:
Authors: JordanNEW DELHI: Shares of HCL Technologies slumped nearly 8 per cent in Thursday's session, extending its slide to the second
session following IT major's less-than-expected fourth quarter results
The stock fell 7.74 per cent to hit a low of Rs 923.55 on BSE
Brokerages see limited downside ahead.
A pause in organic growth in recent quarters due to lackluster IMS (infrastructure management
services) is a concern for HCL Technologies
The IMS division accounted for 37.8 per cent of FY2018 revenues.
The firm has guided for a muted organic growth guidance of 4.25-6.25 per
cent in constant currency terms for FY19 compared with 6-9 per cent expectation.
The IT major expects its IMS business to pick up in H1FY19
on account of deal closures in the second half of FY18
But deal sizes are becoming smaller.
Nirmal Bang Institutional Equities said, "We feel value compression that we are seeing in traditional
business is a multi-year phenomenon and the recent uptick in industry growth is going to be modest, selective and unsustainable
Post Q4FY18, we have retained our 'accumulate' rating with March 2019 target price of Rs 1,041
Despite the disappointment in organic growth, we continue to value HCL at a target P/E of 15.3 times FY20E EPS."
Edelweiss Securities said
that the revenue guidance was much weaker than anticipated due to expected leakage from legacy services, although stable margin will enable
firm achieve 10.7 per cent PAT CAGR over FY18-20E
This brokerage has mainatained a ‘BUY’ rating with a target price of Rs 1,225 as reasonable valuation protects downside.
Although
organic revenue growth guidance in FY2019 remains below expectations, owing to the decline in India business and headwinds in renewal, we
see positive setups for organic revenue growth in FY2020E on account of anticipated turnaround in IMS division, healthy deal pipelines and
strong momentum in digital revenue, Sharekhan said.
"Further, successful inorganic strategy will keep the company in the top quadrant of
However, we restrict ourselves from any upward revision of target multiple, given slower organic revenue growth (similar to Infosys) in
FY2019 and aggressive capital allocation toward inorganic growth (IP investments)," the brokerage said.
This brokerage has a 'buy' rating on
the stock with a revised price target of Rs 1,120.
