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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 growth among peers.
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.
