HCL Tech shares slump post Q3 results as margins disappoint.

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HCL Tech delivered an exceptionally strong revenue growth in 3QFY22, above our estimate, led by its troubled Products and Platforms vertical, which did exceptionally well despite benefitting from seasonality and deal spill over from 2QFY22. Its services verticals continued to clock strong growth and was ahead of our estimate.IT firm HCL Technologies Ltd on Friday reported a 13.6% fall in net profit to ₹3,442 crore for the December 2021 quarter and said it expects to see a strong deal pipeline on the back of a robust demand environment. Shares of HCL Tech tanked over 6% to ₹1,25 apiece on the BSE in Monday’s opening trade.

Given its deep capabilities in the IMS space and strategic partnerships, investments in Cloud, and Digital capabilities, the brokerage expects HCL to emerge stronger on the back of an expected increase in enterprise demand for these services,” the note stated. HCL recorded revenue growth at 7.6% sequentially in constant currency (cc), highest in the past 12 years. The Total contract value (TCV) of new deal wins was at $2,135 million in the third quarter, up 64% year-on-year.

Inexpensive valuations relative to the sector, strong TCV and headcount addition led Prabhudas Lilladher to maintain its Buy rating with ₹1,398 target price. The brokerage sees the IT Services and ER&D growth momentum to continue.

HCL Technologies maintained its revenue guidance of double-digit growth in constant currency (cc) for FY22. It has also declared a dividend of ₹10 per share for the third quarter.

“Margins are below pre-covid level with higher intensity of cost headwinds in the foreseeable future (e.g. attrition, travel etc.). Our estimates over FY22-24E remain largely unchanged. Maintain Reduce with target price of ₹1,150,” said ICICI Securities on HCL Tech.

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