Shares of HCL Tech, which became India’s third largest IT firm toppling Wipro, plunged on Friday afternoon, after the firm announced a margin guidance cut for FY20. HCL Tech share price slumped by more than 5% to hit the day’s low at Rs 1,074.45 on BSE. For the latest quarter, while HCL Tech reported robust earnings, the firm has announced a 100 basis point (bps) cut in the estimated operating margin (OM) for FY20. HCL Tech sees the margin at 18.50 – 19.50% in constant currency (CC) terms for the current financial year.
HCL Tech’s consolidated net profit came in 14.3% higher to Rs 2,550 crore for the quarter ended March 2019 as against Rs 2,230 crore in the corresponding period of the last year, the IT major said in an exchange filing. Taking stock of the reported results, global firm Credit Suisse said that the organic growth recovery continues to be marred by weaker margin outlook. The growth trends continue to recover with robust deal pipeline, the research firm observed. The new deal ramp up will to weigh on margin on first half of FY20. Credit Suisse has an outperform rating on the stock, with a target price of Rs 1,190. The cheap valuation would warrant a re-rating, noted the firm.
Deutsche Bank noted that the outlook is constructive but the management acknowledges macro risks. The revenue guidance of 14-16% includes an organic growth guidance of 7-9%, said Deutsche Bank. The global firm has a target price of Rs 1,190 on the stock with a buy rating. According to Macquarie, the organic growth guidance of 7-9% in FY20, from 6.5% earlier is a key highlight. The organic growth rate will pick up in FY20 on the back of large deal wins. Taking stock of the lowering of margin guidance, Macquarie said that it was due to closing the deal with IBM. Macquarie has a target price of Rs 1,380 on the shares with an outperform rating.
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