HCL Tech Sheds 7% As Management Indicates Lower Growth in FY23; Should you Invest?

HCL Technologies Share Price: Shares of HCL Tech fell 7 per cent to Rs 1,028 on BSE on Friday after its management indicated FY23 growth to be at the lower end of the 13.5 per cent to 14.5 per cent band. It was the biggest loser among the 30 Sensex stocks. The stock which is the biggest index loser was quoting at Rs 1043.20, lower by 5.27 per cent on the National Stock Exchange at 9:30 am. Trading volumes at 3.1 million shares were higher than 20-day average volume of 2.6 million shares.

Chief executive officer C Vijayakumar at company’s investor day said: “In October, we had increased our guidance from 13.5 per cent to 14.5 per cent. We had certain assumptions which helped us to devise 16-17 per cent services growth. We had assumed certain furloughs. But we are seeing a bit higher. BFSI is the segment which is a little bit impacted by furloughs, followed by tech companies,” he said.

Analysts at Nirmal Bang Institutional Equities called this an industry-wide problem and not an HCL Tech-specific one.

“We get the sense that December 2022 and possibly March 2023 are likely going to be growth-challenged quarters for the industry; may be a bit more than earlier anticipated,” they said in a recent report.

HCL Tech management also foresees pricing pressures in FY24. The company hinted that price increases are more selective now than they were 2-3 quarters back. “We believe that instead of a typical budget flush, there is likely under-spending of budgets that could affect Dec 2022 quarter revenue,” added Nirmal Bang.

For the quarter ended September, HCL Tech’s net profit increased 7.05 per cent to Rs 3,489 crore from Rs 3,259 core reported a year ago. Revenue from operations stood at Rs 24,686 crore, clocking 19.5 per cent growth over Rs 20,655 crore last year, according to a stock exchange filing.

Infosys, Wipro, and Tech Mahindra shares also struggled today, down between 1 per cent and 3 per cent. IT stocks have seen a sharp correction this year on fears of demand slowdown for IT services amid global macro uncertainties. The Nifty IT index is down 22 per cent this year as compared to 7 per cent rise in the broader Nifty50 index.

In a recent note domestic brokerage Emkay said: “Q3 sequential revenue-growth performance is expected to be impacted by furloughs, lesser number of working days, softness in select pockets, and delay in decision-making due to macro uncertainties. Companies have highlighted the slower decision-making by clients amid macro uncertainties which would weigh on discretionary spending and large-deal closures. The technology budget cycle may be elongated this year, due to prevailing macro uncertainties. This may weigh on the Q4 revenue growth trajectory.”

Manoj Dalmia Founder and Director-Proficient Equities Limited, said: “Investors should wait and accumulate at lower prices at around Rs. 851 instead of purchasing now given the massive volume of selling.”

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