Three of the biggest Indian IT companies, Tata Consultancy Services ( TCS), HCL Technologies along with Wipro have released its financial performance for quarter of April-June of the current year’s financial calendar year (Q1FY24). The results were mixed and their outlook suggests that they are cautious, despite indications of optimism for the near term. This may cause some difficulty for investors to decide on their approach to these stocks.
TCS Q1FY24 Results
TCSreported TCS reported 16.84 percent year-on-year (YoY) increase in its net profit for the consolidated period. However, on a quarter-on-quarter (QoQ) scale, TCS’ consolidated net profit fell 2.8 percent. The operating margin of the company decreased from 24.5 percent for Q4FY23 down to 23.2 percent in Q1FY24. That’s dropping 130 basis points. The margin grew only 0.1 percent year on one year.
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“Basis how we have started the fiscal year, it (a double-digit growth) appears a tall order,” TCS Chief Operating Officer N. Ganapathy Subramaniam stated at a press conference following the announcement of earnings.
HCL Tech Q1FY24 Results
HCL Technologies announced an 7.65 percent YoY increase in net profits for April-June at Rs 3,534 crore. In a QoQ perspective the company’s profits after tax (PAT) decreased by 11.27 percent.
HCL Tech retained its guidance of 6-8 percent constant growth in revenue from currency for FY24, with operating margin, or EBIT margin of 18-19 percent. Based on the FY24 guidelines the constant currency services revenue growth is anticipated to be in the range of 6.5-8.5 percent.
Wipro Q1FY24 Results
Wipro’s net profit in its consolidated division in Q1FY24 grew by 12 percent year-on -year (YoY) up to Rs2,870.1 crore. But, sequentially, it dropped 6.65 percent. The operating income during the quarter was 22,831 crore, which was an increase of 6 percent YoY, and lower by 1.5 percent QoQ.
Wipro anticipates that its revenues in its IT Services business unit to range between the between $2,722 and $2,805 million. This implies that Wipro expects its revenue to decrease by 2 percent or grow by 1 cent during its September-September quarter, in constant exchange rates. In constant currency, it does not include the fluctuations in exchange rates.
TCS Share Price
The shares of TCS have increased by over 12 percent in the past year. TCS has reached a 52-week high of Rs.3,575 on the 16th of February 2023. The close of July 13 TCS is about 7 percent lower than their all-time high of Rs3,575.
HCL Tech Share Price
HCL Tech shares HCL Tech hit their 52-week highest at Rs1,202.70 5 July 2023 and they’re down by 8 percent from their previous high of one year. Over the past year the shares of HCL Tech have risen about 21 percent.
Wipro Share Price
The shares of Wipro have plunged 3 percent over the last year, significantly lagging its BSE IT index which has increased by 9 percent in the same time frame. Wipro shares hit a 52-week peak of Rs444.65 on the 17th of August 2022. However, they have fallen more than 11 percent from their previous high of just one year ago.
Brokerage decision on TCS following Q1FY24 results
Motilal Oswal Financial Services has maintained a buy call on TCS stock, with the target price of Rs3,790.
“Given its size, order book and exposure to long-duration orders and portfolio, TCS is well-positioned to withstand the weakening macro environment and ride on the anticipated industry growth. Owing to its steadfast market leadership position and best-in-class execution, the company has been able to maintain its industry-leading margin and demonstrate superior return ratios,” said Motilal Oswal.
A brokerage company Nuvama Wealth Management also offered an option to buy the stock, with an estimated price of 4,400 rupees.
“Management talked about increasing near-term uncertainty, driven by weak global macros, leading to delayed decision-making – but the long-term demand environment remains strong. We make minor tweaks to our FY24E/25E EPS (-1.4 per cent/-1 per cent). We continue to value TCS at 27 times FY25E P/E leading to the target price of Rs4,000 (earlier Rs4,050),” Nuvama said. Nuvama.
Brokerage decision regarding HCL Tech after Q1FY24 results
A brokerage company Motilal Oswal maintained a buy call on HCL Tech stock with a the price target of Rs 1,280.
“Higher exposure to the cloud, which comprises a larger share of non-discretionary spending, offers better resilience to its portfolio in the current context, with higher demand for cloud, network, security, and digital workplace services,” Motilal Oswal added.
“Given its capabilities in the IMS and digital space, along with strategic partnerships and investments in the cloud, we expect HCL Tech to emerge stronger on the back of healthy demand for these services in the medium term. The stock is trading at nearly 16.5 times FY25E EPS, which offers a margin of safety,” said Motilal Oswal.
Nuvama Wealth Management also maintained the option of buying HCL Tech with a target price of Rs 1,300.
“HCL Tech management continues to see weak macro and an uncertain environment. We cut our FY24E/25E EPS estimates (-3.8 per cent/-2.6 per cent) on lower growth/margins assumptions. We continue to value HCL Tech at 20 times FY25E PE, yielding a target price of Rs1,300 (earlier Rs1,340). We retain ‘buy’ as valuation at 17 times FY25PE remains attractive,” Nuvama said. Nuvama.
A decision by the Brokerage Commission on Wipro following Q1FY24 results
Motilal Oswal Financial Services has an “neutral” view of Wipro with a price target of Rs380. The brokerage firm reduced its FY24E and FY25E EPS by 3.5 per cent/4.9 percent to account in slower growth for FY24E due to a poor start in Q1FY24 along with the higher number of shares.
“Given Wipro’s weak Q1FY24 earnings and muted Q2 guidance, we expect its FY24 organic growth to be one of the lowest among tier-1 IT Services peers, with a margin below the management’s medium-term guided range of 17-17.5 per cent,” said Motilal Oswal.
“We maintain our neutral rating as we await: (1) further evidence of the execution of Wipro’s refreshed strategy, and (2) a successful turnaround from its struggles over the last decade before turning more constructive on the stock. Our target price of Rs380 implies 16 times FY25E EPS,” said Motilal Oswal.