TCS, HCL Tech, and Wipro, reported earnings for Q1FY24 this week; Which IT blue chip stock should investors buy now?
TCS, HCL Tech, Wipro Shares: Tata Consultancy Services (TCS), HCL Technologies, and Wipro, reported earnings for the quarter ended June 30, this week. Meanwhile, the June quarter numbers may be muted, but this trend is expected to reverse in the coming couple of quarters, analysts say.
The results were a mixed bag, and their guidance suggests a cautious outlook amid some signs of positivity for the near future. This situation may make it slightly challenging for investors to determine their strategy regarding these stocks.
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Overview of Q1 Results for TCS, HCL, and Wipro
Wipro
Wipro’s consolidated net profit for Q1FY24 rose by 12 per cent year-on-year (YoY) to Rs 2,870.1 crore. But sequentially it was down 6.65 per cent. Income from operations for the quarter stood at ₹22,831 crore, up 6 per cent YoY and down 1.5 per cent QoQ.
Wipro’s weak first quarter (Q1FY24) performance and September quarter (Q2FY24) guidance reaffirm its troubles with converting deal-wins into growth. The decline in Q1 and possibly Q2 translates into possibly the lowest growth among large-caps – might even report a decline in top line year-on-year (YoY), according to analysts.
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Shares of Wipro have fallen 3 per cent in the last one year, significantly underperforming the BSE IT index which has gained 9 per cent in the same period. Wipro shares hit their 52-week high of Rs 444.65 on August 17, 2022; they are down over 11 per cent from their one-year high level.
Motilal Oswal Financial Services has a ‘neutral’ view on Wipro with a target price of ₹380. The brokerage firm cut its FY24E/FY25E EPS by 3.5 per cent/4.9 per cent to factor in weaker FY24E growth due to a weak start in Q1FY24 and a higher share count.
“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 ₹380 implies 16 times FY25E EPS,” said Motilal Oswal.
TCS
Tata Consultancy Services (TCS), on the other hand, posted decent results for the first quarter of this fiscal FY24) — revenue of $7.2 billion in Q1FY24, flat QoQ in CC and a tad below analysts’ estimate of 0.3 percent CC.
Shares of TCS have gained over 12 per cent in the last one year. TCS hit their 52-week high of Rs 3,575 on February 16, 2023. As of July 13 close, they are about 7 per cent down from their one-year peak.
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With a limited upside from the current market levels and the stock lacking triggers for the upside, analysts at Axis Securities have maintained a ‘Hold’ rating on the counter.
Meanwhile, analysts at ICICI Securities have a ‘Buy’ recommendation on the stock, with a revised 12-month target price of Rs 3,780 implying a 16 percent potential upside from the current levels. Strong order booking momentum, large deal win announcements, macro recovery in key geographies like the US and EU, and release of pent-up demand in the coming quarters would help TCS get back to double-digit revenue growth in FY25E, the brokerage said.
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HCL Tech
HCL Technologies reported a weak Q1FY24 with revenue of $3.2 billion, down 1.3 percent QoQ in CC and 110 basis point below analysts’ estimate, but maintained its FY24E guidance both on growth and margin. Continued ramp-downs in Telecom and Technology verticals, mainly in ER&D (engineering research and development) (-5.2 percent QoQ in CC), led to the underperformance.
Shares of HCL Tech hit their 52-week high of Rs 1,202.70 on July 5, 2023, and they are down 8 per cent from their one-year high. In the last one year, shares of HCL Tech have risen about 21 per cent.
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Nuvama Wealth Management also maintained a buy call on 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 Rs 1,300 (earlier Rs 1,340). We retain ‘buy’ as valuation at 17 times FY25PE remains attractive,” said Nuvama.
