2700% Payout: HCL, TCS, Wipro's Rs 1-27/Share Dividends Payment Dates Nearing; Buy For 10-20% Upside Ahead

Three tech giants Tata Consultancy Services (TCS), HCL Technologies and Wipro have turned ex-dividend for their interim dividends in the range of Rs 1 to a whopping Rs 27 per share for FY24. The stocks turned ex-dividend between January 19 to January 24. Now, their dividend payout dates are nearing, with HCL being the first to pay this benefit to its shareholders. The majority of brokerages are optimistic about these stocks despite the sector's seasonally soft quarter.

1. TCS: (BUY, TP: Rs 4,200, Potential Upside: 10.3%)

TCS, which is India's largest IT company in terms of market share, turned ex-dividend on January 19. TCS is paying a third interim dividend of Rs 9 per share for investors for FY24 but also declared a special dividend of Rs 18 per share. In percentage terms, these dividend payouts were 900% and 1800% respectively. {image-dividend2600-1706290007.jpg www.goodreturns.in

Together, TCS is going to pay up to 2700% dividend amounting to Rs 27 per share.

The third and special dividend will be paid on Monday, February 5, 2024, to eligible equity shareholders of the company. These eligible shareholders are those whose names appear on the Register of Members of the Company or in the records of the Depositories as beneficial owners of the shares as of Friday, January 19, 2024, which is the Record Date fixed for the purpose.

Post Q3 results, in its research note, Sharekhan said, "Q3 earnings beat estimates in a seasonally soft quarter with revenues at $7,281 million up 1% q-o-q (up 1.7% y-o-y in constant currency), beating our revenues estimates of $7,224 million. Revenues grew 4% y-o-y to Rs 60,583 crore. Growth was led by Energy, Resources and Utilities (+11.8%), Manufacturing (+7.0%), and Life Sciences & Healthcare (+3.1%) vertical. EBIT margin improved ~75 bps q-o-q to 25% beating estimates by ~50 bps led by operational efficiencies and a reduction in sub-contractor expenses. Net Profit stood at Rs 11,735 crore, up 3.5% q-o-q/8.2% y-o-y. The company reported stable deal wins TCV of $8.1 billion up ~4% y-o-y. Book to bill ratio stood at 1.1x(down from 1.6x in Q2FY24). Deal wins were broad-based - North America TCV at $4.2 billion, BFSI TCV at $2.6 billion and Consumer Business TCV at $1.5 billion."

Further, the brokerage's note said, that despite a seasonally weak quarter, the company performance reflected resilience on revenue and order booking front driven by strong execution along with improvement in margins led by operational efficiencies. Management commentary remains stable and hopeful of recovery in FY25 on expectations of sector headwinds bottoming out.

Finally, Sharekhan's note said, "We believe the company with its strong domain capabilities, and contextual knowledge is well-positioned to grab cost optimisation and transformational opportunities as sector headwinds recede and see a strong pick-up in growth momentum. Hence, we maintain a Buy on TCS with an unchanged PT of Rs. 4,200. At CMP, the stock trades at 26.4x/23.3x FY25/26E EPS."

On BSE, as of January 24, TCS share price stood at Rs 3,808.20 apiece.

2. HCL Technologies: (BUY, TP: Rs 1,700-1,760, Potential Upside: Up to 13.5%)

The Shiv Nadar-backed HCL Tech also turned ex-dividend on January 19, for its interim dividend of 600% amounting to Rs 12 per share for FY24. This will also be HCL's 84th consecutive quarterly dividend payout.

The payment of the fourth interim dividend is January 31, 2024.

In its research note, Emkay Global said, "HCLT has narrowed its overall FY24 revenue growth guidance to 5-5.5% CC (5-6% earlier), implying 0.3-2.1% QoQ revenue growth in Q4; it retains its EBITM guidance at 18-19%. This points to 1.6-3.5% QoQ growth in services, with mgmt target of delivering near the upper end of its guidance. HCLT is not seeing any major uptick in discretionary spending in IT services, but some green shoots are visible in ER&D, along with resilient tech spending in cloud migration, SAP migration, core & data modernization, cyber security, automation, and advanced analytics. We tweak FY24-26E EPS by -1.2% to 0.6%, factoring in the Q3 performance and divestment of stake in its JV with State Street. We retain BUY and TP at Rs1,700, at 23x Dec-25E EPS."

Meanwhile, Geojit in its note said, "The management expects low discretionary spending further, which could keep margins in check. However, technology spending on cloud migration, Gen-AI, SAP, data modernization, cyber security, automation, and advanced analytics will remain resilient. This should further increase efficiency and improve customer experience thereby strengthening the order pipeline for future periods. Though HCL delivered a soft order pipeline in Q3FY24, we remain optimistic about improving margin on cost optimization. Hence, we upgraded our rating on the stock from HOLD to BUY, with a roll forward target price of Rs. 1,760 based on 23.5x FY26E adjusted EPS."

Currently, HCL's share price is at Rs 1,551 apiece on BSE.

3. Wipro: (BUY, TP: Rs 550, Potential Upside: 17%)

Azim Premji-backed Wipro was the last to turn ex-dividends in top IT large-caps. Wipro share price traded ex-dividend on January 24, for its interim dividend of Rs 1 per equity share/ADS. In percentage terms, the dividend payout is 50%. The payment of the interim dividend will be made on or before February 10, 2024.

According to JM Financial, Wipro's bane is turning into a boon. In its research report, JM said, "Wipro's 3QFY24 performance suggests inflexion. Revenues (-1.7% cc QoQ) came towards the upper end of the guided band, a first in past four quarters. Next quarter's guide is incrementally better (-1.5% to + 0.5%) after three-quarters of sequentially lower bands. CAPCO, its consulting business, saw double-digit booking growth. That, we believe, is the first quantitative sign of a rebound in discretionary spend. CAPCO's exposure to discretionary budget plagued WPRO's recent performance."

Further, JM's note said, "Now as the environment turns, that could lead to its rebound. 5x consulting-to-downstream services revenue equation could drive growth convergence with peers, validating WPRO's, and Thierry's, initial strategy. Moreover, WPRO's margin resilience means incremental revenues could percolate down, supporting earnings trajectory. Our FY24-26E EPS CAGR for WPRO is 16%, the highest among the top-4. PER, on the other hand, is the least. WPRO's PER discount to INFO has widened to 26%, vs. the year average discount of 19%. 4Q guided growth band for both have converged, which should narrow the valuation gap, in our view."

On the valuation, JM's note said, "We raise our target multiple for WPRO to 20x (from 18x). Changes to our EPS are limited. But our FY25/FY26E EPS are 3%/8% above Street's, implying upgrade potential. We retain BUY with a revised TP of INR 550 (from INR 500)."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.