600% Dividend: 21% Rally Likely In Profit-Making HCL Tech As Brokerages Recommend Buy On Exceptional Q3

Shiv Nadar-backed profit-making IT giant, HCL Tech's share price is likely to rise to 21% due to its exceptional performance in third quarter of FY24 across parameters. HCL outperformed its peers TCS, Infosys, and Wipro in challenging uncertainties for the sector. HCL stock has a potential 21% upside with Motilal Oswal recommending buying for target price of Rs 1,880. Other brokerages like HCL too.

HCL Tech Interim Dividend:

Apart from the prospect of double-digit returns in the stock ahead, HCL is also going to reward shareholders with a fourth interim dividend payout to the tune of Rs 12 per share or 600%.

The tech player has declared a fourth interim dividend of 600% amounting to Rs 12 per share for FY24, which is HCL's 84th consecutive quarterly dividend payout.

Further, HCL fixed January 20, 2024, as the record date to determine eligible shareholders for the aforesaid interim dividend. On this day, HCL will also turn ex-dividend. The shareholders who will hold HCL Tech shares in their demat account by the end of January 20th will be eligible for the benefit. Meanwhile, the payment of the fourth interim dividend is on January 31, 2024.

So far, in the current fiscal, the company paid three interim dividends. The first interim dividend was 900% amounting to Rs 18 per share, followed by a second interim dividend of 500% aggregating to Rs 10 per share, and a third interim dividend of 600% valuing to Rs 12 per share.

Unlike its peers, in Q3FY24, HCL logged a consolidated net profit of Rs 4,350 crore, registering a growth of 13.51% QoQ and also up by 6.20% YoY. HCL's rupee revenue was at Rs 28,446 crore on a consolidated basis, rising by 6.65% QoQ and 6.54% YoY. In dollar terms, revenue stood at $3,415 million, up by 5.9% QoQ and 5.3% YoY. Meanwhile, constant currency revenue growth was at 6% QoQ and 4.3% YoY.

HCL Tech Share Price:

On Tuesday, HCL shares witnessed some selling pressure after a strong rally in the previous two trading sessions. On BSE, the stock has ended in red at Rs 1,555.20 apiece, down by 2.05% with a market cap of Rs 4,22,029.20 crore.

On January 15, HCL's share price touched a new 52-week high of Rs 1,617.65 apiece.

There is a buy-on-dips opportunity in HCL shares:

Here's what brokerages recommend for HCL Tech's share price and their new target:

Motilal Oswal On HCL Tech:

We were impressed by the strong beat on both Services and P&P from the company, despite various macro headwinds that have led to a decline in growth among key competitors. More importantly, the implied 4Q guidance for the Services vertical indicates that it will grow next quarter despite lower deal wins and a high base. This is in contrast with peers who have indicated a tough quarter led by macro challenges. In our view, this should help HCLT narrow the valuation gap with our coverage universe.

We forecast HCLT to deliver an FY24 USD CC revenue growth at the midpoint of its guidance, which should help it report a revenue CAGR of 9.8% over FY23-26. We project HCLT to deliver an FY24 margin near the mid-point of its guidance, and further improve it to 19.2% in FY26. This should lead to an INR PAT CAGR of 12.7% over FY23-26E.

The strong growth guidance and margin performance in a weak demand environment should boost investor confidence in HCLT's business and
reduce the valuation gap with larger Tier-1 peers. HCLT remains our top pick in the IT Services coverage for 2024.

After the strong 3Q results and beat, we have raised our FY24-26E EPS by 3-4%. We reiterate our BUY rating with a TP of INR1,880, as we roll forward our P/E-based valuation to FY26 and assign a multiple of 24x.

Kotak Institutional Equities On HCL Tech:

We broadly maintain FY2024-26 EPS estimates on the back of an increase in margin assumptions. We cut FY2025 revenue assumptions due to sluggish industry-wide discretionary spending. We raise FV to Rs1,650 (Rs1,600 earlier).

We are impressed with HCLT's execution. Multiple years of investments in digital have allowed HCLT to have a balanced portfolio of business and drive consistent growth. After a strong 44% increase in stock price in the past 12 months, returns will be moderate hereon. We maintain an ADD rating.

Antique Stock Broking On HCL:

CY23 was a strong year for HCLT as the company outperformed BSE IT significantly by 25% leading to a valuation gap reaching less than low single digits between Infosys and HCLT. Although we continue to remain constructive on HCLT but don't expect any meaningful outperformance to the BSE IT in CY24. We continue to value HCLT at a multiple of 22x FY26E EPS, which is similar to our valuation multiple of Infosys. We reiterate the BUY rating and our TP rises to Rs 1,650 in line with the EPS increase of 2%/ 4% for FY25/ 26 on the back of better-than-expected results and improved margins outlook.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor 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.