India’s IT majors Tata Consultancy Services (TCS) and HCL Technologies have announced their first quarter (Q1 FY24) results, with both, as per analysts, showing resilience in navigating the challenging global macroeconomic headwinds and recessionary trends. While TCS has demonstrated strong performance in certain areas, HCL Tech showcases promising growth potential and notable developments.
TCS on Wednesday reported a 16.8 per cent jump in its consolidated net profit to Rs 11,074 crore for the June 2023 quarter. Its consolidated revenue increased nearly 13 per cent YoY to Rs 59,381 crore. HCL Technologies declared Rs 3,534 crore net profit in Q1 for the financial year 2023-24 along with an interim dividend of Rs 10 share. It announced a 7.6 per cent year-on-year increase in net profit for the first quarter which ended on June 30.
While shares of TCS were trading 2.76 per cent or Rs 89.90 higher at Rs 3,350 apiece on the BSE during the trade on Thursday, HCL Technologies was also trading up by 0.23 per cent or Rs 2.55 to Rs 1,112.60 on the BSE.
Siddharth Bhaisora, the investment advisor at Wright Research, said, “Both TCS and HCL Tech have shown resilience in navigating the challenging global macroeconomic headwinds and recessionary trends, but their recent performances display contrasting trends. TCS has shown solid performance, meeting and even slightly surpassing estimates despite some margin pressure. Its total contract value of $10.2 billion bodes well for future revenues, while the commitment to investing in emerging technologies indicates an ambitious growth strategy.”
He added that HCL Tech’s recent performance, on the other hand, shows some signs of struggle, with a decrease in net profit and EBITDA margins, and muted growth in what is usually a strong quarter for the sector. This suggests that the company is facing some challenges. However, the company’s CEO is expecting an improvement in other verticals, and the firm has retained its revenue growth and operating margin guidance for FY24.
What Do Q1 Results Mean For TCS, HCL Investors?
Girish Sodani, head (equity market) at Swastika Investmart Ltd, said, “Numbers and results are the same as expected because the IT sector slow down mostly in the first quarter as well as the growth in the international market. After analysing the Q1FY24 earnings and guidance of TCS and HCL Tech, it is recommended that investors consider buying HCL Tech stock due to its expansion and positive points. While TCS has demonstrated strong performance in certain areas, HCL Tech showcases promising growth potential and notable developments.”
He added that TCS reported an order book of 10.2 billion, reflecting a healthy pipeline of future projects. Additionally, its operating cashflows stood at 11,535 crores, indicating the company’s ability to generate substantial cash. TCS also declared a dividend of Rs 9 per share, providing an attractive return to investors.
On the other hand, HCL Tech missed the estimated numbers but exhibited positive aspects. Although its order book stood at $2 billion, the company showcased growth in key sectors. Financial services grew by 14.4 per cent, manufacturing by 16.5 per cent, and life science and healthcare by 13.4 per cent on a year-on-year basis, collectively contributing 60 per cent to HCL Tech’s growth.
“Considering HCL Tech’s expansion plans, strong financial performance, and growth in key sectors, it is advisable for investors to consider buying HCL Tech stock. However, it is essential for investors to conduct thorough research, consider their risk appetite, and evaluate their individual investment goals before making any investment decisions,” said Sodani.
Wright Research’s Siddharth Bhaisora said that given these performances, investors may want to hold onto or even increase their positions in TCS given its robust order book, and its focus on innovation and emergent technologies, which could potentially drive future growth.
“As for HCL Tech, it might be prudent for investors to exercise some caution in the near term, they should monitor the company’s performance over the next few quarters due to some signs of struggle. However, the management’s optimistic outlook and strategic emphasis on diverse verticals could bode well for the future, suggesting potential upside,” HCL Tech said.
Aamar Deo Singh, head (advisory) at Angel One, said TCS’ management predicted tech spending is going to remain strong but there is some softening in the pipeline in the near term.
Singh said TCS shares have corrected seven times out of 12 in the last quarters, and the company is currently trading sideways, with critical support found around the Rs 3,000 mark and resistance seen around the Rs 3,500 level.
“HCL Tech has been under selling pressure in recent days, with support identified around the Rs 1,000 mark and resistance anticipated around the Rs 1,160-1,170 zone. Investors are encouraged to trade with caution as IT equities, in general, may experience volatility in the coming days,” said Singh.
