HCL Tech surges on better than expected earnings, Wipro hits 52-week low on disappointing Q3 guidance

• HCL Tech’s shares surged a day after the company raised its earnings guidance for FY23 after a strong Q2 performance.
• On the other hand, Wipro’s shares hit a 52-week low and wiped out over ₹13,000 crore in investor wealth.
• Analysts called Wipro’s Q3 earnings guidance ‘disappointing’, and said it could report below industry average growth in FY23.

Dalal Street seems to be cheering HCL Tech’s performance in the September quarter, making it the top gainer on the Nifty50 index even as the markets remained in the red on weak global cues and surging inflation.

HCL Tech’s shares jumped nearly 3% as of 11 a.m., while Wipro was the top loser, shedding over 6% in the same time.

In terms of market cap, HCL Tech added a little over ₹11,000 crore in investor wealth, while Wipro’s market cap fell over ₹13,000 crore as its shares hit a 52-week low.

The declining fortunes of Wipro and the rise of HCL Tech has further widened the gap between the two IT companies. HCL Tech overtook Wipro earlier this year in terms of market capitalization, making it the third largest IT company in India.

The Nifty IT index was in the red, too, with a decline of 0.6%. Shares of TCS were down 0.6%, while Infosys, which will announce its earnings today, remained flat .

Yesterday, both HCL Tech and Wipro reported their Q2 FY23 earnings. HCL Tech beat analyst estimates with $3.1 billion in revenue, growing 3.8% sequentially in constant currency terms. Its margins and profit were also ahead of analyst estimates.

“HCL Tech’s 2Q results were ahead of estimates led by higher-than-expected revenues partly due to higher realizations,” said a report by Jefferies, stating that lower-than-expected amortizations also helped the company post a strong quarter.

This, in addition to deal wins in the first half of the year, has given the company confidence to raise its revenue guidance for FY23 by 50-150 basis points to 13.5-14.5% in constant currency terms.

Wipro’s Q3 guidance ‘disappointing’ say analysts

While Wipro’s Q2 earnings came in “soft” and in line with analyst expectations, what seems to have spooked the markets is the company’s Q3 FY23 earnings guidance.

In its earnings release, Wipro said it expects 0.5-2% sequential growth in its IT services business. Its commentary on the demand environment was cautious.

“Wipro reported a modest Q2 performance. The revenue growth and margins were both soft, but broadly in line with expectations. Q3 revenue growth guidance was disappointing,” said a report by Phillip Capital.

Analysts at Motilal Oswal also expressed their disappointment over Q3 guidance, and said they were ‘concerned’ due to the vulnerability in the consulting business.

Overall, the brokerages note that Wipro could be the weakest performer in the IT sector in FY23, expecting below industry average performance.


SEE ALSO:

HCL Tech’s net profit rises 6.3% sequentially, company increases FY23 revenue guidance

Wipro Q2 net profit rises 3.7% to ₹2,659 cr sequentially, but isn’t as optimistic about Q3

HCL Tech beats Wipro to become India’s third largest IT company