Two IT Sector Stocks Trading Near 52-Week High Declares Dividends; Should You Buy?

Rajesh
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After the recent positive financial performance of Tata Consultancy Services (TCS), a prominent IT company, which showcased improved margins, attrition rates, and order inflows during the April to June 2023 quarter, the Indian IT stock market experienced a surge in buying activity. HCL Technologies Ltd., a global IT company, also witnessed a significant increase in its share price during early trade on Thursday.

Dividend

Both TCS and HCL Tech have recently announced the declaration of interim dividends for the Financial year 2023-24. Here are the details:

1. Tata Consultancy Services (TCS):

On July 12, 2023, the Board of Directors of TCS declared an interim dividend of Rs 9 per Equity Share of Rs 1 each of the Company. The Record Date for the said Interim Dividend has been set as Thursday, July 20, 2023. TCS, the flagship company of the Tata Group in the IT sector, is a large-cap company with a market capitalization of Rs 12,75,289.18 Crore. Should You Buy? According to the analysis conducted by Motilal Oswal, given its size, strong order book, and exposure to long-duration orders and portfolio, TCS is well-positioned to withstand any potential weakening of the macro environment and benefit from the anticipated industry growth. With its dominant market leadership and exceptional execution, the company has consistently maintained industry-leading margins and demonstrated superior return ratios. "We maintain our positive stance on TCS. Our target price of INR3,790 implies a 25x FY25E EPS, offering a 16% upside potential. We reiterate our BUY rating," stated the brokerage.

Stock Outlook & Potential Upside: Based on Motilal Oswal's target price of Rs 3,790 per share, purchasing the stock at the current market price could yield up to 10% returns. Currently trading at Rs 353 per share on BSE, the stock has experienced a 3.36% increase from its previous close. The stock reached an intraday high of Rs 3455.15 per share and an intraday low of Rs 3352.05 per share.

The stock is currently trading 3.53% lower than its 52-week high of Rs 3575 per share, recorded on February 16, 2023. The 52-week low was observed on September 26, 2022, at Rs 2926 per share. Over the past week, the stock has delivered a positive return of 4.70%, and over the past month, a positive return of 7.08%. In the past year, it has provided a positive return of 16.12%, in the past 2 years, 8.35%, in the past 3 years, 60.34%, and in the past 5 years, an impressive 75.75% positive return.

2. HCL Technologies Ltd.:

On Wednesday, July 12, 2023, the Board of Directors of HCL Tech declared an Interim Dividend of Rs.10 per equity share of Rs.2 each of the Company for the Financial Year 2023-24. The Record Date for the dividend has been set as July 20, 2023. The payment date for the said interim dividend is scheduled for August 1, 2023, as per the exchange filing. HCL Tech is a leading global IT services company and is ranked among the top five Indian IT services companies in terms of revenues. The company currently has a market capitalization of Rs 3,10,470.42 Crore. It is classified as a large-cap IT company. Should You Buy? ICICI Securities commented, "HCLT missed our estimates on all fronts, including revenue, EBIT, and EPS. The reported soft order book (in contrast to strong growth at TCS). Although there was no cut in revenue guidance (68% YoY in CC terms for FY24) or EBIT margin (18-19%), this implies the potential for a significant pickup in earnings growth for HCLT. Despite the continued uncertain macro environment, particularly in sectors like banking, hi-tech, and telecom, achieving the lower end of its guidance for FY24 at 6% would still be considered a positive outcome. Currently, we anticipate 2.9%/4.1%/2.0% QoQ CC growth for HCL over Q2/Q3/Q4 FY24E, with an expected FY24E CC growth of 6% YoY and an EBIT margin of 18.2% (flat YoY). At this growth rate, HCLT would likely be the fastest-growing large-cap IT services company (except LTIMindtree) this year and should trade at a premium to its historical 10-year average of 15x. Improved RoE/RoCE metrics and an enhanced capital allocation framework with a higher dividend payout policy further support a premium valuation compared to its historical trading range."

ICICI Securities further added, "We have slightly reduced our FY24E EPS estimate by 1% due to the sharp 7% EPS miss in Q1FY24 compared to our estimate, but we have mostly maintained our EPS forecast for the coming years. We upgrade HCLT to BUY, setting a 12-month SoTP-based target price of Rs 1,275, indicating a potential upside of 15%. The significant growth expected in the December quarter due to strong seasonality in the software licensing business makes HCLT a compelling tactical and relative BUY in our coverage."

Potential Upside and Stock Outlook: 

With ICICI Securities setting a target price of Rs 1,275 per share, buying the stock at the current market price could result in gains of up to 12%. Currently trading at Rs 1,145.10 per share on BSE, the stock has risen by 3.24% from its previous close. The stock reached an intraday high of Rs 1,145.65 per share and an intraday low of Rs 1,110.55 per share. It is currently trading 5.03% below its 52-week high of Rs 1,202.70 per share, which was achieved on July 5, 2023. The stock's 52-week low was recorded on August 29, 2022, at Rs 875.65 per share.

In the past week, the stock has experienced a decline of 0.40%, while over the past month, it has seen an increase of 1.47%. Over a three-month period, it has risen by 7.52%. Looking at the performance over the past year, the stock has provided a positive return of 27.52%. Over a two-year period, it has delivered a return of 16.46%, and over three years and five years, it has yielded impressive returns of 95.06% and 134.02%, respectively.

Disclaimer: 

The stocks mentioned in this article have been selected based on brokerage reports from Motilal Oswal & ICICI Securities. The author is not liable for any losses incurred as a result of investment decisions based on this article. Tradingtalk.in advises users to consult certified experts before making any investment decisions.

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