The buyback price of HCL Technologies disappointed investors, dragging the share price down by 2% to Rs 984.85 on Friday. The companys board on Thursday approved a share buyback of up to Rs 4,000 crore at Rs 1,100 apiece, below market expectations of Rs 1,150-1,200 per share.
“HCLTs buyback price is at a 14% premium to its price preannouncement and is a tad lower than premiums in the recent buybacks in the sector. We expect the promoters to participate, keeping the acceptance ratio low at 2.6%,” said CLSA in a note.
The firm expects the proposed buyback to be completed by the third quarter of the current financial year and sees the companys earnings per share for the financial year 19-20 improve by1.1% and return on equity to expand by 360 basis points. CLSA has a buy rating on HCL Technologies with a target price of Rs 1,300.
Beyond the disappointment over the buyback price, analysts are positive on the stock . “IT majors are seeing more build-up in digital businesses. HCL Technologies first quarter result is likely to see traction on the BFSI side. I would advise using any decline to buy the stock,” said Sanjiv Bhasin, executive vice president-markets & corporate affairs at IIFL.
HCL Technologies shares are trading at 14.5 times one-year forwward earnings while TCS and Infosys are at 24.8 times and 18.5 times, respectively.
“The case for valuation uptick would depend on the positioning in digital and the financial performance, an upshift in dividend payout, and the consequent yield return and improved return ratios together bode well in keeping valuations buoyant,” said Motilal Oswal, which has a neutral rating and target price of Rs 1,040 on the stock.