Why HCL Tech Share Price is Falling

The Indian Information technology (IT) sector has not fared well during the recent sell-off.

In fact, IT stocks have been the biggest losers in 2022.

The Nasdaq Composite index, which consists of large tech stocks such as Amazon, Google, Tesla, and others, has slipped by 28%.

On the back of this decline, Indian IT stocks have also fallen. The BSE IT index has fallen 28% in 2022.

No IT stock has escaped the harsh sell-off in the sector.

HCL Tech, one of the IT giants, has also wiped away a quarter of its value and touched its 52-week low.

Here's what has caused the stock to fall recently.

#1 Weak margins persist

HCL Tech's revenue for the June quarter of 2022 rose 17% YoY (Year on Year) to Rs 234 bn from Rs 200 bn in the same quarter last year.

In dollar terms, revenue grew 11.2% YoY and 1.1% sequentially. The company also maintained its revenue guidance for the financial year 2023 at 12-14% growth.

Consequently, net profit went up by 2.4% YoY at Rs 32 bn.

However, margins were impacted due to higher employee costs (salary increases). The company's operating profit margin came in at 21.2%, down 1.7% YoY and down 1.5% sequentially.

This was below the expectations of market analysts which led to a fall in the stock post the June quarter results.

#2 High attrition rate

The attrition rate, commonly referred to as the churn rate, is the rate at which employees leave an organisation. It is determined by dividing the total number of departing employees by the average number of employees.

HCL Technologies attrition rate increased to 23.8% in the June 2022 quarter from 11.8% in the same quarter last year.

The IT major added 2,089 staff members between April and June 2022. The total headcount stood at 210,966 people as of 30 June 2022.

Most Indian IT firms reported an employee attrition rate of more than 20% for the financial year 2022. TCS, India's largest software services firm, reported 19.7% attrition in the June quarter while Wipro experienced attrition of 23.8%.

This higher attrition rate indicates that employees are leaving the organisation frequently, leading to labour scarcity and high employee-related expenses. This would in turn impact the profitability of the company.

How shares of HCL Technologies have performed recently

Post the result announcement, HCL Tech's share price fell by 3.6% to Rs 901. Over the last month, the stock is down by almost 6%.

Over the year, shares of the company are down by 9.9%.

The company touched its 52-week high of Rs 1,377.7 on 24 September 2021 and its 52-week low of Rs 877.3 on 15 July 2022.

Currently, the company is trading at a PE (Price to Earnings) multiple of 17.9 times. It is trading lower than its industry PE of 21.2 times, making it an undervalued stock.

About HCL Technologies

HCL Technologies is one of the fastest-growing IT services companies in the world.

The company offers IT and business services, engineering and R&D services and various products and platforms to its diversified client base across 46 countries.

It has laid down a blueprint for the growth of its digital business and divided its services into three modes to help its clients in their digital transformation.

To know more about HCL Technologies, check out HCL Tech's financial factsheet and its latest quarterly results.

You can also compare HCL Technologies with its peers:

HCL Technologies vs TCS

HCL Technologies vs Wipro

HCL Technologies vs Tech Mahindra

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