HCL Tech surges 4% on inking $2.1 billion deal with Verizon Communications

Shares of HCL Technologies surged 4.4 per cent to Rs 1,185.55 on the BSE in Friday’s intra-day trade after the company won a $2.1 billion contract from Verizon Communications to manage its networks for the business customers.

The partnership combines Verizon’s networking power, solutioning, and scale with HCLTech’s market leading Managed Service capabilities to usher in a new era of large-scale wireline service delivery for enterprise customers, these companies said in a news release.

Verizon Business will continue to lead all customer acquisition, sales, solutioning, and overall planning and development with its customers. HCL Tech will lead post-sale implementation and ongoing support. To execute the tightly coordinated balance of responsibilities at enterprise scale, a select group of Verizon Business Global Customer Operations staff will transition to HCL Tech, release said.

HCL Tech expects this deal to have a positive revenue impact over the next six years beginning in November 2023 with an estimated new total contract value of $ 2.1 billion over the term.

Meanwhile, shares of HCL Tech were trading close to its 52-week high of Rs 1,202.70 touched on July 5, 2023. However, in past six months, the stock has underperformed the market by gaining 6 per cent, as compared to 8.4 per cent rise in the S&P BSE Sensex.

HCL Tech had posted a weak June quarter (Q1) but maintained its FY24E guidance (both on growth and margin). The revenue miss was largely due to ER&D services and the Telecom & Media vertical which had an aggregate revenue impact of -1 per cent and -1.3 per cent QoQ due to cuts in discretionary spending.

HCL Tech’s growth acceleration in H2FY24 has to be fairly steep to meet the guidance and offset the headwinds in Q2 of soft Q1 bookings and full-quarter impact of the Telecom vertical (guidance implies CQGR of 2.8 to 4 per cnt over Q2-Q4FY24E), analysts at HDFC Securities said in result update.

Key positives from the commentary include deal pipeline at all-time high (18 per cent QoQ and 26 per cent YoY) and expectation of strong deal bookings in Q2 (USD 2bn+); bottoming-out of the Telecom vertical (8 per cent of revenue) and ER&D services (15 per cent of revenue); relative strength in BFSI, Manufacturing and Life-science & Healthcare verticals (on expected lines and largest deal in Q1 from healthcare vertical), the brokerage firm said.